7/4/16: Globalization and the Future of Work

As promised, my slides deck from Tuesday's CXC Global event on the Future of Work and Contingent Workforce

6/4/16: Apps, Contingent Workforce and U.S. Employment Trends

Here is an interesting chart from the WSJ on the scale of the apps platforms-related Gig-economy employment and the underlying trends in growth on other contingent workforce:

Yes, overall app platform employment is low, as I mentioned in my presentation at the CXC forum on the future of workforce in San Francisco yesterday, but...

The big 'but' here is that overall app platforms-related employment growth is most likely contributing to the weakening of the quality of contingent workforce (in terms of skills, value added and sustainability), not strengthening it, and thus requires more systemic supports and changes in this workforce management and enablement.

More on this later, so stay tuned.

14/1/16: Push or Pull: Entrepreneurship Among Older Households

Recently, I highlighted some of the potential problems relating to the less stable nature of the Gig Economy employment, including the longer-term pressures on life-cycle savings and pensions, as well as health care provision (you can see my discussion here: http://trueeconomics.blogspot.ie/2015/12/71215-cx-future-of-work-summit-dublin.html and my slides here: http://trueeconomics.blogspot.ie/2015/11/111115-gig-economy-challenge.html.

Mainstream economics has been lagging behind this trend, with little research on the long-term sustainability of the Gig Economy employment. Thus, it is quite heartening to see some related, albeit tangentially, research coming up.

One example is a very interesting study on entrepreneurship amongst the U.S. older households. Weller, Christian E. and Wenger, Jeffrey B. and Lichtenstein, Benyamin and Arcand, Carolyn, paper titled "Push or Pull: What Explains Growing Entrepreneurship Among Older Households?" (November 30, 2015: http://ssrn.com/abstract=2697091) does what it says: it looks at both push and pull factors for entrepreneurship and self-employment amongst older households.

Per authors (italics are mine): "Older households need to save more money for retirement, possibly by working longer. [Which is a pull factor for self-employment and  entrepreneurship]. But, the same labor market pressures that have made it harder for people to save, such as increasingly unstable labor markets, have also made it more difficult for people to work longer as wage and salary employees. [Which is a push factor toward self-employment and entrepreneurship].

Self-employment hence may have become an increasingly attractive alternative option for older households.

Entrepreneurship among older households has indeed grown faster than wage and salary employment, especially since the late 1990s.

But, this growth, rather than reflecting rising economic pressures, may have been the result of growing financial strengths – fewer financial constraints and more access to income diversification through capital income from rising wealth. Our empirical analysis finds little support for the hypothesis that growing economic pressures have contributed to increasing entrepreneurship. Instead, our results suggest that the growth of older entrepreneurship is coincident with increasing access to income diversification, especially from dividend and interest income. We also find some tentative evidence that access to Social Security and other annuity benefits increasingly correlate with self-employment. Greater access to interest and dividend income follows in part from more wealth and improved access to Social Security may reflect relatively strong labor market experience in the past."

This is an interesting result, because it is based on older households' access to:

1. Income from savings and wealth, including assets wealth; and
2. Income from retirement.

In the Gig Economy, both are likely to be compressed due to higher income volatility (and thus rising precautionary savings), tax incidences that impose liability with a lag (inducing higher income uncertainty), and lower earnings (due to lack of paid vacations, maternity/paternity and sick leave). In some cases, e.g. countries like Ireland, there is also an explicit income tax penalty for the self-employed (via both lower standard deductions and higher tax rates, such as those under the USC). All of which implies reduced access to income from retirement in the future, lower savings and wealth (including through inheritance). 

Subsequently, the current cohort of older entrepreneurs and self-employed may exhibit exactly the opposite drivers for their post-retirement employment choices than today's younger cohorts. And that matters because entrepreneurship and self-employment that start with push factors (e.g. necessity of life and constraints of the labour markets) is less successful than entrepreneurship and self-employment that start with pull factors.

7/12/15: CX Future of Work Summit: Dublin

Another excellent video from the CXC Corporate's "Future of Work" summit on the Gig Economy: https://vimeo.com/148042205.

You can see more on the event, including my slides here: http://trueeconomics.blogspot.ie/2015/11/111115-gig-economy-challenge.html

11/11/15: The Gig Economy: A Challenge

Last week, I spoke at CXC Corporate event “Globalization & The Future of Work Summit” in Dublin covering the topic of major economic disruption coming on foot of the evolving Gig Economy. I covered some of the background aspects of my presentation in an earlier blogpost here.

Here are my slides from the presentation (I will be posting a video link once it becomes available).

22/10/15: Gig Economy and Human Capital: Evidence from Entrepreneurship and Self-Employment

In a couple of weeks, I will be speaking about the role of human capital in the emergence of the new economy at the CXC Corporate event “Globalization & The Future of Work Summit” in Dublin.

Without preempting what I am going to say, here are some key points of interest.

Human capital-centric growth is overlapping, but distinct from the so-called “Gig Economy”, primarily because of the different definition of what constitutes two respective workforces.

Take, for example, the U.S. data. Based on research by the American Action Forum by Rinehart and Gitis (2015) we can define three types of the broadly-speaking “Gig Economy” workers: “For our most narrow measurement of gig workers (labeled Gig 1) we simply include independent contractors, consultants, and freelancers. Our middle measurement (Gig 2) includes all Gig 1 workers plus temp agency workers and on-call workers. Our broadest measurement (Gig 3) includes all Gig 2 workers plus contract company workers.”

The respective numbers engaged in three categories in 2014 range between 20.5 million and 29.7 million with growth rates over the recent years outpacing economy-wide jobs expansion rates across all categories of the Gig Economy workers.

Still, the key problem with identifying underlying trends in the development of the Gig Economy is the lack of data on specifics of occupational choices of the self-employed individuals and the relationship between these choices and human capital held by the Gig Economy participants relative to the traditional employees.

To see the indicators of links between the Gig Economy and human capital, we have to look at the more established literature concerning transition to entrepreneurship.

One interesting set of studies here comes from the Italian Survey of Household Income and Wealth (SHIW), a large biannual household survey conducted by the Banca d’Italia. A 2007 paper by Federici, Ferrante and Vistocco looked at the links between institutional structures, technological innovation and human capital in determining the propensity to transition from employment to entrepreneurship. Looking at the general literature on the subject, the authors state that “…institutions are more important than technology (i.e., technological specialization and/or industry composition) in fostering or restricting entrepreneurship and that the interactions between institutions and occupational choices may be complex and non linear”. The authors caution against directly linking self-employment rates with entrepreneurship rates, as “countries displaying the same self-employment rates, might be endowed with very different amounts and qualities of entrepreneurial skills devoted to innovation and business ventures (or, on the other hand, they might not)”.

To better pinpoint the link between entrepreneurship, self-employment and the institutional and technological drivers for risk taking, Federici, Ferrante and Vistocco augment the survey data with a set of variables describing the social and institutional environment in which self-employed and traditional workers are operating. Crucially, “in addition to standard indexes of economic and social infrastructure at the local level, [the authors] include a measure of creativity developed by Florida (2004).”

The conclusions are strong: “in Italy, both institutional and technological factors have shaped entrepreneurial opportunities requiring, tacit knowledge embedded in social networks and in the cultural background of families… Hence, well-educated people lacking privileged access to tacit knowledge and, in particular, an appropriate family background, could find themselves up against a considerable barrier to entrepreneurship and occupational mobility.” In simple terms, the Gig Economy-related value added can and should be considered within the context of family and cultural institutions as much as technological enablement environment.

As per traditional metrics of human capital, the study conclusions appear to be contradicting the core literature on entrepreneurship. “The evidence of the highly significant negative role of education in entrepreneurial selection is very strong in comparison with the majority of international studies showing that education has either a positive impact (Blanchflower, 1998) or a statistically non-significant effect on occupational choices”. In other words, formal education seems to be more conducive to employment choices in traditional environments (e.g. full time jobs),w it exception, perhaps, of professional skills-based activities.

The negative links between education and propensity to engage in entrepreneurial activity is, however, in line with other Italian study based on the same data, authored by Sabatini (2006).

However, U.S. data-based studies frequently find existence of a U-shaped relationship between income and propensity to transition to self-employment, with highest propensities concentrated around low income earners and high income earners, while lower propensities occurring for middle income earners. One recent example of this evidence is Moutray (2007). In so far as formal education is an instrument for income, especially for sub-populations excluding very high income earners, this suggests that the negative relationship between self-employment and education found in the case of Italy can be culturally conditioned and does not translate to other economies.

Another interesting aspect of transition to the ‘Gig Economy’ relating to the links between human capital and creativity or cultural institutions was uncovered by a 2011 paper by Mitra and Abubakar who looked at data from the Local Authority Districts of Thames Gateway South Essex (TGSE) in East of England. The study attempted “to explore and identify key determinants of business formation in Knowledge Intensive sectors (which include the creative industries) of regions outside the major metropolitan conurbations, and their possible differences with other Non-Intensive Sectors.”

The authors found that human capital is “positively correlated with new business entry in Knowledge intensive sectors”, but at the same time, it is “negatively correlated with new startups in non-knowledge intensive sectors”. Per authors: “This finding suggests that while entrepreneurship in knowledge based and creative industries requires highly skilled labour, in non knowledge based industries, low skilled labour is the primary determinant of new firm creation. Our findings also appear to suggest the need for higher skills/educated base in order to boost the growth of new businesses” in high knowledge-intensity sectors.

Werner and Moog (2009) use data from the German Socio-Economic Panel (SOEP) to map out significant linkages between entrepreneurial learning (and entrepreneurial human capital) and the probability of transition from traditional employment to self-employment. One interesting aspect of their findings is that learning-by-doing occurring (in their sample) during tenure of working for an SME has positive impact on ability to transition to entrepreneurship, confirming similar findings from other European countries. This also confirms findings that show that working for SMEs results in more frequent exits into self-employment and that such exits more frequently result in transition to full entrepreneurship than for self-employment entered from employment in larger firms.

The learning-by-doing effect of pre-transition experience for starting entrepreneurs and self-employed is also confirmed by the UK study by Panos, Pouliakas and Zangelidis (2011) who looked at the self-employment transition dynamics for individuals with dual job-holding and the links between this transition and human capital and occupational choice between primary and secondary jobs. The study used a wide (1991-2005) sample of UK employees from the British Household Panel Survey (BHPS). The authors investigated, sequentially, “first, the determinants of multiple job-holding, second, the factors affecting the occupational choice of a secondary job, third, the relationship between multiple-job holding and job mobility and, lastly, the spillover effects of multiple job-holding on occupational mobility between primary jobs.” The findings indicate that “dual job-holding may facilitate job transition, as it may act as a stepping-stone towards new primary jobs, particularly self-employment.” An interesting aspect of the study is that whilst the major effects are present in the lower skilled distribution of occupations, there is also a significant and positive effect of dual-jobs holding on transition to self-employment for professional (highly skilled) grade of workers.

Finally, there is a very interesting demographic dimension to transition to self-employment, explored to some extent in the U.S. data by Zhang (2008). The paper focused on the topic of elderly entrepreneurship. The author conjectures that in modern (ageing) demographic setting, “the “knowledge economy” could elevate the value of elderly human capital as the “knowledge economy” is less physically demanding and more human-capital- and knowledge-based.” Zhang (2008) largely finds that professional, skills-based self-employment and entrepreneurship amongst the older generations of workers can act as an important force in reducing adverse impact of ageing on modern economies.


The common thread connecting the above studies and indeed the rest of the vast literature on entrepreneurship, self-employment and transition from traditional employment to more projects-based or client-focused forms of engagement in the labour markets is increasingly shifting toward the first type of the ‘Gig Economy’ engagement. This typology of the ‘Gig Economy’ is becoming more human capital and skills-intensive and is better aligned with the ‘knowledge economy’ and the ‘creative economy’ than ever before. In simple terms, therefore, the ‘Gig Economy’ not only reaches deeper than the traditional view of the shared services (Uber et al) growth trends suggest.

While both increasing in importance and broadening the set of opportunities for economic development, the modern ‘Gig Economy’ is presenting significant challenges to social, cultural and policy norms that require swift addressing. These challenges are broadly linked to the need to Create, Attract, Retain and Enable key human capital necessary to sustain long term development and growth of the ‘Gig Economy’.

With that, tune in to my talk at the CXC Corporate event “Globalization & The Future of Work Summit” (link: http://cxccorporateservices.com/cxc-future-of-work/) in few weeks time for the details as to what should be done to put global ‘Gig Economy’ onto the sustainable development and growth track.


Sources:

Will Rinehart, Ben Gitis, “Independent Contractors and the Emerging Gig Economy” July 29, 2015,

Federici, Daniela and Ferrante, Francesco and Vistocco, Domenico, "On the Sources of Entrepreneurial Talent in Italy: Tacit vs. Codified Knowledge" (July 24, 2007)

Sabatini, Fabio, "Educational Qualification, Work Status and Entrepreneurship in Italy: An Exploratory Analysis" (June 2006). FEEM Working Paper No. 87.2006

Velamuri, S. Ramakrishna and Venkataraman, S., "An Empirical Study of the Transition from Paid Work to Self-Employment". Journal of Entrepreneurial Finance and Business Ventures, Vol. 10, No. 1, pp. 1-16, August 2005

Moutray, Chad M., "Educational Attainment and Other Characteristics of the Self-Employed: An Examination Using Data from the Panel Study of Income Dynamics" (December 11, 2007). Hudson Institute Research Paper No. 07-06.

Mitra, Jay and Abubakar, Yazid, "Entrepreneurial Growth and Labour Market Dynamics: Spatial Factors in the Consideration of Relevant Skills and Firm Growth in the Creative, Knowledge-Based Industries" (August 23, 2011). University of Essex CER Working Paper No. 1.

Werner, Arndt and Moog, Petra M., "Why Do Employees Leave Their Jobs for Self-Employment? – The Impact of Entrepreneurial Working Conditions in Small Firms" (November 1, 2009).

Panos, Georgios A. and Pouliakas, Konstantinos and Zangelidis, Alexandros, "Multiple Job Holding as a Strategy for Skills Diversification and Labour Market Mobility" (August 23, 2011). University of Essex CER Working Paper No. 4.

Zhang, Ting, "Elderly Entrepreneurship in an Aging U.S. Economy: It's Never Too Late" (September 8, 2008). Series on Economic Development and Growth, Vol. 2.