Online outsourcing and the future of work

business talk

The genesis for these exchanges emerges from the local “gig” economy. For example, the Independent Drivers Guild represents Uber drivers in New York and is one of many associations taking the lead in both advocating and providing new platforms for benefits. However, in regards to online outsourcing, remember that American workers who choose to participate in Upwork or AMT will be competing with foreign workers who are able to offer their services at rock bottom wages. Adding a comprehensive benefits package on top of the wage compensation paid to an American online worker makes the total cost of compensation even less competitive in the global market.

Benefit exchanges will lead to significant government action because it will require updating the current benefits paradigm and portions of the FLSA. The example from the Independent Driver’s Guild above suggests that markets can develop some of these exchanges on their own. Nonetheless, the government may have a role in coordinating among multiple approaches to create a single standard that works for all kinds of markets. When the government picks a standard, it is important that they implement a healthy dose of competition to ensure that the best standard emerges on its own. This is why an early stage of “creative destruction” of different kinds of exchanges may be necessary before one emerges as the leading candidate.

U.S. labor laws that mandate large benefit packages make American workers more expensive than foreign workers (Meadows 1993). This is true with the physical economy and even more so with the virtual economy. Prices are even more transparent online than, for example, behind the desk of an HR manager running the Ford plant in Detroit. This is another reason why Americans need to specialize in more cognitive skills. Just as manufacturing outsourcing led large sectors of the population across the nation to retool for information economy jobs, so too must these populations pivot towards high-skilled knowledge work. As this transformation occurs, American workers’ benefits will still be affordable to employers because of their high productivity.

 

Conclusion

There’s no question that we are living in the midst of a revolution in robotics and AI. Just take a look at the amount of equity and venture capital directed toward automated driving, self-piloting drones, household robots, and machines in manufacturing. This may lead one to believe that these robots will displace all humans from jobs, leading to mass unemployment and greater inequality.

History and economics suggest otherwise. Technology and humans historically have served as complements, not substitutes. They work together, rather than against each other. Nearly all the innovations in modern life—the transistor, gene mapping, aerospace, battery technology, social media, wireless networks, clean energy, and personalized drugs to name a few—make humans more productive, not less.

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Yet, a crucial point is missed by this narrative: the general equilibrium. Machines do not exist in a vacuum, they operate in an economy collectively with humans. Prices and wages will adjust to reflect the economy-wide levels of skill, preference, and technology. When Nissan builds an auto plant in Japan, it deploys teams of robots and requires only a few engineers to oversee the machines. However, when it builds a plant in India, it chooses far fewer machines and relies more heavily on local labor. India’s relative price of labor to capital is far below Japan’s, making humans more affordable for the company. We cannot ignore examples like this because they counter the simple narrative that it is always more efficient to deploy machines in every circumstance.

Some view these future changes as inevitable and believe trends in AI are outside of anyone’s control. However, just like the software that drives the new cadre of robots, the future can be designed, planned, engineered, and implemented. Entrepreneurs make choices, as do venture capitalists, governments, and civil society as a whole. We can choose to develop only machine technology and ignore human productivity, or we can think more holistically about the macro environment—the global mix of skill, education, demographics, and interconnectedness—to design a future that is better for all. This does not need to occur for reasons of equity and fairness, but for pure economic efficiency. The billions of people coming online in the next decade will be the economic transformation of our time. It is up to our society to use this as an opportunity to advance human potential and harness the most valuable asset in the world: human capital.

 

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