Glamorizing the Gig Economy

Recent survey on gig economy (Survey finds how gig jobs could turn into a trap for over half of workers) highlights the facts that many have suspected all along.

The trend towards hiring shorter term workers has gathered strength over several decades. In India too, the contract employment structures have sought to maintain flexible workforces and a variable cost structure. Question is, how far should these trends go before they start creating negative effects for everyone involved?

The workers

While the promise of the gig economy is flexibility and it seemingly creates jobs where none existed earlier, the logic doesn’t usually translate fully in real life. No wonder that in developed economies, it has added to the ways to have a flexible workforce with no liabilities attached - healthcare or benefits or income protection.

Equally important is the fact that the first job plays an important role in long term success of an employee. Having a good manager who is invested in your success, some formal training and mentoring and basic regard to your wellbeing are critical elements you would want to have in your first job. In the gig scenario, your employer and manager have no incentive to invest in you. Your interactions may last a few fleeting moments if you get to interact with someone senior at all. If this is your first job, you are truly at the short end of this stick. It is ok if you are doing as a side hustle just to earn a few extra bucks in your free time. But what if this is your only job and you have to do it for a few years? In all likelihood, you will exit your first job, the most important one in your career, not having learnt much and having earned only a paycheck at best.

The economy

This arrangement is good for jobs that are truly temporary. What about the case where more permanent work is also pushed into the gig system?

Long term growth rates in an economy are linked to just a few factors - working population growth and productivity being two key ones. More importantly, real wage growth in the long run is intrinsically linked to productivity growth in the workforce. Technology is an important source of increased productivity, which is powering the gig economy to a great extent. But the other major source of productivity improvement -- people learning on the job and upgrading their skills and output -- is unfortunately given a short shrift. Also, consider the fact that potential productivity and income gains are the highest in early part of a person's career. At the economy level, the trend runs the risk of creating a large section of workforce whose skills might get frozen in time. The resulting lack of productivity improvement can put a hard constraint on economic and income growth.

The employers

Globally, BPO and KPO industries have been the flagbearers of managing their cost base through temporary workers, being happy with high attrition and keeping entry level salaries low -- a practice euphemistically name 'pyramid management'. Pushing out jobs to gig based systems is the next logical step.

Again, if the nature of work is not truly temporary, I am not sure it does any good to the employers. I got a first-hand experience of this phenomenon when, three years ago, I spent time with the telesales organization of a company. Discussions with the sales head on lead conversion were eye-opening. It turned out that 3rd and 4th year associates were converting leads at an average of 2.5 times higher than the 1st year associates. This effect was associated with tenure with the company, not with overall experience. This was logical, when you are selling a complex product, experience with your product is more important than overall experience.

The problem lay in the fact that the company was looking at it from a cost angle. On a per sale basis, the 1st year associates were turning out to be cheaper once sales incentives were added. There was no push to hold on to the experienced people as a result. In my meeting with the CEO, I argued that if you are chasing viable leads, the conversion rate of your sales team sets the cap on your market share. If your sales team is never going to convert more than 10% of the leads that they chase, you cannot have 20% market share. Credit goes to the CEO for immediately recognizing the problem and fixing it. A pre-qualification routine got added where less experienced people would focus on weeding out worthless leads, whereas viable leads would be passed on to more experienced people -- a short term fix to optimize time of experienced people. A training program was instituted so that the most experienced team members could mentor and train newer folks -- they also needed to go up the experience curve.

But such examples are rare. Usually, in the rush to cut costs, organizations don't even pause in face of rational counterarguments. There is no real consequence if everyone in the industry is following the same approach. When in Rome...