04 Sep. 2015 | Comments (0)
The prevailing paradigm of people working as full-time employees for a single organization has outlived its usefulness. It produces excess volatility over the business cycle, resulting in measurable economic costs — both to people and to the companies they work for.
Our vision is straightforward: most people will become independent contractors who have the flexibility to work part-time for several organizations at the same time, or do a series of short full-time gigs with different companies over the course of a year. Companies will maintain only a minimal full-time staff of executives, key managers, and professionals and bring in the rest of the required talent as needed in a targeted, flexible, and deliberate way.
There are two reasons such a flexible work system is now plausible. The first is societal values. Work-life balance and family-friendly scheduling are much more important to today’s workers, and companies are increasingly willing to accommodate them. The second is technology. Advances in the last five years have greatly improved the ease with which people can work and collaborate remotely and companies and contract workers can find each other. These include:
- The relative ubiquity of broadband connections
- Collaboration tools like Dropbox and Evernote
- Continued improvements to services like Skype and Google Hangouts.
- Software-driven marketplaces such as HourlyNerd, UpCounsel, and Behance that are facilitating the fast and accurate match of the supply and demand for high-quality, experienced talent
As a result, we expect to see America’s leading companies leveraging what Mark Cuban calls the “spot market for intellect” for an increasing share of their needs. This is already happening in some places. Many complex projects on HourlyNerd, for example, are posted, negotiated, and closed within 24 to 48 hours. Recent examples include projects at firms such as General Electric, Staples, and dozens of other Fortune 1000 enterprises that span functional areas from marketing to strategy to human resources to operations. Due to very low marginal costs of delivery, these services are available to even small and medium-size businesses.
The application in the white-collar market of the seasonal worker concept — longstanding in both retail and agriculture — has clear advantages over the prevailing full-time employee model. Workers, employers, and society stand to benefit tremendously from breaking the cycle of hiring people in boom times and releasing them fully during economic slowdowns or contractions.
Workers. Many more people who today would be laid off from full-time positions when a recession hit and then would be totally unemployed for some period of time will find it easier to remain at least 80% employed during a downturn. In addition, the burden of the following would be reduce or eliminated:
- The significant search and learning costs often required to land a new job.
- Higher out-of-pocket expenses that result when a family loses employer-provided, health care coverage.
- The increased difficulty of saving for retirement from continually changing benefits programs.
- Sudden increases in debt that often occur during unplanned periods of lost or reduced income.
- The unfair reputational costs that result from “resume gaps” due to unemployment.
Employers. For firms, the cost of locating, vetting, and onboarding full-time employees is very high: as much as 150% of annual salary for a management position, according to the Institute for Research on Labor and Employment at the University of California at Berkeley. Even assuming these costs are, say, 50% lower for lower-level positions, spending 75% of an employee’s annual salary just to hire her or him is extremely expensive.
Separately, the bureaucracy and approvals required to place a full-time job applicant within a Fortune 1000 can often take three to six months, meaning that companies may ramp up hiring too slowly to capitalize on commercial opportunities. In addition, hiring and firing are subject to the “bullwhip effect”: Due to a lack of information about the true state of the present and the future, companies constantly lag in expanding or shrinking their workforces during the course of the business cycle. By making adjustments easier, the flexible work system allows firms to adjust faster and more accurately.
Society. The need for —and therefore the cost of — safety-net benefits to help people who lose their jobs (e.g., unemployment benefits and Medicaid) would decline. What is more, a flexible work system would create economic opportunities for people ordinarily locked out of elite, white-collar jobs (e.g., primary child-care givers, students, and those caring for sick relatives). This will increase the overall size of the workforce and help create a broader, more diverse talent pool.
Introducing an intermediate-worker category between employees and independent contractors is the final missing puzzle piece to making this vision a reality. The United States should follow the lead of countries like Canada, Germany, and Spain that in creating a “third way” — a dependent contractor category that removes the rigidity of W-2 status and adds more clarity and structure to the relative Wild West of 1099. Fortunately, we’ve solved far more complex problems. As freelance work consumes an ever-increasing fraction of white-collar employment, the Internal Revenue Service and U.S. Department of Labor will have no choice but to act. Their action will be the keystone of a model that’s more attractive for all parties.
Flexible work is an idea whose time has come.
This blog first appeared on Harvard Business Review on 09/04/2015.
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