In the Future, Employees Won’t Exist

Market replacing firms. I like the way you phrased things. It's more precise than my current explanation. I don't have much to add other than I really liked your breakdown. We have an complex market, thanks for describing Coase's paper.

I like your hypothetical of Google contracting out its programming (maybe on oDesk?) instead of using in-house employees. I agree that that would be a major shift. Uber seems to be the go-to example in these kinds of articles, but is not very convincing as an example of a fundamental market shift, because the taxi market already operates similarly to how Uber operates. Taxi drivers are typically contractors, and companies like "Yellow Cab" just handle dispatch services and such in return for a cut [1]. So Uber vs. Yellow Cab is an example of a new market creator competing against an incumbent for the taxi-dispatch business.

[1] Example of a Yellow Cab "non-job" posting: http://www.yellowcabaustin.com/driver.aspx

I agree with your description [1]. However, I disagree with this:

> If Google contract out the development of blue sky ideas to small companies or individuals and that yields products like gmail, that would be a sign. So far though, it's in house or acquisition (a form of contracting?) for really important things.

Blue-sky research is the classic example of the sort of stuff that is particularly hard to build a market around, hence most such research is publicly financed (shielded within universities and government labs) or privately financed by huge, private pseudo-governments like IBM, Microsoft, Bell, etc.

The fact that venture capital has allowed the market to compete with firms for certain kinds of "short term blue-sky research" (i.e., research that is very high risk, although still relatively short time-to-payoff) is certainly a great development. But that doesn't mean we should expect other blue-sky research to be the first area where the technological suppression of transaction costs allows markets to displace firms. Rather, it seems to me that the conventional wisdom is still mostly correct, and we should expect work that is more easily measurable than research to be freed from big firms first.

See also economist Robin Hanson for arguments and data that typical firm size will increase in the future, technology not withstanding:

http://www.overcomingbias.com/2013/09/expect-bigger-orgs.htm...

[2] I wrote a similar comment once, doubtlessly channeling Coase: http://slatestarcodex.com/2014/09/24/book-review-red-plenty/...

Oh I really would have liked to have talked to Coase, on your reference I tracked down his paper on the nature of the firm [1] and thought it was excellent. His point is a bit more nuanced than why firms exist but more why is it that markets can self organize and firms do not.

The interesting thing is that historically it seems that part of the reason was all the non-firm stuff that was needed. So doing payroll, providing benefits, managing coverage when people went on vacation, but those things arose in a large part because of labor unions. So as labor union's influence has declined, so has the value of the "package" provided by a firm to the employee, and the value equation of contractor or employee can more easily swing back over to contractor.

That is just such an awesomly interesting thing to think about. Thanks for the reference.

[1] http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0335.1937....

Because information has value and is very difficult to protect.

Notice how all contractors are being shown NDAs as standard now. This is the replacement for employees having job security for keeping shut about the knowledge they have.

Now, sign an NDA and you secure the knowledge with legal threats and chilling effects. It works.

I like many of your suggestions, but the article itself is total BS. First, Uber drivers are replacing taxi drivers, who were never employees to begin with. So it's not a valid example. Second, the headline should read "As long as US sticks to current policies, the number of employees in the US will probably decrease".

This is happening because right now in the US, capital (large corporations, billionaires) controls the political process, and they've used it to massively jack up the size of the labor pool:

* Illegal immigration -> unskilled jobs.

* H1B & other visas -> skilled and semi-skilled jobs.

* Free trade with Asia -> manufacturing jobs.

* Outsourcing -> IT jobs.

* Normalizing 60-80 hour workweeks -> increases the labor pool by 1.5x - 2x.

Basically right now we have about 2-3 billion people competing for jobs in the US economy, which is sized for 320 million people. They (capital) want you to believe this is the "future", but in reality they just jacked up the labor pool by a huge amount.

Any worker who comes to the US leaves their home country, so the employment dynamic in those countries is quite different. And notice that the EU, whose economy is larger than the US, has avoided this dynamic.

I agree largely with what you say but advice point 2 is an obvious smell in today's working world. I'm taking that advice as "don't do anything that would prevent you from moving tomorrow". That includes having a spouse that is employed, having family, having property, etc. Being mobile shouldn't be a requirement for the average person. If you are striving to be top in your field, then mobility might be a requirement.

>The word employee should not even exist anymore, I prefer associate, as it is more truthful to the underlying relationship with the corporate entity.

Or maybe "wage slave"?

The next line is even worse - suggesting that rotational job placements are some funky new initiative from Google and Facebook and not something that big, boring public companies have done for a very long time, traditionally with the intention to finding out which department a talented graduate best fits with the idea of retaining them for the next few years. Though "work in our shiny new offices for three months and we'll give you lunch and a reference"-type graduate non-jobs seem to be much more widely advertised than they were back when I was actually looking for graduate roles...

Is the recent growth in contractors in the US really a byproduct of disruption via software, or is it a result of disruption by economic crisis convincing firms it's a good idea to keep some functions off the payroll until the economy picks up? I'd say the latter played a bigger role.

I mean, like the author I'm involved in a startup that's trying to build an infrastructure for self-employed professionals who would otherwise be employees of big companies, but you can take talking your book too far.

I actually pay for a form of contractor insurance that covers my loss of income if I get sick.

I suspect contractors will have to unionise to gain some form of leverage in insurance negotiations.

> Also (though this may only be relevant to Germany) health insurance for full-time contractors is private insurance with massively higher rates, instead of the "standard" insurance provided to employed people.

This isn't the case necessarily. The premium for private health insurance depends on your medical history and your age. If you're older and have chronic illnesses the premium generally will be a lot higher than say when you start out as a healthy 20-year-old. In that case you'll probably even save a lot compared to the compulsory health insurance for employees.

Besides, even if the premium for private health insurance in Germany often is higher than the corresponding premium for the state-run insurance the thing with the latter is that your employer has to pay the same amount, too. So, the actual premium for compulsory health insurance in Germany in fact is twice the amount mentioned on your payslip.

In the US you get paid more while not sick. So if you consume at "civilized country" levels while earning at US levels, you'll be fine.

It's a bad idea to force employers to take on large fixed-cost obligations when they purchase labor - this creates rigidities in the market and disincentivizes purchasing.

Long-term, these problems get solved in other ways. Whatever the system is in different places is the result of evolution & design. The role of individuals, companies and governments in dealing with things like sick pay, healthcare insurance, education and such varies a lot.

In poor countries and poorly functioning (or just poor) governments there is often a wealthy class that demands (and can afford) the sort of services usually provided (or regulated) by the state. Schools, health insurance.. In these places you will generally find pretty good alternatives to state run services payed for individually, by the company or some mix of the two.

We tend to think in terms of what we know. But, usually it's just a product of how the history of it unfolded and the economic structure of the country. How/good bad it is usually depends on "execution" rather than the macro structure (employe pays, government pays or individual pays). Those macro structures make a difference, but it is not like we have a clear and undisputed "best" way that works best everywhere.

For example, in a lot of western european countries (Germany, france) employers have a lot of responsibility to keep everyone employed and employable. This takes pressure off the social welfare system to a large extent.

There are a lot of downside to "employer takes care of things" whatever your ideological position is. I don't like the idea of employee-employer marriages too much. Feels off.

If this really is a major trend, I expect new "culture" will be built around it. Services, standards and common practices.

Canada here - Health insurance costs are inversely correlated with the number of people insured, so it sounds like we have a similar situation as you. My hunch is that this is an underlying principle of insurance - their risk is greater if only the unhealthiest people sign up.

One possible way to handle this is to decouple social insurance from employment, so companies can hire and fire at will and aren't required to provide social support, but the state directly provides income security and social support to its citizens, to smooth out the resulting fluctuations (essentially socializing some of the variance/risk produced by a flexible labor market). In Denmark this policy is broadly called "flexicurity": https://en.wikipedia.org/wiki/Flexicurity

I think in the medium term this is a more stable approach, since it brings in contract work within the aegis of the social-support system, rather than fighting a rearguard action to defend social support bundled into full-time employment, against contract work without social support.

>The biggest problem with the "contractor economy" is that there is no form of insurance when you are sick.

That's a feature, not a bug.

Or at least, it is for those who are doing everything to make this 'contractor economy/road to serfdom' a reality.

> For white-collar jobs, competition becomes insanely high, excluding such opportunities from non-Ivy League networks and/or considerably decreasing wages.

Most people don't consider this aspect of contracting. They are blinded by the pictured opportunities.

There definitely are remote W-2 employers out there that offer fully-paid health insurance, reimburse work-related expenses directly, and pay their FICA/payroll taxes.