The Future of Work

• Author: Arun Sundararajan

The Future of Work Finance & Development, June 2017, Vol. 54, No. 2

Arun Sundararajan

The digital economy will sharply erode the traditional employer-employee relationship

For today’s youth, the future of work may be more uncertain than ever.

The confluence of two digital forces will dramatically reshape tomorrow’s workplace, leading to a sharp reduction in the traditional employer-employee relationship. New platforms allow economic activity to be organized in ways that shift much of what was traditionally accomplished by full-time workers within an organization to a crowd of individual entrepreneurs and on-demand workers. The result is an economy that increasingly relies on short-term freelance relationships rather than on full-time employment.

At the same time, artificial intelligence and robotics-

enabled technologies are getting increasingly better at the cognitive and physical tasks that comprise much of today’s work, presaging the automation of complex human activities like driving a vehicle or managing a project and disrupting a range of occupations that include law, consulting, retailing, and transportation.

Job changesThe confluence of these two factors leads to a labor market in which full-time jobs may be broken up into tasks and projects. This will make it easier to substitute capital in the form of automation technologies for human labor and talent, a trend that will be reinforced by the diminishing power of labor unions.

Society and government will have to keep pace with these changes in work arrangements. To avoid further increases in the income and wealth inequality that stem from the sustained concentration of capital over the past 50 years, we must aim for a future of crowd-based capitalism in which most of the workforce shifts from a full-time job as a talent or labor provider to running a business of one—in effect a microentrepreneur who owns a tiny slice of society’s capital.

As fewer people earn a living in the way now considered traditional and many, if not most, face changes several times during their careers, the emphasis of education must also shift (see “Education for Life,” in this issue of F&D). Instead of focusing primarily on two- or four-year postsecondary institutions that educate early in life, as we did in the 20th century, society must create robust educational institutions that help workers make midcareer transitions. Moreover, the largely employer-funded portion of the social safety net—which often includes medical insurance, paid vacation time, workplace insurance, retirement contributions, and predictable salaries that stabilize earnings—must be rethought in an era of greater individual entrepreneurship.

Several studies over the past two years have documented a rise in the nonemployment labor force: people who derive their primary or supplemental income from freelance arrangements. Estimates of the total number of such independent workers in the United States range from 40 million to 68 million (see Chart 1). The variation reflects different definitions and methods; nevertheless, both the high and low estimates demonstrate that independent workers represent a significant fraction of the country’s civilian labor force of 160 million people.

The tendency to pursue nonemployment work is more pronounced among younger people. For example, 40 percent of independent workers who make their primary income this way are millennials, compared with about a third of the overall civilian workforce, according to a survey by MBO Partners.

The emergence of numerous digital platforms that facilitate earning nonemployment income is likely to accelerate this trend. Many of these platforms commercialize personal assets by putting them to more productive use...