Shift Commission Candid Conversations: McKinsey Global Institute on the gig economy and “rising discontent”

Susan Lund is a partner with the McKinsey Global Institute, where she conducts economic research on financial markets, labor markets, and the global growth outlook. Their most recent study looks at automation and jobs. She holds a PHD from Stanford University and has recently concentrated on exploring the impact of independent work and the gig economy, globalization, and how digital technology is transforming labor.

In the interview that follows she talks about how the biggest change that the labor market is dealing with does not stem from automation, but rather comes from the new casual work formats espoused by modern companies like TaskRabbit, Uber, and others. These present people with a wealth of opportunities to gain employment, but also provoke concern among workers in traditional roles who worry about the loss of security and stability that is bound up in these types of roles.

Now, things are coming to a head and there is an atmosphere of “rising discontent”, she says, which should provoke a policy response.

Listen to the podcast here.

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Jack: Why don’t we start by you telling me who you are, and why you’ve decided to participate in the Shift Commission on Work, Workers and Technology?

Susan: I’m Susan Lund, a partner with the McKinsey Global Institute. We’re the economics research arm of the global consulting firm. We’ve been looking at the world of work and how it’s been evolving in terms of technology, and in terms of how people work, how they think about careers and jobs, and some of the tensions in the labor market. The Shift Commission is completely aligned with this, and it’ll be interesting to see how we can put the research findings on what’s happening into concrete recommendations on how to cope with this change.

Jack: We’ve had this conversation for many years about how technology is influencing work, and how it’s changing the contract between employer and workers for decades. Do you think this time is different?

Susan: I think this time is different, but probably not for the reasons you think. I think that technology has two different impacts on jobs. There’s the automation of jobs, which has been going on for 25 years. Now you’re with OpenAI, so you know we have machine learning and artificial intelligence, so even knowledge jobs, white collar jobs like lawyers and doctors, and economists like myself, are wondering ‘can our jobs be automated too?’ In a way, that’s not different. That’s just a continuation of a trend that began 100 years ago, with the creation of assembly lines and factories. What is different though is how technology is bringing transparency to the labor market, and enabling different ways of working. It could be anything from Indeed.com, or LinkedIn, where people go to post their resumes and look for traditional jobs with employers, or it could be Uber and Etsy, and TaskRabbit, UpWork, platforms where people go to look for contract work. These platforms are creating a tremendous amount of transparency in a process that has been for economists notoriously opaque and filled with information asymmetry. That is truly different than anything we’ve seen in the past.

Jack: Is the difference that there was a lot of inefficiency in certain types of labor, and these new platforms or structures removed that inefficiency, and in doing so changed the nature of work? Or is there that and something else?

Susan: That is a large part of the story. In June 2015 we released a report called A Labor Market That Works and in that we looked at the power and the economic value of these platforms in creating more transparency. We calculated that widespread use of these platforms could raise GDP across the world by $2.7 trillion. It comes from reducing unemployment, so people can find jobs faster, it comes from creating a better match between a person and the employers, because there’s more information. When you have a better match, then people are more engaged in work. There’s all sorts of academic research showing that employees that are engaged are more productive, not surprisingly.

Our most recent report has looked at what some people call the gig economy. We call it independent work, which is all types of self-employed people, freelancers, independent contractors, and people working on digital platforms. Students, retirees, caregivers, there’s a whole segment of the workforce, in the US and in Europe, that say they want to work more hours than they are, but for whatever reason they can’t handle the set schedule of a traditional job. These platforms enable those people to begin to work some hours, and that actually creates more output in the economy and raises incomes. While automation may be replacing humans with machines, on the other side of the equation, you’ve got digital platforms that are enabling people to work more.

Jack: The way that you talk about it makes it sound like ‘why wouldn’t anyone love this?’ But when we look at the media and look at some other surveys there’s a sense that people have anxiety around these platforms as well. They look at them and they see the opportunity and they also see fear. They appear to feel defensive about their employment and what this new type of employment means for them. Why are we also feeling this anxiety towards this new way of working?

Susan: Well, there is a lot of anxiety. This is a time of absolutely disruptive change. You started out this conversation by pointing out that the nature of the relationship between employers and employees has been changing. There was frankly somewhat mythologically this idea that you had a job for life, say three or four decades ago. You need to note, first of all, that that myth actually only applied to a certain segment of the population. It did not apply to women. It did not apply to many minorities.

After the industrial revolution, it really started this notion of this 9 to 5 job is a historical figment. It’s an artifact of the industrial revolution. If you look back to 1900 in the United States, 45 percent of people were self employed. Then that percent declined quite rapidly when you had the creation of factories and assembly lines. With an assembly line, you need a worker to be at their station for a set shift and then be replaced by another worker. Then of course unions came up. This is, for our generation now, for people alive today, this is how we think of what work is. Today for people who are expecting that kind of work, the idea that you’re going to be an independent contractor, or you’re going to have a series of multiple employers over the course of your life is uncertain. It creates a lot of stress. It’s not the way our educational systems have trained us to think about work. There are tensions.

Clearly with the technology and globalization, there has been a huge number of manufacturing jobs in the United States that have been lost. For those people who are already in the middle of their career, living in potentially small towns, they don’t see a lot of opportunity. That’s why I would not at all minimize the personal impact of this tremendous technological revolution. I think that the challenge for policy makers and for businesses is to work out how you help individuals ease into this new world? I think that our children will grow up in this new world of technology actually helping people find work, and it’ll be a different story, but for those of us caught in the middle, it’s a period of rapid change.

Jack: If we were to get in a time machine, and go to Susan 20 years ago and bring you here today, and presumably let you read the newspapers and the internet, even television, for like a week or so, what would you be most surprised about? Both at sort of a policy level, and economic level about where we are as a nation?

Susan: Let’s go back 25 years. 25 years ago I was doing a PhD in economics at Stanford University in the heart of Silicon Valley. It was before the internet was widely used. A few years into the program, I sent my first email with an attachment from the Stanford computer lab. In my home I had a telephone that was attached to the kitchen wall with a very long cord that enabled me to walk around my very small apartment at the time with the phone. There were no mobile phones. I had a very large not powerful laptop computer, but for the econometrics that I did, I would write fortran programs and run them overnight on the Stanford computer lab on their servers and mainframe. I did it overnight because there was less usage, and so the program would run faster and then the next morning get the results.

So the entire mobile phone industry, apps, digital platforms, eCommerce, none of that existed. I would be completely amazed at that technology. What I would not be amazed at is the labor market policies. Unemployment insurance, disability insurance, benefits like healthcare and retirement provided through companies. On the policy front, and on the educational front, the way students are taught in schools has not changed. Today my children are learning basically the same things in the same sequence that I learned many, many years ago. The world of technology has really changed. There are hundreds of thousands if not millions of people engaged in selling, building, servicing these technologies that we didn’t even really dream of back then, but the policy and educational world has changed very little, if at all.

Jack: Are you optimistic we can get some policy changes?

Susan: We need to, because there’s rising discontent. We need to help people adjust to this new world. I think there’s also a role for companies to play. I think there’s new opportunities for companies to help independent workers. Things like Ride Sherpa now lets a Lyft driver or an Uber driver calculate their net earnings after gas and insurance, and optimize what parts of the city to drive in at what times of day. Things like that I think are entirely new ecosystems of businesses to make it easier for people doing independent work to file their taxes, get their licensing, optimize their businesses and so on. Clearly a big change is needed in education, especially for people who don’t necessarily want to or need to go to college. There’s a large swath of America that is being left out of this new prosperity, and we need to find policies, like education and labor market policies to help them engage productively in the new way the economy works.