Public Policy Challenges and Opportunities in a Digital Economy

This post is adapted from remarks given at the New America Foundation's "Connecting Talent with Opportunity in the Digital Age," Thursday, June 4, 2015.


In many ways, recent McKinsey research confirms our instincts: The world of work is changing in fundamental ways.

Online career platforms like LinkedIn and others link the individual to a broader universe of opportunities. They provide employers with access to a broader array of talent. And these platforms can facilitate quicker and more productive job searches and career decisions, which strengthens the entire economy.

Everybody likes to claim a "win-win-win" -- but this might be the real deal.

This dynamic, online economy will continue spurring dramatic changes in how, when and where people work -- and that will open additional doors to opportunity and mobility for more people, if we do it right.

This is yet another example -- as if we needed it -- that the innovation cycle is getting shorter and shorter. Technology has eliminated yesterday's restrictions on place and time. And technology is replacing and restructuring the "middleman" across much of our nation's commerce.

We need to help both workers and employers adapt to these changes. The McKinsey research confirms that a networked approach has the potential to fast-track jobs and economic growth.

It is ironic that this research is being released in Washington D.C. -- ironic because, in many ways, Washington has remained on the sidelines as the American economy, its workforce and workplace, have undergone the most dramatic transformation in decades.

Perhaps I recognize these changes because, for at least a while yet, I can still claim to have spent more time in business than in politics. I have launched businesses, failed at a few of them, and was fortunate to have gotten-in on the early days of the cellphone industry.

Later, as an investor and venture capitalist, I sat through enough pitch meetings to fill five seasons of "Shark Tank."

Of course, my Millennial daughters often remind me those experiences were "eons ago" -- you know, waaay back, in the mid-80s and early 1990s.

There's nothing like having three college-aged daughters to help you keep it real, right?

My kids and yours can access more information, and conduct more business, on their smartphones in a single week than their grandfathers could imagine over a lifetime.

My father returned from military service in the Second World War, and was in many ways a poster child of his generation. For 40 years, he worked for the same company.

He earned steady advancement over his career, and our family was economically secure through a social contract with his employer: defined benefits like health care and other insurance, and the promise of a decent and dignified retirement that combined his company pension, Social Security, and his personal savings.

Next came my generation, the Baby Boomers. We welcomed a more diverse workforce, and experienced the first waves of automation and increased globalization.

When Gen XERS joined us Boomers in the workforce, we began to job hop, changing jobs three, four or even more times over the course of a career. Each of those jobs typically came with a menu of employer-sponsored benefits, including insurance, health care, and retirement plans.

But we also began to see more employers move away from defined benefits and toward defined contributions: think of us as the 401k Generation.

Employers shifted more of the financial responsibility for retirement onto the individual, and many employers have tried to get out of the benefits business altogether. It remains to be seen if this was a positive move for workers, because we read every day about the looming retirement crisis.

Today, the next big generational wave, the Millennials, have begun to push the Baby Boomers and Gen Xers off the stage. Millennials are the 80 million Americans born since 1980.

The Millennial generation is now the largest age cohort: they recently leapfrogged over the Baby Boomers and Gen Xers in terms of sheer size. And within the decade, Millennials will represent 75 percent of the American workforce.

And as they enter the American workforce, the whole nature of the social contract between employer and employee has fundamentally changed.

If my father's generation could be called "the belt and suspenders generation" -- and my generation could be called "the belt or suspenders generation" -- in many ways, this new economy requires members of the Millennial generation to hold their pants up all by themselves.
Let's stop and think for a moment about the 80 million Millennials who are completely changing the landscape of work and commerce.

There is good news about the Millennials: We know they are the best educated, the most diverse and tolerant, the most technologically adept, and the most comfortable with disruptive change of any generation America has ever seen.

Most Millennials have grown-up in the glow of a computer monitor. Since childhood, most of them have maintained an online identity, networked in real time with friends.

Members of this generation can, if they choose, graduate from a college or university without ever stepping foot on its campus.

Armed with a tablet or a smartphone, they can successfully work for an employer, or for themselves, without ever sitting at a desk from 9-to-5.

And the only thing we can be sure of is this: they will continue to embrace even more innovation and disruption in traditional business models. Look no further than the prospect of driverless cars -- 3-D printing -- and same-day delivery by drones.

Yet here in Washington, too few policymakers are thinking creatively about ways to provide more Americans with more footholds into this new world of work.

Now, I want to be crystal clear: I'm not talking about making the new economy look more like the old economy. I'm talking about making this economy work better, for more people.

We have to become a lot more creative in how we provide new pathways to economic stability and upward mobility.

When you meet someone these days, the first question is no longer, "Where do you work?" The more appropriate question is, "What are you working on?"

That's because the convergence of these demographic, technological, and economic changes I've described has created a growing American workforce of contingent workers -- free-lancers, contractors and the self-employed. That's the good news.

As American business have focused on greater productivity and, frankly, as too many of them remain preoccupied with quarterly earnings, more employers have come to rely on this post- recession, on-demand workforce.

Let's face it: temporary workers and consultants cost a lot less than full-time workers with full benefits.

Whether by economic necessity or by choice, a growing number of Americans -- by some estimates, as much as one-third of the American workforce -- now piece together two, three or more of these on-demand opportunities to make a living.

It's called The Gig Economy, or the On-Demand Economy, or the 1099 Workforce. It includes a lot of young, invincible Millennials.

But it also includes middle-aged professionals downsized at mid-career.

It includes 50-something Baby Boomers - some of them my college classmates - hit with a premature end to what they thought was a solid career and a stable retirement.

Many of these new Gig Economy workers have enthusiastically jumped into this brave new world of work as a supplement to their income from a full-time job.

For others, it allows flexibility to stay home with a child, or to boost retirement income.

Others are drawn to this on-demand workforce by its promises of freedom and flexibility - the desire for higher pay, and the flexibility of setting their own hours. But the jury's still out on whether many of these Gig Economy jobs deliver everything that's promised.

And let's be honest for a minute: The Gig and Sharing economies also encompasses a lot of folks who probably roll-their-eyes at our new-found interest in this contingent workforce.

For them, working two, three, or more jobs at the same time is not new: it's how they've always gotten by -- and for a lot of them, it hasn't gotten any easier.

All of this technological innovation has not only begun to redefine work. It's also created an online ecosystem that is redefining commerce.

Online platforms like Airbnb, Uber, TaskRabbit, and Etsy provide broad reach to match supply and demand for things that people never thought about monetizing before: A room. A ride. A specific skill. Free time.

Many of the business models in the on-demand and sharing economies are built on the premise that workers are independent contractors, not employees.

Using independent contractors to do everything from laundry to food delivery means these businesses do not have to pay costs like health insurance or retirement.

They also typically don't pay a share of unemployment or workers' compensation coverage.

This represents a significant change in what remains of the already-frayed social contract. Remember: many of these traditional programs were built by employees and employers contributing jointly, by mutual agreement.

So today's on-demand workers, even if they are doing very well, exist on a high wire with no safety net beneath them. That may work for many of them -- until the day that it doesn't.

If these contingent workers no longer have access to health and retirement benefits, and they don't qualify for workers' compensation or unemployment, taxpayers ultimately will get the bill when things go badly.

This is why I think it is time for Washington to catch up, and begin asking tough policy questions.

1. The biggest challenge for this labor force, and for federal policymakers, is the change in the traditional employer-employee relationship.

So what are some other options for providing more economic security for workers who are not connected to full-time work? Who should be responsible, and how? Should it be opt-in, or opt-out?

We might look to the healthcare exchanges as a model, now that they largely appear to be working -- a market-based exchange for benefits beyond health care, where both the employer and employee contribute toward unemployment, workers' comp and other safety net coverage.

We could borrow an interesting idea from the building trades - the concept of an "hour bank." It tracks the individual's work for multiple employers or contractors, with a trusted third-party collecting and administering the employer's contributions for training, insurance and retirement programs.

Some other countries, primarily in Europe, are experimenting with pools where free- lancers put in a certain amount of income based on what they would need if they got sick or injured. That's worth looking at.

Part of the solution may be consumer-driven. Millennials say they want to work for, and buy from, companies which treat their workers better. What if the bill for ride-sharing or an Airbnb reservation included an option for the customer to contribute to an independent fund providing some of these benefits? A voluntary, consumer-driven system might provide one piece of a broader solution.

We are beginning to see some entrepreneurs and existing technology players move into this space.

For instance, Intuit, the TurboTax people, has developed a product to help micro- entrepreneurs track and pay their 1099 taxes. And I just spoke with a young entrepreneur in Virginia who's started a business called Painless 1099. It helps Gig workers handle their tax withholdings automatically.

So it's not difficult to see how these types of platforms could one day be built-out to offer provide access to insurance and retirement solutions.

2. In many ways, our current tax and labor system basically classifies workers in one of three ways: employed, self-employed, or not employed. So it's clear the distinctions developed over the 20th Century simply are no longer effective in addressing how we view a 21st Century workforce.

Litigation is underway about whether on-demand workers are independent contractors or employees. As one federal judge involved in the cases put it, juries are being asked to put a square peg in one of two round holes.

This is too important to leave to litigation. As policymakers, we should prepare to tackle these issues.

3. This speaks to an even larger issue. In almost every way, the federal government needs to become much more nimble. We've moved at less-than-dial-up-speed in developing new rules of the road for the digital world.

For one thing, we don't even have a clear sense of how many people are part of the Gig and Sharing economies. The numbers are all over the place: I've seen estimates its five million people (which seems way too low), and I've seen numbers as high as 53 million (which seems too high).

You have to size the problem in order to size the solutions. So last week, I wrote to Senate appropriators, and I strongly urged them to find the resources so we can begin to drill-down on the data about this contingent workforce. We could use much better information.

As policymakers, we need to make sure this brave new world of on-demand work doesn't just work for people in the Bay area, or in New York. It also has to work for people in Washington's Anacostia community, and for people who live in former factory towns like Danville, Virginia. That's why broadband deployment is so important. You can't be LinkedIn without a link.

We know many Millennials someday hope to work for themselves, and crowdfunding would be a great new tool for them to raise capital on the Internet from smaller investors. But it took three years - three years! - for federal regulators to get the first crowdfunding proposals out the door - and they're still not done. That's unacceptable.

We know a lot of Millennials and others are interested in starting their own businesses, and federal policymakers could be a lot more supportive. We have grants and low-interest loan programs for innovators and entrepreneurs - but they're scattered across dozens of federal departments and agencies. They exist in budget cycles of feast or famine.

Frankly, we could use a little more disruption here in Washington. Here's a novel approach: let's find out what works, and do more of that - and see what doesn't work, and stop doing it.

4. Another factor impacting Milliennials and GenXers is student debt. We need to consider the opportunity costs of this generation's combined $1.2 trillion in debt. I've pushed commonsense ideas to lower the cost of college, and make student debt more manageable for more people.

For instance, the same technology that allows consumers to comparison shop online ought to be extended to higher education. We collect the information but don't make it accessible.

I have pushed to make income-based repayment the default option, giving young people more breathing room when they're just getting started.

And while we currently only allow employers to help cover the cost of ongoing training, I've proposed allowing employers to apply pre-tax wages to help employees, if they agree, with their existing student debt. What a great recruitment and retention tool.

5. Finally, for all the talk about the growth of the Gig and Sharing economies, most of our tax policies and incentives remain geared towards rewarding ownership.

The sharing or renting economy is growing faster than ever, powered by a younger generation which clearly prefers autonomy and access over outright ownership. Governments at every level, and businesses of every size, will have to grapple with the ramifications of an economy that is built less on ownership and more on renting, borrowing and sharing.

I was talking just yesterday with Brian Chesky, the CEO of Airbnb, and he had a great observation.

He said the symbols of middle-class success for his parents' generation were a house in the suburbs, two cars in the garage, and maybe -- just maybe -- a vacation home someday.

On the other hand, he said the symbols of success for this generation include individual autonomy, collecting experiences rather than things, and building and maintaining a cool online reputation.

I've been thinking a lot about these issues, and I've been speaking with a lot of smart people actively engaged in the startup, Gig and Sharing economies. I don't have all the answers yet - but I think I'm asking many of the right questions.

By my count, almost 25 people are running for President. And it is remarkable to me that not one of them is talking about these issues.

We don't know what the disruptive technologies of tomorrow will look like. Five years ago, no one had heard of Uber, or Airbnb and Etsy.

But what we do know is that some version of the Gig and Sharing economies are here to stay. As policymakers, we need to ask the right questions, discuss the appropriate rules of the road, and know when we need to get out of the way.

I, for one, look forward to continuing this discussion, today and in the weeks to come -- and I thank you very much.