AI’s Disposable Workers

Speaker A: This week on the Futurists, Paul Osterman.

Speaker B: AI can be a neutral tool, but what AI is doing right now is introducing so much uncertainty into firms about what they need and who they need that it's going to push them more in the direction of disposable workers.

Speaker A: Hey there. Welcome back to the Futurists. I'm Rob Tercek, and this week we're talking about work. We're talking about the future of work and the future of jobs. Uh, to help me with that topic, I've invited a professor from MIT who is a labor economist who focuses on many employment issues, and he's the author of a forthcoming book that we're going to talk about in just a moment. Um, welcome to the show. Paul Osterman. What a great pleasure to have you on the Futurist. Thanks for joining us.

Speaker B: My pleasure.

Speaker A: So fun to have you. Now, you're coming to us from Boston.

Speaker B: Uh, I am, I am. Where it's currently not snowing.

Speaker A: We can be glad about that. And meanwhile, it's blazing hot in Europe. I hear they're having, like, another heat wave. Um, um, I'm out here in beautiful California where I have no complaints about the weather at all until I will tell you. Los Angeles is a land of great insecurity these days because the threat of generative AI seems like it may displace. And we've already experienced tremendous displacement in the motion picture business, uh, just in the last six years, uh, something like 40% unemployment among motion picture crews and a number of layoffs from the motion picture studios and the big media companies that have gone through mergers and consolidation. Uh, so the theme of, uh, employment insecurity is a lively topic here in la, and I thought we might start with that just to put a little context around it. Your book is called Disposable the Transformation of Employment. This is a book that's coming out, I think, in about two months in August, mid August, from, uh, Harvard University Press. Uh, tell me a little bit about your book, Paul.

Speaker B: Well, the opening line of the book is that this is a book about divorce. Um, and it's a divorce between employers and employees. The basic argument, the core argument of the book is that firms want to get the work done. They need people to do the work, but they don't want them to be employees. By employees, I mean people who are entitled to the full range of rights and benefits that a standard W2 employee is, uh, able to get. And so what firms are doing is developing a set of strategies. And the book describes those Strategies to get people to do the work but not provide them with employee status. So some of those strategies are pretty well known, such as using contractors, which is a big deal out in California, of course, in the high tech industry. Uh, in the book I say that, uh, Google has more contractors than it does standard employees. That was as of two years ago. I'm not sure it's entirely true now, but you got the idea. Uh, freelancers are another way of avoiding, uh, having employees. And then the book identifies a kind of a third category which I call marginal workers, who are people who actually are legally employees. They have W2s, but they're disconnected from the career system of the organization. They have no future in the organization. And in fact the organization is happy when they have high turnover. It designs jobs that are high turnover.

Speaker A: That's a new category. I think we're all familiar with freelancers and independent contractors, although there's a lot of nuance there that we'll probably want to unpack. But tell me more about the marginal employee. This is a new concept of yours.

Speaker B: Sure. So let me give you a couple of concrete examples. Okay. Uh, uh, staff attorneys. So big law, uh, has partners. It has people who are on partner track, associates, but they've developed a new category called staff attorneys. These are people who are W2s, but they're brought in to work on specific projects with no chance to be on a partner track. And, and when that project is done, that particular case is over. There's no guarantee of continued employment. So that's one example. Another example at a high end are, uh, adjunct faculty who again have no chance of getting tenure. They do a lot of teaching and they're on short term contracts. So they're W2s, but they're marginal to the organization. At the lower end, a lot of low end service jobs look like this. The jobs are designed to have high turnover. Uh, you can't go anywhere in the organization. You can't climb any ladder. There's no real pay, benefits to seniority, uh, and so there's high turnover. A lot of part time jobs, although there are people who want to be part time, they're what we call voluntary part time. Nonetheless, part time workers have higher turnover and so firms, as much as they can, use part timers, knowing that those people are going to be gone. So those are concrete examples of this marginal category.

Speaker A: Now as you're talking about that, it seems to me that I'm a little bit confused. Why would a company prefer to have marginal workers than regular people who are On a career path, what is the motivation there for the employer?

Speaker B: If you're on a career path, if you're a regular employee, the firm needs to make an investment in you. It needs to put resources into training to help you climb up that ladder. There's a cost associated with that. If you're a regular employee and you want to engage in layoffs, that's costly. In many cases you have to pay people, uh, compensation for having been laid off. In any case, you have to go through a complicated set of processes. If you could get the same thing done by creating high turnover jobs, you have built in opportunities to flex your labor force without going through the hassle of laying people off. Um, if you're a regular employee, you develop what we call wage norms, an expectation about what your wage should be relative to other people. If you're a high turnover marginal worker, you don't have those. Uh, you just take what you're offered. So in a variety of ways, it's much easier to deal with these people from the point of view of the firm, not from the point of view of social welfare, but from the point of view of the firm.

Speaker A: In some respects. These are employment decisions that are made in response to regulatory rules, like sort of regulatory guidelines. If you're a full time employee, you're entitled to certain kinds of benefits. Uh, it sounds to me like this is an attempt by corporations maybe to skirt or bypass those obligations.

Speaker B: Yeah. So I point to basically, uh, four motivations for companies wanting to do that or do this. One, uh, is what you just said, uh, the cost of health care, the pension requirements and all that. Uh, our regulatory costs equal, uh, employment opportunity and so on. Our regulatory costs that firms would like to avoid. Uh, a second motivation though is, uh, to just drive down wages. If I'm a company and I want to drive down my wages, I set one contracting, one staffing firm off against another. Hey, um, I'll use your staffing firm. If you only charge me X, then you go to the next staffing firm and say, hey, that firm's charging X, what can you do for me? And that drives down compensation because you're setting these staffing firms against each other and the only way they can compete is on the basis of, uh, how little they charge, uh, their client.

Speaker A: Mhm.

Speaker B: Another motivation though is basically a, uh, disrespect for the contributions of the workforce. So two quick examples you may have read recently about the, um, bank executive who said he was doing a lot of layoffs of what he called, quote, low value Human capital. He didn't respect the folks who work for him. McKinsey, uh, based on, as far as I can tell, no real research, uh, issued a report called the State of Organizations in which they said that 95% of an organization's value is delivered by 5% of its employees. Again, it's kind of a disrespect.

Speaker A: Right? And also a lot of that depends on how you define that value that's created. That seems like a pretty elusive definition to me.

Speaker B: It is, to say the least. But there's a managerial attitude. Um, another motivation is managers want flexibility. They want to be able to get done what they want to get done. They don't want to have to deal with expectations and norms of the workforce. Um, and these marginal workers, as well as contractors and freelancers, don't constrain managers. And then finally there's what you could call a benign motive, which I think is true. You can't ignore it. We live in a very competitive environment and firms need to have some flexibility as to their staffing level. And this is a relatively cheap way to have that flexibility.

Speaker A: Yes, but cruel in the sense that it doesn't take into account the welfare of the employees or their families. Um, but you're right, that last point is really timely because, uh, we've seen just this year, in the first quarter this year about 100,000 employees were laid off from technology companies, including at Oracle, on a single day in the beginning of March. Uh, 30,000 were fired, uh, with just an email, um, at one shot. Uh, so companies want the flexibility because they don't really know what the nature of the work in the future is going to consist of and how to divide the work up between a human workforce and an agentic workforce. Uh, just a couple of weeks ago we had an interview with Tatiana Mahmood, who's focused on that agentic workforce and how that will be managed. But now we're going to cover the topic, I think, of how companies are approaching managing the human workforce, those that remain. So it sounds like companies want the flexibility without the obligation. They want the ability to have the work done by humans as long as they need them. And then if they can replace them some other way of automation, then they can simply let them go with, um, no ongoing severance payments or insurance or any of the other, uh, obligations they would have for a full time employee.

Speaker B: Yeah, I think that's right. So in the book I, um, have good data, original data on people's employment circumstances. And my bottom line is, is that today about 35% of the workforce are disposable and fall into one of these three categories. Now 35% is a big number. A third of the workforce is disposable. And that is a source of significant kind of pain for the folks. And though I want to say this, it's not all bad news. So let me give you a positive example. Uh, the person who cleans your building at night is probably a contractor working for a staffing firm, a cleaning firm. And unless they're unionized, they're not making much money. It's bad. And also many buildings, uh, want to uh, only have four hours of work. They don't want the lights on. And so these are part time jobs. So these people have to string together two four hour shifts to make a living. So that's an example of a problem. But another example of a contractor are travel nurses. So travel nurses are nurses who are working for a staffing company. They're not the employee of the local hospital and the hospital uses these folks, uh, when there's gaps or actually instead of regular staff nurses. Being a travel nurse for many people is a good deal. The hourly wage is high. You get to live in nice, choose where you want to live in nice places. Instead of Boston, Austin, you could live in Los Angeles. Um, um, so it's not all bad news. And the book tries to take seriously the role of preferences. When it's bad news, when it's good news.

Speaker A: Mhm. That's a good point that you raise. And uh, you make it elsewhere in the book too. When you talk about freelancers, a lot of freelancers actually like being freelanced. They like the flexibility or I guess the feeling of agency that they have, uh, over their career. Although that comes with a certain amount of anxiety as well because they don't really have, um, true agency over their fate. They have to keep finding the work and hope that those clients don't terminate their contracts. Uh, tell me about the distinction between what you call marginal workers and freelancers or between marginal workers, freelancers and independent contractors.

Speaker B: Sure. So I use the word freelancer instead of independent contractor. They're the same. But the problem is the term independent contractor gets confused with people who are contractors. So a contractor.

Speaker A: Oh, you mean like building construction?

Speaker B: Well, a contract. Well there's that, but I mean a contract. Take Manpower Inc. Or Kelly Services or any of these staffing companies. The people who they send to you to work for you, they're contractors, they're W2 employees for the staffing company. Right, but they're Contractors and they work for someone else. And so they're on short term work assignments, uh, but they're disconnected from the organization. Who's the client? Those are contractors. A freelancer is somebody who doesn't get a W2 at all. They get a 1099. They're self employed. Um, now in the book I also distinguish between freelancers who work for organizations. I call them organizational freelancers and freelancers who might clean your gutters or walk your dog or anything, take care of your mother, anything like that. Uh, that latter category is significant, but it's not part of the story of the book. The book is about freelancers who do the work for organizations. And those are freelancers. And then these marginal folks are W2s working inside an organization. There's no intermediary, there's no staffing firm. Uh, but, uh, as I say, they're disconnected from the organization's career system.

Speaker A: Yes. So it's sort of a tentative existence. And you exist at the whim of the finance department. As long as they want you, you're there. But otherwise you have no job security really at any of those positions.

Speaker B: Absolutely. The finance department is a key actor in this story. Absolutely.

Speaker A: And given the tremendous changes that are happening, uh, in the economy, it's understandable why CFOs would want that flexibility. But what we haven't talked about yet so far are the social implications of this, because I think there are some significant ones. One things that makes United States economy so unique in the world is, uh, employer funded health care. Employer provided health care. Most countries, certainly all the advanced countries in the world, advanced, uh, economies, I should say, have universal, um, healthcare. And what that does is it frees up labor. It actually enhances labor mobility. The US has notably lower labor mobility. And that's largely because of the fact that families, people with families cling to their jobs. They don't want to switch jobs. They're worried. We have lower levels of, uh, entrepreneurialism in the United States than we typically would expect of an economy this size. And the reason for that is that people are worried about covering their healthcare costs. And it's not such a bad idea. And people are pretty smart. I think people are pretty pragmatic about them making that decision. But because we know that, um, healthcare costs when you don't have insurance can drive a family into bankruptcy, it's one of the top causes for family bankruptcy. It's also one of the reasons for homelessness. Uh, because typically what happens is, um, if there's one wage earner who Gets laid off from their job, perhaps because they're sick, they lose their healthcare, and then the family has to mortgage their house to pay for the healthcare. Maybe that person dies. Now the family has no income at all. Boom, they're out of a home. This is a terrible story, but it's happening this daily in the United States. This is like a real serious driver of, uh, homelessness. So people make a pragmatic decision. They seek a job that they can cling to, that'll come with benefits. We need that. And in a way that makes those workers very vulnerable to their employers, because employers know that they don't have much choice. So we haven't talked about exploitation. That word hasn't come up yet, but it will. I guess this is probably the right moment to do it. Tell me about it.

Speaker B: Well, so by the way, you're right about the health care story. It's a historical accident that it's employer based in this country. It happened during World War II, um, when there was a wage freeze. And so the only way firms could kind of increase compensation package for people was by offering them health care. And then it got locked in. Um, and then of course, the insurance industry has a strong self interest in keeping it locked in.

Speaker A: That's right.

Speaker B: Um, so. Well, there are different consequences. So I do spend a fair amount of time looking at the consequences. Um, as you said, freelancers by and large are happy campers. Organizational freelancers. They prefer the flexibility that the job gives you. And although they earn less on average than standard workers, they work fewer hours. And that's by choice. Uh, contractors are less. Happy campers are not happy campers. On average, contractor compensation is about 10 to 15% lower than it would be if they were regular standard employees. And the same is true of marginal workers. They get lower wages and they get fewer hours. Uh, there's other consequences. Um, there's societal consequences. I think you mentioned early in our conversation, before we started recording that, uh, when an organization uses contractors, there's some evidence that that leads to much poorer organizational performance, which can include accidents in which people are injured or killed. Uh, there's a very interesting study on hospitals that shows that when hospitals use contractors, uh, C. Diff infections are more likely because those contractors don't communicate as well with the regular employees about cleanliness standards and how to avoid C. Diff spreading in the. So there's kind of societal consequences. Uh, and another consequence is that the folks who are contractors and marginal workers are less committed to the organization. They say that in my surveys, they don't work as hard. They care less about the organization's success. And that has consequences too.

Speaker A: No doubt about it. It's one of the things we experience as consumers. Uh, when you encounter service workers who are not directly employed by the company that you're patronizing, the business that you're patronizing, but instead they're contract workers like you described. Um, they're diffident, those contract workers. They're not there to sell. They don't care one way or the other. They're not particularly interested in giving you good service. And that comes across. It reminds me when I was younger I lived in, uh, Europe. Ah, I traveled in Eastern Europe quite a lot back in the old days when it was the Soviet Union and the East Bloc. And there, um, it was quite evident the workers didn't care if you stayed, if you went to a restaurant or a bar or any kind of shop. They did not care about the consumer in one way or the other because they were still going to get paid no matter what. Whether you bought something or not didn't make any difference. And they came across and it was a dismal experience. But what I find in the United States right now is that you're starting to experience that kind of service level decline. Uh, the quality of servants is gone. Now this is a problem, right? Because, uh, when we think about our U.S. economy, one of the things that makes it so vibrant is the existence of strong brands, highly differentiated brands. And companies invest tremendously in building their brand value. A brand is a promise of guarantee in advance to consumer says, you're going to get some quality here. That's why you're going to pay a little bit of a premium. Um, you experience that when you walk down the aisle of the grocery store, right? Uh, those generic products, they don't have the same brand value. They don't speak to you as much as say something that's heavily branded, uh, brand you're familiar with. Now the problem is with service companies, if the service is indifferent or uncaring, if those workers aren't on the payroll of the company, but they're on the payroll of some contracting firm and they don't really care about your experience of it. Now you've got a disconnect not just between that worker and their employer, but between the customer and the business they're patronizing. And I think that has a negative implication. I think people experience that, though they can't put their finger on it. I think your book is helping identify that very quality problem.

Speaker B: I think there is a quality problem. Now, what's going on, of course, is that firms, even if firms are aware of this, and they may well be, they're still deciding that the cost savings and the flexibility and the managerial discretion that they get are worth those costs. And if we end up talking a little bit about policy, I think the key is to encourage firms to make a different calculation about how to internalize those costs that you and I are experiencing. Right.

Speaker A: So crank up the cost in another way so that the company starts to take this issue more seriously. Okay, well, we'll take a little break right now, folks. Uh, you're listening to the Futurists with Rob Tercek. And I'm, um, interviewing Paul Osterman from mit, and he's talking about his new book, which is forthcoming in August of this year. The book is called Disposable the Transformation of Employment. And after the break, we'll talk about the future implications of what Paul shared with us. Hang on. We'll be right back. Provoked Media is proud to sponsor, produce, and support the Futurist podcast. Provoke FM is a global podcast network and content creation company with the world's leading fintech podcast and radio show, Breaking Banks. For information about all our podcasts, go to Provoke FM or check out Breaking Banks, the world's number one fintech podcast and radio show. Hey there. Welcome back to the Futurist. I'm Rob Tercek. This week I'm talking to Paul Osterman from MIT University, and we're talking about his book called Disposable Workers. What a provocative title. Paul, how did you come up with that title? Um, what made you think of Disposable Workers?

Speaker B: It seemed to characterize, um, what's going on. These people are viewed by the firm that uses them as disposable. They're not viewed as part of the firm. They're not viewed as part of the career ladder. Uh, the firm doesn't really care about them. They're disposable.

Speaker A: How does that impact those workers? You spoke to 6,000 different people, actually more than 6,000 people as part of your research?

Speaker B: Well, I did not speak to 6,000 people. I surveyed 6,000 people. I did a random sample of the population and got 6,000 interviews in that random survey. And, um, I think it's a fairly unique survey because it asked quite deeply about people's employment situation. It wasn't just where do you work and how much you get paid. It asked about the kind of the nitty gritty of their employment circumstances, stances. And then I interviewed maybe 100, 120 people. So it's a combination of 6,000 nationally representative interviews and 100ish real uh, interviews face to face.

Speaker A: And what was the general impression when you spoke to people who are in the categories that you describe? These marginal workers, the freelance workers, the contract workers, um, how did they feel about their employment? Did they complain about it? Were they content? Were they quite well aware of their situation? Would they do something different?

Speaker B: So it really depends on the category and the person. So I'll give you three examples uh, for freelancing and this will be near and dear to your heart. I did a bunch of interviews with journalists. Now I know you want to talk about technology. Journalism is an occupation that's been radically disrupted by technology, as you well know. And a lot of people have been forced out of newsrooms into freelance status.

Speaker A: Mhm.

Speaker B: Now by and large the journalists I talked to were unhappy because they're competing for assignments and they felt they were competing with the world for assignments. But on the other hand there were journalists who valued uh, that being freelancing because of work, family issues. They had the kind of personal flexibility that they wanted. So it was a mixed picture. Travel nurses, as I said earlier, are happy. They get a good hourly wage and they can pretty much uh, work where they want. A warm climate, an interesting city or whatever. Building cleaners. Unless they're unionized. If they're unionized, they have some protections. Otherwise their wages are driven to rock bottom because the firm compete, forces their contracting, their staffing firm to compete on a basic price. Those are unhappy people. And then say the staff attorneys I interviewed who are marginal workers, they're desper, have a career, they went to law school. They can't get into a firm that puts them on a partner track. So they go from short term M assignment to short term assignment. Bad news for them.

Speaker A: And I imagine that's a dead end loop for them because no law firm is ever going to put you on a partner track. If you're a short term attorney, you're kind of stuck in that doom loop.

Speaker B: Very hard to get out of it. Very hard to get out of it.

Speaker A: Now one of the topics that keeps coming up whenever we think about the nature of employment, particularly here in California, is the gig economy. You know, about five years ago this was a big trendy topic because of things like Uber eats, um, the idea that you can just use a mobile app and call for whatever it is you need. Car service, food delivery, something else, a task to be run. Um, this became a very lively Controversy in California because the government of California said, well, hang on, these are either going to be 1099 contractors or they're going to be full time W2 employees. You gotta figure it out, which one is it? And Uber and Lyft argued strenuously that these were 1099 contractors, independent contractors. Uh, but as it turned out, that argument didn't really hold up particularly well, at least in California. Now your view on this is that actually gig economy workers are just not that big of a deal in the economy?

Speaker B: Well, yes and no. Uh, the yes is that if you look at gig workers today defined as people who get their jobs through apps, online apps such as Uber, such as Doordash, or even things like Mechanical Turk, uh, uh, that's about 2% of the workforce, relatively small. It's not a huge deal. On the other hand, those people are currently treated as independent contractors, freelancers and don't get benefits. And firms are pushing the to use those kinds of jobs more and more. So, for example, Amazon delivery, uh, a large amount of Amazon delivery delivery drivers are typically not Amazon employees. They either work for their own, they have their own company, or they are gig workers. You know, they're freelancers driving around their van delivering stuff for Amazon. Uh, in home healthcare, there's a push to make home healthcare aids more independent contractors and less working for healthcare agencies. So there's an effort by employees just as they want, disposable workers in general, there's an effort to kind of push the boundaries of gigness, if that's a word. Um, but currently it's about 2%. And the kind of, the focus on gigs is the kind of the big problem. I think that's been wrong. Um, the size of the marginal workforce as I've defined, or the contracting workforce are much bigger than the size of the gig workforce right now.

Speaker A: What's interesting as I'm listening to this, I'm wondering where is organized labor here? Where is the union movement obviously greatly diminished in the United States? That's an old story. We're all aware of that. But this seems like one of the consequences of the decline of organized labor is that now workers can be treated, um, mercilessly by employers and treated as if they're disposable.

Speaker B: That's exactly right. Uh, it's a whole other podcast about why it's happened, but it did happen. So if you look at the impact, potential impact, look at these building cleaners. If you're a building cleaner working for an SEIU local, cleaning buildings, uh, your wages are Pretty decent. And you get health care benefits. And in fact one of the most important campaigns in the country around these issues was a campaign in, um, Los Angeles called Justice for Janitors, this is about 30 years ago that improved the circumstances of building cleaners in Los Angeles. So unions can accomplish a lot. When they're there, they're not there. And so you have to look for kind of other ways of dealing with the problem.

Speaker A: Now there was a time, uh, in my lifetime I can recall clearly where a, ah, Democratic candidate for office, a candidate from the Democratic Party, would uh, be outspoken on behalf of unions and they would rally tremendous union support. And in a way it was labor versus management. And Democrats could always be counted on to reliably make sure that there are going to be labor laws, labor policy that supported unionization. Um, it seems like that's eroded significantly since the 1990s. And now the Democrats seem to be in league with capital, uh, just like the Republican Party typically would be expected to be. Uh, who speaks up for labor? Does anyone?

Speaker B: Well, again now we're kind of getting to the edge of what I'm an expert on. I, um, think what's really happened is the Democratic Party is um, bimodal on this issue. Uh, President Obama was not particularly friendly to unions. Rhetoric aside, he did not, uh, introduce legislation until well into his term to raise the minimum wage. Um, there was an effort to change labor law to make it easier to organize unions. He was not strong about it. Uh, President Biden, uh, was much more pro union. Uh, some of the progressive, uh, Democrats, I mean, uh, for example Mondame in New York, the mayor of New York, and I'm sure that's true in California, are very pro union. On the other hand, there's clearly a business flavor of the Democratic Party. What you're describing is what used to be homogeneous. The Democratic Party was the union party. Now I don't want to say it's 50, 50 because I don't have data whether it's 50, 50 or 75, 25. But it's certainly more ambiguous in other nations.

Speaker A: We have listeners from other parts of the world. You might think of this as like the Labor Party, uh, or the Social Democrats and the groups that are not opposed to organized labor or big labor being involved in politics. And that's how you get employment. Uh, policies, uh, labor law that protects workers. And it seems like that's what's been eroded here. We don't seem to have laws in place. Tell me about the rules and regulations that govern this. California tried to Regulate the gig economy. I'm not quite sure if they were successful in that effort. Uh, many states have tried to raise the minimum wage. That's been super controversial. Business owners hate it. Restaurant owners find it very difficult. Tell me a little bit about the regulatory environment and what policy recommendations you would make.

Speaker B: Actually, over 30 states have increased the minimum wage well beyond the federal minimum wage. The federal minimum wage is a joke. It's 725. No one makes that. But, um, over 30 states have much higher state, uh, minimum wages. Uh, the policy. Think of there being three actors in terms of the law.

Speaker A: Mhm.

Speaker B: There's also, there's organizing, community organizing, independent of unions. And we can talk about that because that's important. That's what say The Fight for 15 was about. Unions were involved, but it wasn't a union organizing drugs.

Speaker A: Yeah, that's true. Minimum wage isn't really a union issue per se because they're way above minimum wage.

Speaker B: So there's two pieces of federal law. One is the Fair Labor Standards act and the other is the National Labor Relations Act. Fair Labor Standards act is about minimum wages. It's about who's an employee for the purposes of, um, overtime, minimum wages, um, and the like. National Labor Relations act is about how you organize a union. Those two pieces of law have somewhat different definitions of who's an employee. It's confusing, but the real point is that, uh, when President Obama was there, he was fairly liberal in trying to expand the perimeter of who's an employee, a real employee. Uh, Trump won shrunk that perimeter. Biden widened the perimeter. Trump too has shrunk. It's very, very unstable. It depends on who's in the White House making regulations. The real innovations here have been at the state level, where again, a large number of states have what are called ABC laws, which are much tighter definitions of who's an employee. Um, they're only applicable to state policies such as unemployment insurance, health and safety, workers comp. But in the ideal world, at the federal level, we'd adopt an ABC kind of thing, a simplified definition of who's an employee, so that firms could not avoid it. The problem is the national politics don't get us anywhere close to being able

Speaker A: to do that to govern this country at this stage, given the polarization. But tell me, what would that solve if we had a simple ABC categorization? What, uh, would the benefits of that be?

Speaker B: So the problem is we have three categories of people. For independent contractors and gig workers. Giving them employee status would make a real difference. They'd have a whole set of protections they don't have now as employees with respect to discrimination, with respect to access to benefits, with respect to minimum, uh, wages and overtime protection, all those things. That's the gig freelancer story. Contractors, um, and marginal workers are W2s. They are employees. They're just not treated like real employees there. It's really not a question of defining, changing the law to define them as employees. It's the question of raising the floor, creating a set of minimum standards for what a decent job should have.

Speaker A: Does that have it done at the national level or should that be done on a state by state basis?

Speaker B: In an ideal world, it should be national, but at this moment, that's not the world we live in. So it is happening. So again, you're in California. California is doing this with respect to fast food. Uh, it passed a recent what's called sectoral bargain. Um, tripartite firms, government employers, uh, and employees, uh, raising the floor for fast food workers. A number of states are taking action on this. But the problem is that these are coastal states. Massachusetts is quite progressive, California is quite progressive, New York is progressive. But, uh, Ohio is not, and Mississippi is not. And so it misses a lot of the country.

Speaker A: Hm. Okay, now, um, when we were talking about gig workers, uh, one of the things that crossed my mind is a conversation I had with an Uber driver a while back. This is before the pandemic. I always like talking to Uber drivers because I like to get the sense, like, why do you do this? You know, what do you like about it? And they all tell me the same thing. They all say, I like this job because I'm my own boss. I can set my own hours. I decide when to work and when to stop. And I say, oh, that's cool, you're your own boss, uh, who tells you where to pick up the passenger? And they say, the app tells me that. And I say, okay. And then I say, um. And then when you're done driving, that person who tells you that you've reached the destination, well, the app tells me that as well. I say, oh, cool. And then who handles the payment? Well, the app handles the payment as well. So I'm like, okay, well, you're not really an independent worker then. You're just a biological robot reporting to an AI. And they don't like it when I have that conversation. But this is becoming increasingly true. And I think what we're starting to see is with the introduction of agents, uh, AI agents inside of companies, we're going to start to see more and more workers inside companies on the payroll, perhaps W2 employees as you describe. And they're going to be directed, their work will be directed and evaluated by AIs. Uh, tell me a little bit about your perspective on that scenario.

Speaker B: Well, first off, I think you're exactly right about Uber and the equivalent. Uh, now just to say one thing more about that, roughly 2/3 of Uber drivers, uh, it's a second job. And so it's not as essential that they have employee protections. One, um, third is their job. And those people are in difficulty because of the status. Well, if you want to get into a discussion about AI, if this is kind of, I would say a couple of things. First off, before we even look at AI, because I know you're interested in technology, do look at what happened to journalism. So technology radically disrupted journalism because the advertising left the papers and went online. Uh, the consequence on the one hand has been a lot of journalists have lost their jobs in newsrooms and have become freelancers. On the other hand, the other consequence is that journalists, uh, have gotten your job. There's new jobs that were created by the technology. And so I think journalism is a nice example of the complexities of how technology plays out here.

Speaker A: Mhm.

Speaker B: My view about AI is the following, that AI can be a neutral tool. But what AI is doing right now is introducing so much uncertainty into firms about what they need and who they need that it's going to push them more in a direction of disposable workers because they're going to see hiring people as a bigger risk now because they may not want those people down the road.

Speaker A: I think you're right. Yes, I see this too. Number one, hiring has slowed in a number of ways. Entry level jobs have vanished, largely because companies don't want to make a career commitment to somebody. And you're quite right about the flexibility because we still don't know what the real impact of AI is going to be inside a corporation. That's a very difficult question to answer. Uh, it's going to take some time to come to an answer. So in the meantime, companies are trying to be as flexible as they can about their future commitment to the workforce because they might not need all those people. Let's be candid. That's what it's about.

Speaker B: That's right. I think that's absolutely correct.

Speaker A: So then there's a possible outcome that looks like this. Where in the future, Right now, again, I would be blunt about this. Artificial, uh, intelligence is a little bit overhyped and it doesn't quite live up to its expectations. On the other hand, it's improving at such a rapid clip that it seems likely that it will achieve those expectations and might exceed them sometime in the next couple of years. So there's this window, say till 2030 in the next three years or so, where there's a lot of uncertainty to your point, and companies want maximum flexibility on their workforce. Now, the biggest issue I see right now is within corporations, um, existing companies that have a lot of employees, let's say a corporation with 60,000 or 100,000 workers, they're trying to retool their core business operations with AI at the center. But this is an unproven and unreliable technology, so we're not quite sure how it fits. But that's what the goal is. They want to retool that entire organization. And that means retraining everyone around AI, uh, and kind of reorganizing the workforce around AI. That's a gigantic, uh, restructuring. And at the exact same time, there are startup companies that are seeking to disrupt those old businesses, and they're hoping to scale their business fast with AI, uh, without any human workers at all. So you have a race going on. Big companies that are trying to retool and reorganize around AI and little companies that are trying to scale up and compete using only AI. Now, this is going to create a lot of turmoil. First of all, not every company is going to succeed, so there will be winners and losers in that scenario. Second, it's going to play out differently in every single industry. We still don't know it's early stages. Uh, it's not entirely clear. What we do know is with certainly the software firms, the big software as a service companies, uh, where they are deploying AI, it's not driving additional revenue or growth. It's just backfilling lost income, lost revenue. So they're using AI to kind of shore up their old business. It's not really helping them grow into the future and any meaningful way. Um, and so we're starting to see that reflected. And Wall Street's responding, right? So the investors, uh, have now placed the terminal value of 0 on most software companies. They see it as, ultimately those companies aren't going to exist if AI works as promised. It's all speculative. And what we're talking about is the future. So of course the whole conversation is speculative. But I often wonder what's the fate of the worker in this? Because people take away from this, oh my gosh, I'm on my own. My company's going to fire me. I'm just one layoff away from unemployment, and then I've got that whole health care problem. I've got to pay for healthcare for my. That creates a kind of fear. And there is a tremendous backlash right now underway. Uh, it's kind of a vague, generalized, amorphous fear of AI that is creeping across the entire country, becoming a political issue. In fact, some politicians are beginning to rail against it in a kind of populist way, although others say, wait a minute, this is going to unleash productivity gains that are unprecedented. This is a new kind of industrial revolution. So you have this conflict that's going on. Right at the heart of it, though, is labor. The fear that labor is going to be displaced or what we might call technological unemployment or some people call capital. Um, bias. Technological change.

Speaker B: Sure, sure.

Speaker A: Why don't you comment a little bit about that scenario, if you would.

Speaker B: Well, I think my reaction is you got to understand the kind of diversity and complexity of the economy. Most of these kind of really, really flashy layoffs are in the Amazons and the Metas and the Googles, uh, of the world, the Oracles. That's a location where we know AI can make a huge difference in terms of coding, for example, but most people aren't there. M. M. Most people are in what. I don't use this word pejoratively at all, but in ordinary jobs, blue collar work. Um, I was talking with someone the other day about the impact of AI on home care. You know, taking care of people who are elderly or ill in their homes. There. AI is having a marginal impact. So in home care, it's used right now for some combination of surveillance and not necessarily in a negative way. Making sure people are getting what they need and record keeping.

Speaker A: Yeah.

Speaker B: Monitor. Uh, in other jobs, I mean, take my stupid job, but, you know, writing articles that no one reads. Um, I use AI I'm much more productive. Okay. M. Thank you. Uh, I'm much more productive now. Uh, for AI, I have AI Check the typos. I have AI look for inconsistencies. So I don't think there's a story. I don't think there's a story. I think there's complex stories. And I think you're. I think you're absolutely right, though. We don't really know. I think Yogi Berra said something like, we won't know the future till after it happened or something like that. A Yogi Berra ism. Um. Um. But from the point of view of the book, it introduces enough uncertainty that I think it's going to make this disposability a bigger deal than it is now.

Speaker A: And at least in the near term, it's pretty clear that the response from the finance department, any big organization is going to be keep the workforce flexible, let's keep our options open. And if it turns out that AI does everything that we hope it will do, then we don't need all these workers and hence they are disposable. Let me throw one more idea at you. I'm sure you're familiar with the work of Yuval Noah, uh, Hariri, the historian who has been, uh, made a habit of speculating about the future. He's written extensively about artificial intelligence and in his scenario he talks about a new class, not the working class, but the non working class. And sometimes he uses the term useless, uh, humans or the useless class. Very controversial. And he's attempting to be. I mean he's doing this deliberately, but his view is that, uh, AI will make a significant number of working age people irrelevant. Not just exploited by their employers, but irrelevant to employers. Tell me about yourself.

Speaker B: Last week I was in Minneapolis giving a talk and I went for a walk along the river and they have these little plaques along the river. Why? This point is historical. One of the plaques said this is where the now Minneapolis, Minnesota was a scene of making flour, you know, for uh, bread and cakes and all this. That this is the site where the XYZ barrel making company existed to put flour into these barrels. And it was a successful company. But, uh, then the uh, owners of those companies started to squeeze the workforce. So the workforce responded by creating a barrel makers cooperative and took control and they were very successful. Now at this point in the story, people like me would say, great, they stood up for themselves, they found a solution, they defended their rights, they supported their income. Then it goes on to say this was very successful until sacks were introduced instead of barrels, cloth sacks to put the flour in. In which case all the barrels went out of business and everyone lost their job. So the story we're talking about is not a new story. Now you can ask two questions about that. What happened to those barrel makers? That's the point you raised maybe earlier about Cleveland. You know, uh, people who lost their jobs were really damaged and, and you need to do something for those people. But a lot of Minneapolis is thriving. Leaving aside current events for a moment, um, and a lot of jobs were created, new jobs were created. And so I think this, um, what did you tell me about? Uh, there's a book called Bullshit, Bullshit Job. I think that's a bullshit argument. I think, I think the demand for goods and services is almost insatiable. People are going to want more things, different things, new things. Uh, the problem is how you get from here to there. And that's a problem we have not solved. We have not solved the question of how you get from here to there. Um, I think that's a big public policy question.

Speaker A: I tend to agree with you there. Um, in a way, it's a free market question as well. So there's public policy, but, but also the market's going to respond. What, uh, we do know is as different inputs in the economy drop in price or increase in price, behavior changes in response, and we'll see that happen. As certain, uh, types of work or labor skills become available at a cheaper price, there's going to be demand for that. That's the classic Jevons paradox, which a lot of people take comfort in. Uh, as the cost of something goes down, paradoxically, we use more of it, so it turns out it's still a decent business. Okay, let me talk about one more question that's on my mind here. Um, and that is a little bit different. It's about the nature of the employer, not the employee. Uh, one of the things I've observed is, uh, that the boundaries of a company are beginning to dissolve. So back in 1937, Ronald Coase wrote that famous article about the nature of the firm. And there he posited the question he was trying to answer is, well, in a perfect free market, why do you even need companies? Why can't we just all exchange goods and services with each other? And he pointed out there's a lot of transaction costs around hiring people in the first place. So sometimes it's easier for companies and more efficient for them to put people on the workforce. You hire an attorney full time instead of working with a law firm, and then you get that service, but you have it in a managed way where you can account for it easier. And, uh, you can manage that person as part of your team. They share your same values that are aligned with your interests. And so that's why firms, in his opinion and Coase's opinion, evolved. But now there's a lot of people talking about a Cosian singularity or the end of that theory. And the notion there is that the physical boundaries of the fourth firm are beginning to be redefined. Since the pandemic, I've launched three new businesses that did not have a headquarters. They weren't based in any particular place. I, uh, had workers from all over the world. There's a ton of software available today to make this very, very easy to do, very quick to do. You can hire people, you can comply with laws. I could hire people in my last firm in 150 different nations and be fully compliant with local labor law without me doing a thing. It's like compliance as a service. Uh, they handle the payroll, they handle the employee benefits and so forth. So all the administration, all the work that would be done by an HR department now is being turned into software, meaning I don't need the HR department. Same thing with finance. I outsource that. I outsource the legal. I could outsource so much that all I need to do is focus on recruiting engineers and product managers to build products. Uh, to me, I was talking about, I was thinking of this as like kind of a dematerialized company. A, uh, company that no longer has any physical presence, it no longer has a physical location, and the workforce is distributed. In fact, in many cases, the workers preferred to be independent contractors. They told me that when I hired them, I gave them a choice. Do you want to be on the payroll as an employee or as an independent contractor, depending on their jurisdiction. For some of them, it was more favorable to be independent contractors. Effectively, they were paid the same. So it was a matter of indifference to me. So now I'm sort of looking at a future where as we integrate artificial intelligence and particularly agents, in other words, autonomous AI that can actually do tasks and dispatch those tasks and manage other agents as well, we're starting to consider that in the future the nature of the company itself is going to change. We'll have a kind of, um, boundless or unbounded company. Uh, and maybe that will also have an impact on the nature of employment. So maybe the future of employment isn't to find another job, but to start a new company.

Speaker B: Uh, well, wait, wait, wait, stop there. So the thing you said up until that last statement, uh, most people, we have a labor market of 450 million people. Not very many of them are going to start a new company. But up until that point, I think you're absolutely right. And the classic example, uh, goes back is Apple, which does engineering and designs the chip and designs the product and then ships it somewhere and has its own supply chain. But I think you're absolutely right. That's happening now. There is a debate about the office, whether people are more productive. If there's face to face interaction with people. It's not clear. That is not advantageous from the point of view of quality and productivity to have people in physical proximity at least some number of days a week. That 100% distant work may not be the optimal solution for many jobs. But your basic point about this changing shape of the firm I think is absolutely correct. And it is as you say, technology enabled now. But you see the point you also made, which is you asked your folks whether they wanted to be employees or independent contractors, implies that this changing shape of the firm doesn't necessarily imply any particular employment arrangement. Uh, you could do it and have employees, you could do it and have independent contractors. So that brings us back to kind of the main story here.

Speaker A: Mhm, that's correct. Uh, I would love to get your prediction on what you think the future workforce is going to look like when we have these uh, kind of dematerialized companies and when people are working with and sometimes reporting to AI, I think

Speaker B: where we fail and what's going to be very hard is one is the issue that you've pointed to, which is health care. Absent good portable health care, we're in a very problematic world in this new regime. Uh, secondly, we don't have good systems to transition people who are damaged from point A to point B. Those barrel makers, I don't know what was done in 1900 for them, but even today our success rate with dislocated workers, people damaged by NAFTA or other trade agreements, m or technology, we don't do a good job for those people. We simply do not. And what we forget is that for these folks, as for you and for me, work is not just about a job. And a paycheck is a source of identity. It's a source of kind of social, uh, life. It's a source of fitting into a community. And we haven't resolved a question about how to deal with that. And if we don't, then these disruptions are going to be very problematic.

Speaker A: Yeah, and there's a social impact there that's going to be expressed through things like increasing crime, increase in uh, self destructive behaviors, uh, decreasing quality of life in certain neighborhoods where the workers have been displaced or in the regions where they're displaced. So that affects all of us. In other words, it's a matter that we all need to be concerned about. Even if people who are listening this happen to have excellent jobs that they like at companies that treat them with respect, where they get all the benefits they're entitled to. Even those people need to be concerned because we all live in the same world. This, uh, trend is occurring right now. Okay, well, Paul, it's been a great pleasure having you on the show, folks. I've been talking to Paul Osterman. He is the author of a new forthcoming book called Disposable the Transformation of Employment. And that book will be released by Harvard University, uh, press in August. In mid August. So just a couple weeks from now. Um, Paul, tell us where people can learn more about you or learn more about your work.

Speaker B: Well, you can look at the MIT website and you can discover me. Um, I have to admit, I have not put up a fancy, splashy website. I'm not very good at that. Um, and if you want to pre order the book, that would be wonderful. Amazon will let you pre order the book. Speaking of technology. Speaking of technology.

Speaker A: Well, I know a lot of our listeners do care deeply about the future of labor and the future of work and jobs. Uh, and so for folks who are interested, I can recommend the book. And of course it always helps when you pre order it really makes a huge difference to that author. Um, because the book is noticed when it's finally released. The pre orders make a gigantic difference. Thanks very much for joining us today on the Futurist. Paul, it's been great fun having you here. And for the folks who are listening, I just want to give a shout out to the team from Provoke Media that make the show possible. Thank you to Kevin and Elizabeth, our, uh, production team, my business partner Brett King, who is once again on the road, uh, I think on his way to Brazil, and everybody else who makes the show happen. But mostly thank you to the listeners who recommend the show to their friends, the people that give us five star reviews, and other people who give us a shout out. All of it helps. I'll be back next week with another guest to talk about the future. Thanks.

Speaker B: Thank you.

Speaker A: Well, that's it for the Futurists this week. If you like the show, we sure hope you did, please subscribe and share it with the people in your community. And don't forget to leave us a five star review that really helps other people find the show. And you can ping us anytime on, um, Instagram and Twitter @FuturistPodcast for the folks that you'd like to see on the show or the questions that you'd like us to ask. Thanks for joining and as always, we'll see you in the future.