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Disclaimer: This post has been created as part of my work at Talent Venture Group. The views expressed are my own.
After the pandemic radically changed the way many people work, there has been much more speculation about what the future of work will look like. Remote working has been the main discussion—which likely will keep going for quite some time. But there are adjacent discussions about the future of work, specifically about how we will be dividing our time in the future. Andy Spence, the Workforce Futurist, talks about the “Distributed Workforce”, where workers will distribute their time using digital infrastructure—and that they will leave traditional paid long-term employment. Another one that has discussed a future like this one is Ben Schecter from Andreessen Horowitz, who argues that work in the future will be conducted through and for Decentralized Autonomous Organizations (DAOs). He also argues that work will be more varied and that many workers will earn an income from learning skills, curating content, creating art, or playing games.
The pandemic has been a driving force in many of these speculations—it led to the Great Resignation, remote working, and an overall discussion about what work means. The reasons behind the Great Resignation are still discussed, but the discussion about work that it has brought about has, among other things, materialized in mainstream attention for r/antiwork, a subreddit that is against the mainstream concept of working with about 2M members.
Another main argument in the speculations about a future of work with less long-term employment and more short-term engagement and diversified income streams is web3, blockchains, and new digital infrastructure. These technologies support applications, services, and products that make distributed work easier. Web3, built on blockchain, is filled with solutions that make it easier to work short-term—“bounty hunting”, more secure and verifiable records of work, being paid for testing and using products, and creating supporting communities. There’s both the promise of such solutions and actual solutions that drive the interest in using web3 for the future of work. (For more about web3 and the future of work, see Karl Osis’ report Blockchain and Future of Work.)
All of these are useful for individuals that are working as freelancers, gig workers, and short-term contractors—so it is easy to see why some optimists and futurists believe that decentralized web3 solutions could be the future. At the same time, critics mean that there is very little difference between web3 and traditionally centralized solutions in what they offer to the consumers.
The above arguments for the future of work are looking forward into the future, most of the proponents do not specify when the change to a majority temporary work or web3 work will happen. It seems though that one should not expect this to happen until 5-10 years from now. While it is important to think ahead in the world of venture capital to try and stay ahead of the trends, at the same time, it is often useful to remember that predicting the future is hard—Reality has no obligation to follow neat predictions about how we will conduct work in the future. It can therefore be helpful to look at the data from the past year, to see if we can gather any clues about the temporary labor industry in the years ahead.
The Supply of Temporary Workers
First of all, we need to define what a temporary worker is—the common definition that most national accounts conform to is “wage and salary workers whose job has a predetermined termination”. This is the definition OECD uses, which we will also use henceforth, but as we will see, it is also helpful to distinguish between high skilled temporary workers (white-collar)—that mainly work in marketing, tech, or consulting, through platforms such as Upwork and Fiverr—and low-skilled temporary workers (blue-collar)—that work in warehouses, as frontline workers, or in construction—as they have different motivations and working conditions.
To get at the bottom of the questions posed, we need to take a look at the available data. OECD gathers data on temporary employment for all its members and below is a sample for some selected countries between 2000 and 2020. (Note: for the US there is only data for 2001, 2005, and 2017)
The data shows that temporary employment has been very stable over the years with little variation in each country. Overall, there’s not much evidence here for a booming supply of temporary workers. Instead it looks like the share of temporary employment is decreasing in some countries like Germany and the UK that both are at early 2000s-levels of temporary labor employment.
However, this is data that ends around the beginning of the pandemic. It is very possible that the pandemic changed the trends in many countries. A McKinsey report early in the pandemic showed that there was much uncertainty for temporary workers and that they were hit hardest by the spike in unemployment as lockdowns were implemented, due to companies first laying off temporary workers while trying to keep their permanent employees.
Now when the pandemic has become less of a threat, McKinsey reports results from a survey of those that quit their jobs during the pandemic. Among the most popular reasons for quitting were “a lack of meaningful work”, “lack of workplace flexibility”, and “lack of career development potential”. These are all problems that potentially are solvable by engaging in temporary work—with a high enough skill-level, a temporary worker has the freedom to choose meaningful work while also being very flexible.
Other surveys have found an increase in the number of people that are thinking about using temporary work or side-projects as ways to increase their income in a global economy that is uncertain and unstable. And staffing companies are also reporting a higher demand than before, with HR departments looking to scale and maintain their workforces by using temporary workers.
Why do People Work Temporarily?
Another important dimension in determining the future demand for temporary labor solutions is why people work temporarily. A priori it seems like reasons like “more freedom”, “higher earnings”, “simpler”, and such, being common, would be in favor of temporary labor being a main feature of the future of work. On the other hand, if the main reasons for temporary labor are “a way into long-term employment”, “no other choice”, and such, would be evidence in favor of a more measured future of work where temporary workers are a significant, but not majority, part of the overall labor force.
Early studies of temporary labor done in the late 90s and early 00s reported that the main uses of temporary labor were as a way into long-term employment or because the worker had no other choice. However, that seems to have shifted with the rise of digital employment opportunities and digital matching services. A global survey of freelancers found that freelancers strongly feel that they are flexible and independent, get to work on challenging problems, and meet with and work with interesting clients. Similarly, a survey study from 2017, with gig workers from Nigeria, Vietnam, the Philippines, and more, it became clear that most of the digital temporary workers chose to work temporary jobs because of the freedom and flexibility it meant, with higher possible earnings as another important factor as well.
However, the same study also found that there are significant problems that many digital gig workers face in their everyday work—from uncertainty in earnings to the lack of benefits and a lack of social interaction. These are all frictions that both make temporary labor harder for those that engage in it and that makes it a less attractive choice for those that are currently not temporary workers. This may mean that services and solutions that help decrease the frictions that come with temporary employment could increase the number of people willing to engage in temporary labor.
For blue-collar workers, the problems with temporary work are more related to predatory behavior from employers, unsafe working conditions, over-supply of labor, and wage declines. In the UK, gig workers have protested cuts to delivery fee payments—i.e direct cuts to the workers’ income. As these gig workers have less in-demand skills and the supply of labor is high, they have little bargaining power towards employers and thus wages are insecure and low. In California, laws have been passed to create a new form of employment that secures a minimum wage and some benefits for gig workers, while still classifying them as independent contractors. A report, from the National Employment Law Project, shows that nearly a quarter of temporary workers have experienced wage theft from an employer and nearly one fifth of all temporary workers did not receive necessary safety training before engaging in unsafe work.
So the conditions and problems that temporary workers face differ very much depending on the industry and skills of the worker—high skill, white-collar workers, such as marketing and design consultants or software developers, worry more about finding meaningful work and uncertainty which can be insured against, while lower skill, blue-collar workers, such as platform drivers and healthcare professionals, with less social capital and leverage, worry about their wages, unfair practices, and finding work at all.
Ultimately, this has led to, and is continuing to develop into, a segmentation of the services and solutions offered to temporary workers. Where services offered to high-skill workers will be more about insurance, selection of work, and solutions that increase productivity and collaboration, while services offered to low-skill workers likely will be more about income stability, security, and quick and easy access to work opportunities.
What’s Going on in the Market?
As we have seen in the pre-pandemic data, much suggests that there is not much change in how many people work as gig workers, freelancers, and short-term employees. However, the uncertainty in the numbers due to the pandemic makes it difficult to make strong inferences about the future of temporary labor. And there is ample evidence of alternative work engagements and “side-hustles” becoming more popular among young people.
To understand the available solutions for high-skill workers, one needs to first look at the two giants and pioneers of temporary labor marketplaces—Fiverr and Upwork. Both of them have existed for a long time, Upwork was founded in 1999 and Fiverr was founded in 2010. They were both also funded with the vision of helping freelancers, creatives, and temporary workers to find work opportunities. As of 2020, freelancers from more than 180 countries earned more than $2.4 billion through Upwork through more than 90 different categories of work and Fiverr reported a 77% increase in annual revenue. Upwork has also doubled the number of core clients from 84k in 2017 to close to 150k in 2020—each core client spends on average $5,000 each year. Fiverr has also increased the number of buyers by 190% since 2017, with a 45% increase from 2019 to 2020, which shows both the immense growth of the platform and the extra growth from the pandemic. (The difference between Upwork and Fiverr’s numbers come from Upwork’s positioning as an enterprise marketplace—they don’t report the total number of clients or buyers). These stats make it clear that the gig economy is rapidly growing and that these two platforms are the giants that smaller and newer companies in the space have to compete with.
Even though the companies are relatively similar, they differ in some key aspects. Fiverr operates with the model that freelancers post their services to the marketplace, which companies and employers then can find and buy from the freelancer. Upwork operates a two-sided marketplace, where freelancers can offer their services and companies can post job ads. But the underlying revenue generation is similar in that both Upwork and Fiverr take a cut from each transaction made on the marketplace—Fiverr takes 20% of each transaction while Upwork takes 20% on the first $500 earnings from a client, 15% between $500-10,000, and 10% on all earning from a client above $10,000. Upwork also offers a kind of subscription service for clients that want more assistance in finding freelancers.
The key features of marketplaces like Upwork and Fiverr is the marketplace, which helps companies and freelancers to find each other, as well as the review systems that both use. By having reviews, Upwork and Fiverr solve the adverse selection problem for firms that, in the absence of reviews, have little ability to know how good the freelancers are.
Most recent marketplaces operate under similar models to Upwork and Fiverr, with the main differences often being that they specialize in some aspect of the process. This is due to it being almost impossible to compete with Upwork and Fiverr with the exact same model and broad focus—though some companies do just that, such as Braintrust for example. Examples of specialized temporary labor marketplaces are: Nomad Health, a US temporary labor marketplace for the healthcare industry, YouCruit, a Swedish company focusing on the trucking industry, and Pangea.app, that offers a temporary marketplace for freelance students.
What is Happening in the VC Space?
Now, let’s look at what has happened in the venture capital markets for marketplaces and other solutions that make temporary labor easier to conduct. In 2021, we recorded 57 venture capital deals in the Temporary Labor Marketplace sub-vertical of the HR & Talent tech value chain. The total funding exceeded $650M. An overwhelming majority of this funding went to US companies—about 22 deals exceeding $720M in value—while less than $100M through 13 deals was invested in European companies in this sub-vertical. Contra, raised $30 million, Nomad Health, raised $63 million in a series D, and Wonolo, raised $138 million in a series D, are a few examples of notable funding rounds in this sub-vertical.
This highlights a few things; the sub-vertical was one of the most active last year looking at the total number of deals, Europe has a far less developed market for these kinds of marketplaces, and if we are looking even closer at the data we see that most of the activity happens in the earliest pre-seed and seed stages of funding. Similarly, looking at the data for Upwork and Fiverr—their growth mainly comes from the US and south-east Asian markets such as the Philippines and India.
The reasons for this are hard to pin down, but a report from the French freelancer marketplace Malt discusses some of the reasons for the different outcomes in different European countries. They highlight legal reasons and simplicity as reasons for freelancing growing more in France and the UK than in Spain and Germany. This can explain the more fragmented European market, where different labor regulations and tax codes make it harder for platforms to grow across country borders. Extrapolating to the US, where there’s one integrated market, it makes sense that legal circumstances can explain some of the differences.
The differences in platform-usage between Europe and the US should not make us miss the larger picture though. Figure 1 shows that the US has a way lower percentage of people working temporarily, and the same goes for self-employment where the US has one of the lowest rates of self-employment among the OECD countries. Thus, the difference between Europe and the US can come from two mechanisms, either that the self-employed and temporarily working are more skilled and more inclined to use digital means in the US compared to their European counterparts or that employers in the US are more willing to employ freelancers using marketplaces and platforms that their European counterparts. The latter mechanism seems to be the more plausible one—employers in the US reported in 2018 that 49% of hiring managers had hired freelancers during the year, which was a 14 percentage point increase compared to 2017. It seems unlikely that this trend has reversed during the pandemic. Finally, the US is the largest and most well-developed market in the world. So freelancers from all over the world will try to find work there, which will increase the statistics for US platforms and make the market grow faster in the US than the European market.
Despite the dominance of two large companies, Upwork and Fiverr, and an apparent US focus in the market, the market is still young. More than 60% of all deals happened in the pre-seed and seed stages—implying that there’s both innovation and new business ideas coming out and that venture capital investors are keen on getting into the market. This suggests that there is a stark demand for the products and services that these startups create, but it also raises concerns about future competition. How many of these marketplaces for temporary labor are needed? Many of the marketplaces are separating themselves from their competition by specializing in a niche—such as truckers, frontline workers, or creatives—still, for each niche there are multiple startups offering similar services. In the future all of these marketplaces may suffer from the competition and we may see a period of consolidation.
It may even be that this period has come already. Just a few weeks ago, the French startup Malt acquired their German competitor Comatch. Malt offers a marketplace for freelancers in, mostly, IT and creative industries and Comatch offers a similar marketplace but for consultants and industry experts. Even though this is only one example, it may be that these kinds of acquisitions will become more popular in the years ahead as struggling smaller marketplaces get acquired by more successful competitors.
Comparing temporary labor marketplaces which are focused on high-skill, white-collar, workers to the more blue-collar focused marketplaces, we find that investments are much higher in the former category. This difference is likely due to the higher purchasing power of high-skill labor and higher cost of the services of high-skill labor, e.g it is more profitable and less volume-demanding to take a 20% cut of each transaction when the median transaction is $200 compared to $50.
The temporary labor marketplace sub-vertical is not the only place where innovation has been ripe the past year. For temporary workers, finding work is one friction that marketplaces solve, but there are many others that still exist such as managing payroll, insurance, and such services. In this area we have not seen as much activity during 2021 as for marketplaces, but there are still interesting solutions and services getting funded. More significant is that the funding for these types of companies has continued to expand in 2022. A couple of examples are: Found, that offers a banking app for freelancers and self-employed, raised $60M from Founders Fund in the beginning of this year, Indeez, a company that works with platforms and labor marketplaces to offer income protection and other benefits for part-time workers and freelancers, and SteadyPay, that offers a similar service as Indeez but more directly to temporary workers.
These kinds of solutions and services are just as important in reducing the labor market frictions for temporary workers—they make it easier and less risky to engage in temporary labor, especially for those that are only beginning to engage in temporary work. Then, marketplaces help you in creating a network, a portfolio of projects, and a resumé, while the other solutions help you in managing risk, health, and your earnings. With more and more innovation in the types of services offered specifically to temporary workers, there’s reason to believe that more and more people find it profitable to engage in temporary labor.
Here, again we see more of a focus on the benefits and services that are most beneficial to the problems that high-skill, white-collar temporary workers face. And again, the reason is likely due to higher skill workers having a higher purchasing power and a demand for these kinds of services. Remember the common problems faced by the different types of temporary workers—skilled workers worry about income uncertainty and insurance, while less skilled workers worry more about safety, income protection, and avoiding predatory behavior.
It seems likely that much of the innovation may come from web3 in this space, as the main promise of web3 is to create new business models without the intermediaries. This can be significant for temporary workers in that it further reduces the cost of being a temporary worker, but also in that it reduces the cost of employing temporary labor for companies. There are already some solutions regarding temporary labor coming out of web3, such as Braintrust, Opolis, Kleoverse, and Talent Protocol. All of these help temporary workers by reducing their costs, the cost of employing them, helping them create networks, or by giving them access to benefits.
It is also true that play-to-earn in web3 applications has helped many to increase their earnings during the pandemic. The most famous example of this new opportunity of earning money is Axie Infinity, a game where you buy Axies—creatures that are used to build, battle, and hunt for treasures in game. The Axies and other in-game items and builds are tradable on a marketplace in-game and thus players can earn money from the game. According to Axie Infinity, goods worth more than $3.6 billion have been traded in their marketplace.
According to many web3- and crypto-enthusiasts, Axie Infinity and their likes are a perfect example of how web3 completely changes the way we will work in the future. Another example of a semi-new way to earn money in web3 is RabbitHole—an application that lets users earn money and credentials from learning new skills. Both Axie Infinity and RabbitHole show that there’s a possibility that web3 will provide opportunities for people to work in a completely different way. Even if you are not completely sold on the picture, it at least seems clear that these are legitimate and potentially useful ways for people to earn an extra income aside from their regular job.
Web3 also offers new ways for creators to earn an income by monetizing their creations. Perhaps it is this group that will drive the adoption of web3 services as they have a harder time getting paid in today’s world. Through marketplaces such as OpenSea, creators can tokenize their creations and thus get fairly paid for what they create. This development does not only affect digital artists—writers, music artists, and programmers could potentially also use NFTs to monetize their work. Having more and more creators offering access to their work on web3 services and platforms will increase the attractiveness of web3 and thus can lead to more and more people using web3 to find and do work.
Predicting the future of work is hard, especially when one tries to predict many years ahead. Therefore, it might be useful to inform one’s predictions with data about what is currently happening in the market. We have seen that there’s weak evidence for a strong increase in temporary working after the pandemic, most of the evidence has come in the form of small surveys and staffing firm opinions. But the increased funding in temporary labor marketplaces, gig economy benefits, and such is also evidence of an increase in the VC interest for capturing the gains in a growing market.
The activity in the venture capital markets indicates that working as a temporary worker will become easier as solutions and services become available and mature. Frictions that once inhabited temporary work and made it less attractive are now being addressed by various startups—which in the long term may lead to an increase in temporary workers.
With these pieces of evidence, we can now update the predictions about the future of work and about the companies offering services and solutions to temporary workers. It seems likely that the reduction of frictions actually will lead to an increase in temporary work—however, it seems unlikely that people will shift to working exclusively in web3 in the years ahead. Instead it seems likely that the increasing number of temporary workers will use the new marketplaces and ancillary services, such as benefits, banking services for freelancers and self-employed, and income insurance to increase their productivity, collaboration, and earnings. These services will make it easier for highly skilled workers to work on multiple projects at the same time, due to remote working the costs for working many projects simultaneously decreases significantly. Overall, it is likely that this will drive a wedge between the most productive and in-demand temporary workers and the rest—as these workers can utilize the digital developments to realize the dreams of temporary workers: freedom, flexibility, and high incomes.
Web3 will likely serve as the playground for a small fraction of the population that can be used to earn a side-income through gaming, learning, or bounty-hunting, until, and if, there’s enough innovation to become a truly available alternative to traditional ways of conducting temporary work. In its current form, web3 has few alternatives available for people that are not developers and the barriers to entry are quite high, but with time that can change and the attractiveness of web3 will increase. For companies operating in the temporary labor space, there will likely be fierce competition due to the amount of startups trying to get into the space. Consolidation is a possible outcome of this, where the companies that manage to take advantage of network effects can acquire competitors to further establish their position on the market.
It is clear that the change to the kind of world that futurists, industry experts, and enthusiasts envision will be slow and gradual—but the change has started to take place and the digital infrastructure and supporting solutions needed for it to happen are being developed and improved each day. For high-skill and low-skill workers alike, the new solutions will increasingly make it less difficult to work temporarily and the frictions that many temporary workers face will be less and less common.