Reports of young guns ‘crushing it’ in the gig economy are still hard to come by. It gets lonely and the so-called flexible companies make tough demands.

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Bots don’t sign employment contracts. We humans do.

Much of the knowledge pool on the future of work is informed by shiny new words — artificial intelligence, bots and algorithms — but these don’t ever exist in isolation.

See that grizzled gentleman in the corner office poring over your employment letter? His team oversees the paperwork for all kinds of labour — full-time and part-time. Those are people empowered to interpret gaps in the legalese, they call the shots until you threaten to quit.

Most employment contracts are essentially incomplete, a breakdown affects both parties (even if unequally), the contract tells you how much you’ll earn and how quickly you could be fired but it rarely tells you what all you need to do in varying circumstances.

The future of work is as much about bots as about how contracts are interpreted in a world where digital tools bend time and melt distances. It’s about where the gig economy worker fits inside the firm.

For all the swirling jargon on the informal economy, the perpetual gripe of freelancers’ unanswered emails and pending payments speak to the outsize influence of firm level processes and contracts even in the most modern workplaces.


The future of work is as much about bots as about how contracts are interpreted in a world where digital tools bend time and melt distances. It’s about where the gig economy worker fits inside the firm.


A economics paper written in 1937 that went on to win the Nobel nearly 60 years later in 1991 links our thinking on the future of work with a past that will endure.

Why do firms exist? How are contracts enforced and interpreted in a constantly shifting marketplace? How are agreements between firms and people regulated in the absence of detailed rules?

Ronald Coase’s 1937 essay ‘The Nature of the Firm’ was junked when it first appeared; it went on to win the Nobel only in 1991 when Coase was 80. This honour came 59 years after Coase first floated the idea in 1932, when he was barely 21 years old.

For all the late recognition, the wisdom of Coase’s work has weathered many generations of cultural shifts in the workplace and remains a powerful idea at a remarkable time — the fourth industrial revolution.

For the gig worker in any geography of the digital economy, Coase’s insights in ‘The Nature of the firm’ and some other economists’ works listed below contextualise the reality of entering or exiting the job market from the supplier’s side. It strengthens understanding of our value proposition inside theirs.

Coase explains why firms exist and the takeaways for us, the gig workers, is a finer understanding of why we may want to exist inside those firms rather than outside it.

Reduced to its simplest terms, the Coase thinking goes something like this:

Firms exist as a reaction to the high cost of depending on open markets (piecemeal contracts) for the same jobs. This applies at every level of the organisation. Middle level managers helping cook the books for quarterly results season are almost always hoping to drive down fixed costs and keep variable expenses in check so that the difference between sales and variable expenses stays in a good range. Capping manpower cost and understanding its variance over a 12 month period is crucial for their own pay checks and performance linked lollies.


For all the late recognition, the wisdom of Coase’s work has weathered many generations of cultural shifts in the workplace and remains a powerful idea at a remarkable time — the fourth industrial revolution.


As a logical next step, once inside the firm, it’s cost effective to apportion tasks via top-down commandments rather than treat each piece of work as a separate project to be contracted out which involves time and material costs.

Within India, what we do know is that the ratio of wage bill linked to contract workers as a percentage of total output is rising. Available data confirm this. Yet, the effects on productivity are ambiguous at best, explains economist Ritam Chaurey in a presentation on ‘Labor Regulations and Firm Productivity in India’ at Columbia University in New York. “Short term contracts which need to be renegotiated every 6 to 9 months or less leave very little room for motivation,” said Chaurey.

Whether company strategy is either evolving or just plain nutty, Coase’s theory suggests it is far cheaper to have fixed rate captive labour which can be shunted around between departments rather than contract ‘out’.

Coase fans among economists pushed this idea forward. Oliver Williamson (Economics Nobel, 2009) and Oliver Hart and Bengt Holmstrom (Economics Nobel, 2016) flesh out the lines in the sand in long-term and flexible contracts.

Williamson argues that how markets and firms resolve conflicts of interest are different. When contracts break down, firms are more potent than market forces at governing the unsaid pieces of those contracts.

These are at once cautionary tales and lane makers. They tie up with the reality of a workplace in flux, where millennials are sought after but bosses crib that “they don’t have comprehension.” Millennials crib that their bosses are “vague”, cross functional teams are often just plain dysfunctional.

Reports of young guns ‘crushing it’ in the gig economy are still hard to come by. It gets lonely and so-called flexible companies make tough demands.

For listed companies, rising oil prices and hardening interest rates are shaving off profits and fat cat managers everywhere are hung up on a four letter word: Cost.

Between the gig economy’s promise of the young and restless worker who’s ‘killing it’ and the conditions that make such a life an imperative — lack of dependable employment — is a chasm created by faltering economic systems.

At a time like this, Coase’s theory goes many levels deeper into the motivations for the quirks we often see inside the workings of a firm. Having an inside out view of the ‘nature’ of firms and why they exist suggests gig workers must sweat the details harder in the early stages of contractual hiring. It’s not just good for the contract worker, it’s works for the firm too although they will never tell you that.


References

Ronald Coase, The Nature of the Firm.

Oliver Williamson, Transaction Cost Economics: The Natural Progression, Noble Prize Lecture, 8 December 2009.

Oliver Hart and Bengt Holmström, Contract Theory.

Klaus Schwab, Fourth Industrial Revolution, World Economic Forum, 14 January 2016.

Ritam Chaurey, Regulations and Contract Labor Use: Evidence from Indian Firms, Journal of Development Economics, 6 January 2015.

The views expressed above belong to the author(s).

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