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UK – Online staffing markets are becoming a new force in job creation

25 September 2013

In recent years, a number of online staffing platforms have emerged that allow independent contractors from around the world to sell their labour to an equally global pool of businesses. The creators of these markets play the role of labour market intermediaries by connecting buyers and suppliers.

Earlier this week, Economist and Assistant Professor of Information Systems at NYU Stern, John Horton, in a presentation at Oxford’s Internet Institute outlined some of the effects of the growth of the online staffing market.  Mr Horton is among a small group of researchers and academics who believe that online staffing providers have great potential as platforms for conducting experiments. They provide immediate access to a large and diverse subject pool, and allow researchers to control the experimental context.

According to Staffing Industry Analysts’ research this fast growing sector has a projected market size of $1.6 billion (£998 million) in 2013 and the leading providers include companies such as eLance, oDesk, Freelancer and Zhubajie based in China.One of the questions raised by the emergence of the online staffing market is the extent to which it is a job-creator or a job-replacer. While working as an advisor at oDesk, Mr Horton conducted a survey of online buyers. He asked them what their course of action would be if they could not find a suitable worker online. Of those surveyed, 37% said they would work extra hours and 21% said that they would delay the assigned project. Nearly 60% responded that they would not look elsewhere for another worker, suggesting that the new technology is a force in job creation.

Furthermore, these markets create incentives for people otherwise disconnected from the global labour market to invest in their human capital. For example, stay at home parents and workers with disabilities may find this form of work more attractive, thereby potentially increasing the pool of workers.

The discussion at the Oxford Internet Institute addressed concerns about downward wage pressure, abuse by unscrupulous employers, and the circumvention of existing labour protections. It also considered the potential for online staffing markets to contribute to global development via ‘virtual migration’ as such virtual migration offers many of the benefits of physical migration.

In his paper ‘Online Labor Markets, Horton asserts that the potential gains to welfare as a result of the increased virtual labour mobility are enormous. For example, the average hourly wage for workers in Bangladesh on oDesk is 40 times higher than the average hourly wage of Bangladeshi workers not on the website.

In addition, Horton argues that there are few impediments to workers from less developed countries in the online staffing industry. Online markets demand little from the institutions of the worker’s home country. He points out that, “Given the central role that a country’s institutions play in its economic development it is remarkable how little these markets demand from the institutions of the worker’s home country. Prospective workers need only to be able to get online and have some way of receiving remittances. Workers do not need functioning courts, developed finance sectors, work visas, information about commodity prices, local reputations; or race, class or social backgrounds required for employment in local labour markets”.

However, existing labour law has been built around a very different type of work. Given that online staffing is in its infancy, the effect the market will have on government policy is yet to be determined. What effect would it have on employer-provided health insurance for example? Will markets grow faster in countries that have a state health system? 

The lack of synchronicity between the job market and current regulation is a theme covered by Managing Director of Ciett, Denis Pennel in his new book, ‘The New Reality of Work’. Mr Pennel said: “We need to update the regulation when it comes to labour laws and the ways that labour markets are being organised. Policy makers have to review the way the labour market is being regulated and modernise it.”

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