Reinventing work

On the 1st of May, I wrote a short post about “Rethinking Work”. In a moment where the Covid19 pandemic seems to be at least partially under control, and governments around the world are all planning their “reopening” strategies, work appears to be one of the big losers in the first impacts of the economic downturn.

On the other side, there have been many calls to look at what can be positively built after this crisis. I have actively taken part in the #GoodAfterCovid19 initiative, and genuinely think that there is hope from a lot of different perspectives.

Lars Schmidt posted on LinkedIn a request for comment that prompted some more reasoning from my side. He was looking for “bold ideas” on the way the World of Work will evolve.

I’ve answered the request for ideas (many of which have now been collected into a shared document), but this triggered some more thoughts on how to address the issue, that I will try to explore into this article.

Reinventing Work for me is not just about adjusting to some new technologies, but rather rethinking the entire ecosystem of Work, making sure we consistently think of it inclusively, correcting the current distortions that are today present.

And we will start this journey precisely from this, the current distortions that affect the way Work is treated by law and finance.

We will then go through a PESTLE analysis of current Covid-19 situation, and then finally check the real trends affecting Work and introducing, though, a distinction on how each pattern will affect different clusters of workers.

Updates: This article has been updated after its initial publication.
– May 11th: Added summary to the first part of this article and its conclusion. Added new sources to the PESTLE analysis. Corrected a few typos and hyperlinks.

Reinventing Work: is it possible?

In my answer to the Linkedin Question, I have mentioned three elements that need to be put in place to ensure that a true “Reinvention” of Work can happen.

1. Changes in Labour Law that help redefine what Work is and reshape the related protection system, avoiding abuses.
2. Changes in Accounting Rules that help redefine the role of Work in the organisational performance. Not just a Cost, but a vital Investment.
3. Changes in Value Perception. What is the Value of Work? How do you define the related compensation? With imperfect job markets, also this part needs redefinition.

Work and Labour Law

Current labour law is still based on an old roman distinction between two types of contracts both concerning Work. The locatio conductio operarum is a contract whereby one party agrees to supply the other with a specific quantum of labour.

The locatio conductio operis is a contract whereby one party agrees, in consideration of money payment, to provide the other not with work, but with the result of labour.

This dichotomy persists and can be traced more or less in all legal systems between employment and service contracts of other types (generally linked to freelancers and self-employed).

What does this mean? In an employment contract, I usually am committing, in exchange for a salary, to deliver an amount of Work measurable in time. The origin of these contracts descend from the master/servant relationship and have been heavily impacted by labour movements of the XVIII and XIX century.

One of the pillars of the social reforms asked was the fight against the so-called piece work contracts, by which employees were paid for the number of units produced. This consolidated the view that employees had to be paid for their time, not the results of their Work.

Social fights have historically focused on this type of contract, which in most countries has a much higher level of legal protection than the service contract. The reason is simple: it was always considered that individual employees did not have real bargaining powers, whereas self-employed professionals would.

With the changes in production systems and the birth of the modern corporation, more and more Work moved away from the factories, and into a new generation of jobs that have been collectively named “white collars”.

Work legislation has been slow in adapting, but in general terms, these recognised some level of responsibility for the pursuit of objectives, for a limited number of high ranked officials in a company.

Often, the legal concept of “executive” and the level of real delegation and management do not correspond.

With the beginning of the automation revolution and the outsourcing trend, the relative weight of blue-collars has more and more diminished on the total workforce. Looking to purse efficiency, more and more companies have resorted to trying to compress labour cost also by exploring alternative collaborations.

Some jobs have been outsourced to individuals. Instead of having an employment contract, individuals accepted to become a self-employed freelance, giving up some level of protection for the certainty of some income.

This has started the development of a grey area of workers, often called pseudo-self-employed which do not have the bargaining power of true self-employed professionals, and yet have to resort to accepting non-employment contract to ensure survival.

This trend has consolidated over time, also with the so-called gig-worker. Many countries have tried to legislate to offer additional protection for this class of workers, with varying degrees of success.

This has brought to a new reality, where the contracts initially developed for the people that needed more protection (lower-paid jobs, front-line worker, entry-level roles etc.) are instead protecting an already wealthier part of the working population.

Work and Accounting Principles

You heard it over and over again, companies claiming that people are their most valuable assets. In accounting terms, this is unfortunately not true. Companies do not control their employees.

Therefore, these are not treated as assets. Salaries are simply a line in the operative expenses portion of the balance sheets. Accounting principles are not in tune with the way that organisations have evolved. And this poses different types of issues:

• If I can automate a job with a robot, I have an accounting incentive to invest in the robot because I can classify that as an investment and include depreciation over time, having the additional advantage of slashing a “fixed cost” immediately.
• There are no incentives, in accounting terms, on investing in training and development activities for people.

Another element amplifies this issue. In business control terms I can distinguish between what I pay for employment contracts (which is part of my fixed costs) and what I pay for services (which instead is conceptually part of my variable costs).

Which also explains the general convenience of moving towards these type of contracts as we have seen.

Work and Value Definition.

A third element to consider is linked to the perception of the Value of Work. How can I measure it? The angle I want to mention is the same that is coming from the discussion about CEO compensation and their ratio towards the average pay in the company. How is the Value of a salary defined?

Again, we have a big difference between those that have a bargaining power (often supported by executive compensation data providers, often hired by CEOs to “pump” compensation) and those instead that do not have it, and that often have only hope in collective bargaining and minimum wage regulations.

I believe this issue is much broader and linked to the more general question of how Value is defined in our society, as Mariana Mazzucato mentions in her excellent book The Value of Everything. For example, Why are salaries higher on average in industries like finance and consulting, vs those of productive sectors?

People work hard and companies make big profits, but employees don’t see that they share in the wealth they help to create.

Mariana Mazzucato, Interview by Lynn Parramore

This element has a variety of impacts. The main one is making the labour market a completely imperfect market where demand and supply are not syncing correctly, which links to ripple effect that includes migrations (both inside countries and across countries), issues in education systems and so on.

The understanding of value will also mean looking at entirely new narratives in Job Design. Today very few organisations really look at Potential Value that roles and jobs can perform in an organisation, as they are “locked” into a cost perspective only. That could unleash a lot of potential new value for companies and organisations across the world.

Without an overriding strategy of redefining work, workers represent cost savings rather than freed capacity to create new value for the business or the customer.

 Jeff Schwartz, John Hagel, Maggie Wooll, Redefining work for new value, Deloitte

Consequences

The three elements above create an immediate number of consequences, among which, for example:

1. In a period of difficulty, a company has an incentive to slash costs by reducing the workforce, even if this means lowering opportunities for future growth.
2. Companies have incentives in outsourcing work to self-employed, even if this means less control on their “talent”.
3. In most legislations, it is difficult to indeed link compensation to the Value generated by the individual, even at higher levels in the organisation.

There are also several cultural consequences. The fact that Work is still seen as a quantity rather than as an output. The fact that salary increases are often the result of seniority rather than performance.

The fact that “command and control” seem to be implicitly recognised by labour law (every HR manager knows that the only moment when you truly want a “micro-manager” is when you are in a labour court).

A First Conclusion

Reinventing Work is possible, as all the above elements are known and considered a limiting factor by many. What’s needed is the political will to “change the rules of the game”, aligning the current labour market with the needs of both organisations and the overall economy: an aspect not to forget.

What needs to be done are strong acts to deliver the following:

1. A Change of Labour Law that puts in discussion the traditional split between “employment” and “free-lance” work, recognizing all the shades in between. Two options are there: either recognise the same degree of protection for all type of workers or create a system that links decreasing protection to the true bargaining power of each worker.
2. A Change in Accounting Rules that ensure the recognition of the true value of “Human Capital” for a firm. This is not an easy task, as the ripple effects (for example on taxation) are many and variegated. A first step would be to ensure that Financial Analysts and Venture Capitalist start using a consistent set of intangible indicators to evaluate the investments in people. A change in the GAAP is however required, to ensure that also smaller companies can align on the new behaviours.
3. A Change in Value Perception requires the strongest intervention because it will need a reinvention of the job markets as we know them, and a redefinition of the criteria we know on how salaries are established. A big endeavour, that will profit from changes in Labour Law and Accounting rules.

The above three elements are not entirely new. But what is then preventing a new definition of Work? Before discussing this, I think we need to have an in-depth look at the broader scenario, heavily impacted today by Covid19.

Current Trends and Covid-19

Covid-19 has, for sure, amplified some existing trends and created new ones. I’ve used a typical PESTLE framework to try to organise the vast amount of information that is currently available.

I’ve been collecting this for some weeks now, and although I’m conscious a lot of this might be old in two weeks, I think it gives a good picture of what the world might look. I’ve specifically focused on some trends that might impact Work.

Political:

• Political Discussion is going through several topics that were previously not acceptable (from increased debt to revised economic plans). Some political principles can potentially become more flexible. Governments have overall intervened in a variety of different ways.
• There are significant forces pushing governments for increased power of the State, primarily through nationalisation of critical assets (airlines in particular).
• Some more authoritarian governments may be reluctant in giving back the emergency powers obtained through the Covid-19 emergency. There is a growing number of actors that are portraying the economic crisis that is looming on the horizon, as a crisis of capitalism.
• In this framework, there is a growing sentiment towards measures of Universal Basic Income also from actors such as the World Economic Forum. Spain has already implemented new legislation, and other EU countries are considering the same. These all seem to be answers to the current perceived fragility of our systems.
• What will the role of China be? We’re currently seeing two opposing trends: one that seemed consolidated looked at an efficient country able to combat the pandemic and limit its internal damages, acting to support other countries in need after. In this second phase, however, there seems to be an attempt to rebuke the role of this country, up to the assertion of a “man-made” virus.
• The efficiency of the lockdown seems not so clear now, and requests for more transparency are coming from multiple angles. All this seems to consolidate the fight for supremacy between the US and China as superpowers.
• There seems to be a common thread in internal politics in many countries with a more populist and nationalist sentiment and an overall retreat of globalisation.
• With the reopening process underway, we’ll need to understand how countries will reopen their borders, and guess what the impact will be in the long run.
• For sure, economic and social issues will pull governments to focus inward. This has potentially unknown consequences, especially has some phenomena like migrations, have not been resolved at their roots. At the same time, the interconnectedness of international economies will push governments to seek the support of those foreign bodies (EU, ECB, IMF, WB, etc.). Still, existing rules seem to be already challenged.
• New models of private intervention seem to emerge, covering for the shortcomings of international cooperation.
• Work is currently mostly absent from the political discussion, except few initiatives taken to remediate to the high toll of unemployment that is appearing in most countries.

Economical

• The recession will be severe, probably only comparable to that of the Great Depression. The first data coming in are really bleak, both for the US and the European Union. As the reasons for this are not solely financial, there are different scenarios based on length and implications for markets and businesses.
• This recession is, however, going to be different than in the past. It’s not caused by the implosion of a ‘bubble’, that ultimately pushes for clearing the less productive part of an economy. A lot of productive companies (especially small and medium-sized) will be wiped out simply because of the lockdown and the resulting changes in the behaviours of consumers.
• Many governments are still not in shape financially: low and even negative interest rates, currency market volatility and the long tail of the 2008 crisis means that resources are finite. Yet, the mantra of “whatever it takes” seems to be applied again, but there is uncertainty over the longer-term policies.
• The crisis has impacted some industries heavily already (Tourism, Airlines). For others, there are only estimates at the moment, and the situation is not clear. Companies with high debts (including banks) will probably pay the most significant toll in terms of rate of failures.

Work is, of course, one of the areas of primary concern under economic considerations.

• Initial estimates of unemployment have been surpassed easily by actual numbers. Unemployment data get challenging to read as governmental agencies are overwhelmed with requests. Lesson from the past shows that there are no easy answers. At the same time, there seem to be industries that are still hiring, but there is no evidence that this trend will consolidate.
• With lockdown, the crisis has amplified already existing inequalities in the workforce. People with higher paid jobs have been more easily able to work from home. Front-line workers, instead, have had to either work in more challenging conditions or lose their job altogether due to the closure of their employers.
• There is already a rapid reconfiguration of supply chains underway. Done based on risk management, but also pushed by new nationalistic considerations, this reconfiguration will have the critical effects on the countries that so far have been net suppliers. This will mean the disappearance of jobs in some regions of the world. Moreover, moving away from “just in time” approaches means reduction of efficiencies. This will also result in impacts on logistics.
• Changes in business models are also going to affect employment. For example, hospitality and restaurants, in particular, will have lasting effects linked to Covid19, and some might resort to moving to delivery only models.
• The efficiency impact of supply chains disintegration and the rebounding home of some productions will probably push an acceleration on automation also in those industries that were still labour intense (like apparel and textile production).
• Remote Work is here to stay. A number of tools and technologies is enabling the biggest Technology Adoption Experiment ever seen. Companies will try to partially gain efficiencies through this, by diminishing their physical office blueprint, which could have a significant impact on real estate. This might have a lasting effect on how cities work.
• Retail is also particularly challenged as an industry, with the risk of closures, especially for the many independent stores across all categories (including bars and restaurants).

Social and Cultural

• The crisis is prompting a new hierarchy of values among people. Safety and Health are becoming more dominant in this phase. It’s challenging to forecast the lasting effect on this on society. Still, such a meaningful change will probably require a change in leadership, values and priorities at different levels of society.
• The lockdown is putting the ‘family’, in its extended, modern meaning, at the centre of an entirely new social context. Remote working parents need to share their space and time with home-studying pupils. Families living in large cities have often less space available than those living in smaller villages, thus creating different experiences of the crisis itself. Domestic abuse has been on the rise; divorces have started increasing in China and Germany. But there is also the expectation of a mini-baby-boom. In general, signs are mixed, but the forced reality of having families spend more time together might have lasting effects.
• Extended lockdown is already having a detrimental effect on wellbeing and mental Health: isolation is having a damaging impact on people, and the absence of social life, united with uncertainty is hitting many people hard.
• There have been new examples of community cohesion, both through charities but also through simple interpersonal support, such as doing grocery shopping for the elderly. This might have positive lasting effects in the economic slowdown that follows.
• There is an anticipation of new intergenerational tensions for multiple factors. Older people are hit the most from the virus and will require more assistance. The crisis will move resources from older generations (for example, with lowering values of investments). Increased government spending will put an increased toll on younger generations, already challenged.
• Another dimension to be looked at is gender. The virus is hitting men harder than women, even if the healthcare sector (especially for what concerns nursing) has a much higher representation of women. Women are also penalised by school closures, as they have to care for kids at home. Previous experience has shown that women are more exposed to job losses as well. On the other hand, the new appeal of remote working may, under certain circumstances, be beneficial for working mothers.
• The lockdown has pushed some existing trends of media fruition at home (less cinema, more streaming). There have been increased sales in books, videogames but also new experiments in forms of entertainment and cultural consumption (for example virtual visits to museums).
• Work that is moved home (or virtually to any location) can profoundly change the relationships we build with our families and network of friends. There might also be a new shift in how performance is evaluated, moving away from the number of hours spent in the office, to a more results-focused evaluation.

Technological

• The crisis has pushed for the adoption of new forms of online communication, both for Work and personal usage. How we live online is taking a new meaning for many.
• The crisis has also accelerated the digitalisation of many activities, from small stores opening e-commerce, to digital government, telemedicine and online learning. This speed of adoption also raises some concerns over threats, as some technologies have been rushed into service despite being immature.
• Virtual Reality technologies are flourishing: for museums visits, touristic destinations, but also for selling properties.
• This crisis has stimulated a vast effort in collaboration on research, social intelligence and collaborative problem-solving as well as open science.
• The push for remote Work will help mature the possibility to run completely decentralised organisations.
• Forced experimentation with online shopping will push even more technological effort in this industry, as online retailers will fight to differentiate.
• Experimentation by some governments of tracing apps is raising concerns over Privacy. WIll people provide more data?
• Adoption of technology automation will probably increase, as seen, due to the rebounding of outsourced productions from low wage countries. RPA will have a push also in domains where it had fewer applications.
• Work is challenged by the quick adoption of the new technologies, and the risk for automation. At the same time, there are new areas of opportunity that might be forming around the technology stack that needs to be maintained to enable remote working.

Environmental

• The crisis has produced the most significant reduction ever observed in air pollution and greenhouse gases thanks to industries stopping production and travel coming to a halt.
• This, however, does not mean we can keep lasting results. The low price of Oil potentially might reduce investments in clean energy unless actions are taken. Moreover, focus on restarting companies and the removal as mentioned above of “red-tape” legislation, might cause stepping back on some environmental achievements.
• Remote working, however, could have a positive effect by limiting traffic and lowering pressure on public transport.
• Pressure on limiting wet-markets and trade of exotic animals will probably increase as more evidence is collected on the zoonotic origin of the Covid-19 virus.

The Big Trends for the New Work

Reinventing Work means consolidating a view on current and new trends. I believe that the Covid-19 has amplified some pre-existing trends, accelerating adoption of technologies, for example. Out of my research, I think we can see six trends consolidating.

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