Why Employment Evolved, and What's Evolving Next

Employment has served us well throughout the industrial and information ages. It's not surprising that it dominates our thinking when it comes to leading work. Markets react to small twitches in the unemployment rate. We send our kids to university, so they can become an employee of a great company. Need to get a mortgage to buy a house? The bank wants to know what your job is and how long you've had it. Governments labor mightily to create legislation that protects employees in jobs.

Yet, regular full-time employment for the masses is a relatively new historical phenomenon. For most of the past 2,000 years, economies were built via the labor of independent workers. Being free of the regular full-time employment relationship didn't always mean having lots of discretion. A peasant farmer under the “protection” of a lord was not an employee, but not particularly free either. Something closer to the modern concept of a free agent is the notion of independent crafts people, guilds, and so forth. A blacksmith, for example, would carry out his trade independently, seeking out work, managing his finances, developing his skills, and building his reputation—a CEO of Me.

Why did the industrial world move to the employment model? As industries grew, their leaders needed to have a reliable group of workers gathered in the same place day after day. In the industrial era, most workers really were extensions of the machine, and as a result they needed to be machine-like. The industrial leaders of the day were not hiring talent so much as hiring a pair of hands that needed to be as consistent and standardized as possible. You could buy the other parts of the machine but not the pair of hands. Thus, employment evolved as the next best alternative.

The history of labor in the industrial era is largely a story of a battle for power. Business owners (and hence leaders acting on the owners' behalf) wanted as much work as possible for a given pay outlay. Employees wanted more money, fewer hours, better working conditions, and protection from arbitrary firing. Over many decades, the battle lines shifted back and forth between capital and labor with government setting the rules of engagement. Those battles never ended, but in the 1950s, in the developed economies, there came a sense of reasonable accommodation.

The sense that it was finally working out pretty well for most created an overarching belief that this was the right and natural way to structure work. Blue-collar workers enjoyed the protection of unions and regulations. White-collar workers felt secure as they climbed up the ladder. Businesses had a skilled, committed, and permanent workforce, and they developed elaborate ways of managing their employees.

Leadership and management became big enough subjects to create business schools in universities, whole stand-alone libraries of business books, and a thriving industry of consultants. Brilliant minds put a lot of effort into understanding the work done by regular full-time employees in jobs. An illustration of how seriously companies took jobs as a stable building block of the organization was the effort put into job evaluation. The most famous method, the Hay Job Evaluation system was developed to determine the size of a job, so corporations could better understand who should get bigger pay. The Hay system can help answer questions such as “Is a pastry chef a bigger or smaller job than a carpenter?” Organizations invested significant sums in writing job descriptions and engaging committees of managers to assess the size of each job. Underlying this effort was the belief that the way the organization got work done was through jobs staffed by regular full-time employees. While nothing is permanent, in the 1950s many organizations went so far as to suggest lifetime employment for good workers.

Problems in Job Land

A significant pillar of regular full-time employment was the presumption that the worker, the work, and the organization in which they meet were relatively stable. Even if one of them changed over time, the idea was that the best way to manage that change was to maintain the regular full-time employment relationship, and invest in developing the worker to adapt to the changes. It was a model of spurts of incremental change followed by longer periods of relative stability. However, as Chris Worley and Ed Lawler observed in their book, Built to Change, the world was evolving to make change a constant, not an event.¹ That puts strains on all sorts of organizational and leadership assumptions, not the least of which is the assumption that regular full-time employment is the optimal way to get work done.

The sense that the system of permanent jobs was working well for most people began to erode in the 1980s and 1990s. Rather than having work done by employees, businesses discovered that they could use outsourcers who were able to tap a much cheaper pool of talent. Some well-paid manufacturing jobs disappeared in the West and reappeared as low-paid positions in the developing world, particularly China. It was a huge gain for developing economies and a devastating loss for blue-collar workers in the developed world.

Many whose jobs were not easily sent overseas faced a different problem: They were replaced with contingent workers. Contingent work was less secure and lacked benefits. Some of this work was part-time and unpredictable, and stories emerged of workers who were formerly regular full-time employees and now struggled to cobble together enough work to pay the bills.

Professional and managerial workers also had an uncomfortable fate. The story is well told in Peter Cappelli's book The New Deal at Work: Managing the Market-Driven Workforce.² When the recession of the 1980s hit the developed world, organizations discovered they had too many managers. They had built a process for developing managers based on the presumption of predictable, ongoing growth, but when that growth failed to materialize, they had no need for such a rich talent pipeline. In addition, their management structure had grown bloated with far too many management layers. It was then that we came up with words like “downsizing,” “delayering,” and “rightsizing.” As Cappelli points out, all the downsizing put a big pool of managerial talent in the labor market. Organizations stopped developing so many managers and simply hired the experienced talent they needed on the open market. With that, the concept of lifetime employment had contracted a fatal disease, but the idea persisted that permanent regular full-time employment was still the main way to get work done.

In today's world, even in the best of times, companies are keen to remove layers and cut headcount. As an experienced business development manager said recently, “I'm doing really well, but that doesn't mean I couldn't be whacked tomorrow.” In the United States and in many countries, not only has job security disappeared, but managers expect that it is normal for them to eventually be let go. Still, the idea is that they will move from one regular full-time employment gig to the next.

While the illusion of long-term job security is gone, the old “regular full-time employees in stable jobs” model has built up massive inertia that continues to color our thinking. It takes a lot of work to break through to new ways of thinking and to fully appreciate the implications that the new world we occupy is destined to have on organizations, leaders, and individuals.

The Less “Regular” Full-Time Job

We are in a world where a good deal of work has been pushed outside the organization and the jobs that remain are not secure. When you take security out of the employment relationship, what are you left with? At first, the new deal appears to indicate that people will go through a series of jobs over the course of their career—not just one or two like their parents or grandparents. The analogy to marriage feels unavoidable. Traditionally, marriage was a lifelong commitment: “till death do us part.” Divorce allows people to escape that lifelong bond, and it is not uncommon for people to have two or three marriages in a lifetime. But what would happen if the average marriage lasted only a year or two? Is it still marriage in the full sense of the word, or is it better seen as a kind of dating?

That is exactly what seems to be happening to regular jobs. LinkedIn commonly features resumes with long lists of jobs: two years here, three years there, one year somewhere else. Is this still regular full-time employment or an early version of free agency? Yes, people still move from one full-time job to another, but when it happens so quickly can it really be described as “regular” full-time employment any longer? Add to that the feeling of “any day I could get whacked,” and the psychological transition to CEO of Me is well on its way, even for those who technically hold regular full-time jobs.

The end of job security loosened some fundamental rigging that held the organization together. The organizational boundaries had been breached, and as a result, people left more readily and work was sent outside the company without much fanfare.

History suggests that the idea of an organization as getting work done with a stable group of regular full-time employees may be just one step in the evolution. Increasingly, leading the work with regular full-time employees is supplemented by things like outsourcers, alliances, and free agents. If more work is done by workers and providers with monikers like outsourcers, alliances, and free agents, then leading the organization requires going beyond employment to optimize how work gets done. Workers that come to you in the form of outsourcers, alliances, free agents, and through other employment alternatives can be just as committed, engaged, and motivated, as regular full-time employees, but it's a different relationship. The leader's job becomes figuring out how to lead the work, not simply managing the regular full-time employees.

The Starbucks Office and the Social Acceptability of Free Agency

The shift to a free agent nation was motivated by economics. However, there is a softer factor accelerating the shift: the growing social acceptability of free agency.

The world of free agency was, and to some extent still is, characterized by an attempt to pretend it doesn't exist. A free agent—for example, a management consultant—may describe herself as “Smith & Associates” when in reality, she is just Smith, a self-employed worker. Smith will list address as a box office in a downtown office building rather than say she works from home. Her marketing literature will read, “We provide…” not “I provide…”

This pretense of being part of a bigger organization is often threatened by one of the deep dynamics of free agency: its flexibility. The “associates” of Smith & Associates do not exist in any permanent way, but Smith does join up with other consultants on occasion. When a project is too big for Smith, she will show up with a colleague or two presenting the image of a firm with employees. Likewise, Smith may be invited into projects by another free agent, and she is presented as an associate in Jones & Associates. Free agents may end up with several different business cards fronting different work identities. Showing up at a client and fumbling through a set of different business cards reveals the consultants true identity as a flexible free agent, not a fixed full-time member of a larger firm.

We think the prevalence of free agents means that the need for the pretense of being part of a bigger organization is disappearing. Smith can simply present herself as a free agent, working from home, collaborating with Jones and others as needed. Free agency is becoming respectable.

Smith and Jones may be the people you see sitting in a café with their laptops. They wear a T-shirt most days, but when they have an appointment, appear in formal business attire. Gradually, the free-agent style is becoming accepted as a normal part of business life, professionals are happy to meet in a café in casual dress, and business attire and a fancy office are no longer required to convey seriousness. The question is now, “Is your free-agent career working out for you? How do you do it?” People ask because many employees bound to a corporation long for the freedoms that come with working for yourself. They want to know if the escape route really exists.

One last illustrative scene from the life of a free agent: The conference call with apologies for the dog barking in the background or the child calling for Daddy. The explanation, “I'm working from home today” is getting easier to give, and is often met with the reply, “That's okay—me, too.”

The “me too” answer is important because a big part of the acceptance of free agency as a legitimate professional lifestyle is that employees are becoming more like free agents. Organizations removed the most important distinction between employment and free agency by removing job security, in effect making all jobs akin to temporary projects. Also, what was once called “telework” is now just a common alternative work arrangement. Employees are working from home more often, erasing yet another distinction between employees and free agents. Telework has become a normal way of working as more organizations realize the significant employer benefits (lower real estate cost, improved employee engagement, better access to the right talent in a different location) and employee gains (greater flexibility, reduced commuting cost).

We have reached a point where free agency has become a far more mainstream career option. It is now common, attractive, and not as sharply differentiated from corporate life as in the past. Many move back and forth between free agency and employment. A gig as an employee can be attractive for free agents because it offers steady income for a few years. Still, they are unlikely to invest their identity in the corporation, as they are still CEO of Me. Social acceptance sets the stage for a rapid expansion of free agency. No longer a fringe phenomenon, free agency is duking it out with employment for a share of the market in how work is done. In 2001, Dan Pink, author of Free Agent Nation: The Future of Working for Yourself, estimated that more than a quarter of the U.S. workforce was made up of free agents.³ Unfortunately, there it is no standard method for defining or counting free agents and estimates vary widely. In 2011, a survey by Kelly Services found “44 percent of American workers across all industries classify themselves as free agents.”⁴ whereas research house EMSI reported in 2014 that in the United States fewer than 10 percent of workers were self-employed.⁵ There are all kinds of estimates on the prevalence of free agency; however, it is safe to conclude they play a big role in how work gets done, and we believe their impact will grow.

Estimates of the number of free agents may be conservative because new models arise all the time. Consider the rise of microbusinesses (defined as organizations with fewer than 10 employees). In the UK, the number of microbusinesses has increased by 40 percent since 2000.⁶ A microbusiness is often a free agent writ large: an individual who has surrounded themselves with a small staff to leverage their free agency. We have entered an economy where free agents and microbusinesses are not fringe players. Individuals will build their careers there; and larger businesses will rely on them to get work done.

The challenges of measuring the prevalence of alternative work arrangements are nicely described in a paper by Cappelli and Keller.⁷

From Free Agent Nation to Free Agent World

Free Agent Nation is becoming Free Agent World. Low Lik Min lives in Kuala Lumpur and wanted to make commercials for big global brands like Lego. Not long ago, that would have been a pipe dream unless he could make the move to a city like London, Tokyo, or Los Angeles, where large advertising companies were located. Tongal changed all that. As advertising projects appeared on the web, it didn't matter where you lived, what school you went to, or who you knew. A free agent like Min could enter the competition and win on merit alone, and he did.

Are there advantages to hiring a free agent who's local? Yes. It can help to meet face-to-face from time to time, and a local is less likely to stumble over cultural differences. However, there is no question that free agents around the world have begun to compete for work. Even when a company prefers to use local talent, if the price or quality differential relative to competitors in another country is too high, then the local talent will not get the work.

We tend to think of labor costs as the driving feature of free agent world. After all, it's possible to get work done by free agents in the developing world at a fraction of what it would cost to have the task done locally. Check on Upwork and you can find some jobs paying just a few dollars an hour—good if you are in a low-wage economy, but not so good otherwise. Sometimes, though, it's not cost but quality that drives the free agent world. For his projects, Min may send work to free agents in the United States or UK. If he needs a voice-over for a commercial, then the quality of the talent is more important than price.

Yet sometimes it's neither cost nor quality that drives the free agent world. Sometimes it's just an accident. The talent platforms are inherently global. If you post tasks on MTurk, you probably won't know and won't care where the work is being done.

From the perspective of leaders, free agent world creates a deeper and more diverse pool of talent. Normally we just ask, “Who can we get to do this here?” but we now have the option of asking “Who is the best person in the world to get this done?” or “Who in the world will do a satisfactory job at an extraordinarily low price?”

Scanning the world takes effort. Leaders of the future need to ask different questions. When should you scan the world for the best or cheapest talent, and when should you rely on the talent that applies for your regular full-time jobs? If you consider the time it takes to hire an employee (90 to 120 days) relative to the time it takes to hire a free agent on Upwork (approximately three days), the economics alone suggest that leaders cannot ignore the alternatives to regular employment. Instead of placing all your bets on finding that one superstar employee, you now get to give three or four highly capable free agents a test run at nominal cost with no continuing obligation.

The Implications of Free Agent World

The implications of free agent world spill out all across our once-familiar landscape:

• Will there be a convergence of labor rates around the world? Will a lawyer in Lagos eventually make as much as one in L.A.? Will a clerk in Calgary make the same wage as one in Chennai?
• What will it be like to compete with people around the world in your specialty? There will always be someone cheaper. There will always be someone better.
• What pressures will this put on languages? Will Pakistani free agents be studying Japanese, so they can serve that market, or will Japanese companies follow Nissan's lead and make English their working language?
• How will governments react to this? Can they control the wild genie of the free agent world where work and payment for that work are oblivious to national boundaries?
• As a leader, how will you navigate the talent platforms that are in a sense the new factories of production? How much should your professional associations lobby governments to enable them?

The Remaining Barriers to World Domination

There are three main barriers standing in the way of free agency coming to dominate the world of work. One is that gathering a community of regular employees committed to jobs as part of a common endeavor is still a potent way to get work done. Leaders sometimes find that the bonds of employment chafe, but that cuts both ways; they may not like labor regulations, but they like the control that comes from being the employer.

However, the second barrier facing free agency is bigger than just competing with a committed team of employees. The second barrier is that being a free agent is hard. The free agent has to have deep expertise in their profession, whether that's plumbing or financial reporting, and also expertise in sales, marketing, office administration, and technology. The oft-repeated advice that free agents should do what they are good at and “hire” people (enlist other free agents) to do the things at which they don't excel is hard to follow for a lone free agent struggling with cash flow. Many people find the current model of free agency too hard to sustain from an income perspective.

The third barrier is legislation. As we have seen in the various legal challenges to the operating models of companies like Uber and Lyft, there is considerable discomfort with the perceived ambiguity between being an employee and a free agent. Do the facts that drivers are integral to their businesses, can be terminated at any time, and are under the direction and control of the company make them employees of Uber or Lyft? Or do the facts that drivers can choose when they work, the customers they pick up, and how they dress for work make them free agents?

This leaves us in a world where free agency has advantages; however, the growth of free agency is constrained by how difficult it can be to succeed. What happens when innovative businesses erode that barrier? As we shall see, talent platforms are revolutionizing the design of work to make it easier and more efficient for free agents and those who engage them. In addition, there is an increase in less dramatic but still important services, making it easy for free agents to get affordable accounting systems, technical support, and administrative help. And, and as we will discuss later, this situation does present an opportunity for other stakeholders (e.g., unions and regulators) who have traditionally been allied to the employment relationship to redefine their role and step in to meet this emerging need of free agents.

The tide is moving in the direction of more and more free agency. The barriers to free agency are crumbling, as are the advantages of employment, and the boundary between free agency and employment is blurring.

Leaders wedded to the traditional view that work is done by regular full-time employees will increasingly miss out on powerful opportunities. An individual chasing a career based on regular full-time employment will be chasing a mirage. Governments counting jobs and tuning legislation around issues such as paternal leave will overlook a vast amount of the work economy. A world beyond employment will be better in some ways and worse in others; however, if the tide is taking us into that world, then the sensible course of action is to learn to swim with the tide.