How the hunt for talent changes the labour market power balance
A looming showdown in the labour market is producing both winners and losers, writes UNSW Business School’s Frederik Anseel
Do the following sentences sound familiar to you?
The traditional career as your parents and grandparents knew it is coming to an end.
People are no longer tied to one employer, but jump from one job to another to fulfill their potential.
These sentences were first written more than 30 years ago and have since been repeated endlessly. The early 1990s were the time of the 'boundaryless career'. The only problem: there was and is little evidence for it. In fact, job mobility in Australia has steadily decreased from 1989 to 2021 (with a small COVID-bump in 2022). Even in the land of the American Dream, the great revolution in job mobility never happened. It is better to bite your tongue when making big predictions about the labour market.
One reason for such failed predictions is that we sweep with too coarse brushes. There is not one single labour market, but many small niches, each with their own dynamics. I'm being wary, but we're seeing a trend in some of those niches that might imply a future headache for businesses. Let’s first recap what the market mechanism is through which employees and employers find each other.
How employees can increase bargaining power
An employee has something that the employer needs: muscle power, knowledge, skills, time, character. Employers have something that employees need: an income, security, status, education, an identity. The party that offers what the other needs has market power and can command better terms. An employee who has scarce knowledge and skills can command a higher income. An employer who pays more or invests more in development can attract better employees. That's the war for talent. So far, no surprises.
Are there ways to increase your power in the labour market? Of course. You can create scarcity by investing in yourself and developing a unique talent. Or you can make the market bigger so that there is more demand for your talent.
How do you make the market bigger? You look for ways to remove boundaries – so ‘boundaryless’, after all. Removing physical and geographical boundaries used to be reserved only for the best and the brightest in their industry. A top football player could let millions of people enjoy his talent through television and thus choose the best paying club. A rock star could tour and sell records worldwide.
Thanks to digital technology, a broader group of talents can now expand its market. Financial analysts, software developers, lawyers, consultants, even professors – all the talent that can be offered digitally suddenly has a virtually unlimited market. Anyone who used to have talent that was only valued in a specific niche market suddenly discovers that there are actually many similar niches worldwide that all have high demands for that one talent. To put it bluntly: people are discovering that they only need an OnlyFans account to offer their talent to a global market. There is a niche for everything.
Returning the investment to companies
Companies also see the benefits of this. Globally, we see that they are outsourcing more work instead of relying on their own workforce, because that way they can benefit from talent more widely and cheaper. That’s an ironic throwback to the pre-industrial revolution. Companies outsourced raw materials to self-employed artisans who were paid per product. The industrial revolution forced people to congregate in factories. Digital technology and remote working are once again breaking with those physical ties. The boundaries of organisations are becoming more volatile. The distinction between a full-time employee and a self-employed person is becoming more blurred.
With more flexibility, is everyone happy? Nope. Ultimately, this trend will lead to polarisation in the labour market. Only a small group of people have the scarce skills that are in demand globally and are digitally scalable. This group – some of them digital nomads - temporarily work for the highest bidder and can evade local employment rules and fiscal solidarity. The more fundamental problem for companies is that this talent flight makes them extremely vulnerable. Businesses that are struggling to make attractive offers to this group risks losing control over their own core competence. Imagine a tech company that needs to completely rely on independent software developers. Which company wants to depend on a peripheral shell of temporary employees for its core activity?
Such niche dynamics are difficult to detect in general labour market figures. But digitisation, accelerated by covid, has given a small group of talents a borderless labour market. The bargaining power that comes with this puts local businesses in a particularly fragile position.
This article first appeared at BusinessThink.
A version of this post was first published in De Tijd.