The Dawn of Labor Market 3.0

By Youngjin Yoo

The labor market is an engine of an economy and the bloodstream of society. It is where individuals find jobs, build their careers, and pursue their dreams. It is also where businesses find talents to run their operations, discover those who can invent new products and services, and recruit their future leaders. The labor market is also where government and policymakers monitor to gauge the economy's pulse. In short, the labor market is inseparably and reciprocally connected with the economy. As the economy evolves, the labor market evolves, and vice versa. We are seeing a major digital transformation of the labor market with the rise of new tools like artificial intelligence and Web3.

The formal labor market, where individuals voluntarily provide their labor (with skills and knowledge) in exchange for a wage, has a long and painful history dating back to ancient Egypt, Greece and Rome, as well as the medieval period. But it is the rise of industrialization that led to the emergence of the labor market that we know today.

The relationship between technology and the evolution of the labor market has been a fundamental aspect of the modern economy. From steam engines to personal computers to the Internet to artificial intelligence, the emergence of new technologies has significantly impacted the types of jobs available, the nature of work involved in those jobs, the skills required to perform them, and the wages earned by workers.

In the early days of industrialization, the introduction of large-scale machines and mass-production techniques led to the displacement of many traditional craftspeople and artisans. This was an era where that was driven by what I call "physical machines." These physical machines transform commodities found in nature into marketable goods. These physical machines were part of growingly complex, vertically integrated organizations that hired factory workers and middle managers. The rise of factory work created a new type of labor market, where workers were employed to perform repetitive tasks on assembly lines. This new market required a different set of skills, and many workers had to adapt to new roles and job requirements. The labor market was largely geographically bounded. It was also separated by industries. This was Labor Market 1.0. In Labor Market 1.0, labor participants were largely treated as interchangeable components of the large complex machinery of vertically integrated companies. Jobs at these large companies provided lifetime employment contracts. Individuals' jobs at a company are most aligned with their career trajectories.

With the advent of computerization and automation in the latter half of the 20th century, there was another significant shift in the labor market. This era was dominated by what Zuboff refers to as "smart machines." Personal computers, first interconnected with local area networks and later the global internet, made possible new ways of organizing. Combined with the rapid acceleration of globalization and modularization, the deployment of large-scale global digital infrastructure allowed firms to locate their resources where it makes the most economic sense. Leveraging the low cost of communication and coordination, firms could outsource parts of their operation around the globe, forming complex global supply chain ecosystems supported by large-scale digital infrastructure. Firms like Nike, Dell, and Cisco led the way in becoming globally networked firms. During this class, a new class of highly mobile knowledge workers emerged. They were consultants, lawyers, accountants, and technical experts in specific areas. Their career trajectories and jobs diverged, as highly mobile knowledge workers do not stay with one company. At the same, many low-skilled jobs were automated, leading to a decrease in demand for manual labor. Furthermore, as many firms outsourced their manufacturing operations and consolidated back-office functions, we saw the "hallowing" of the middle and the labor union was weakened. This was Labor Market 2.0. 

The labor market is undergoing yet another profound transformation, driven by digital technology and the rise of digital platforms. We are beginning to see how wage workers, particularly among Millenials and Gen Z's, begin to pursue their own careers outside of traditional organizations, sometimes by choice and sometimes out of necessity. The new labor market condition is characterized by increased automation and algorithmic management, a greater emphasis on skills, and a more fluid and decentralized workforce. We are at the dawn of Labor Market 3.0.

One of the main features of the emerging Labor Market 3.0 is the increasing automation of many tasks previously performed by human workers. What is unique this time is that the impact of automation is not limited to low-skilled factory workers. With the rapid development of artificial intelligence and robotics, machines are increasingly capable of performing cognitive and highly complex physical tasks. At the same time, increasingly, human workers are managed by algorithms. Every single move and action is collected and analyzed by algorithms. AIs are integrated into the routine standard work processes, constantly sensing and responding to the changing environments and the performance of human workers. This trend is likely to continue. 

Another key feature of the emerging Labor Market 3.0 is the increasing importance of skills. In an era of automation, it is no longer enough to have degrees and backgrounds in certain areas simply.  Workers must demonstrate that they have the skills and knowledge required to perform their tasks effectively. This means that workers will need to invest in their education and training continually and that employers will need to provide opportunities for skill development. Increasingly, organizations drop the education requirements as long as individuals can verify that they have the necessary skills. At the same time, there is a greater interest in using artificial intelligence to conduct algorithmic hiring. 

Finally, the emerging Labor Market 3.0 is characterized by a more fluid and decentralized workforce. With the rise of the gig economy and remote work, more and more workers are choosing to work on a project-by-project basis rather than as traditional employees. This trend will likely continue as technological advances make it easier for workers to connect with employers and clients from anywhere in the world.

How will the emerging Labor Market 3.0 influence our lives? Will it be not only more efficient and effective but also more equitable and fair? Will it offer more opportunities for individuals to flourish, pursuing their dreams and realize their full potential? Or will it make human workers subject to Foucauldian monitoring and control by invisible algorithms, losing our dignity and agency? Of course, it is up to us in terms of how to respond to this new environment. But where do we begin, and what are some key things we must worry about? 

What happened in the consumer space with Web 2.0 big tech platforms provides an important lesson and a possible point of departure. Despite the early promise of the democratizing digital economy, Web 2.0 technology ushered us into a highly concentrated monopolistic digital platform economy. Big tech platforms like Amazon, Facebook, Google, and Apple collected unprecedented volumes of user data from billions of users, which allows them to pursue "winner-takes-all" network strategies. We are only beginning to learn the importance of owning and controlling our data and identity. 

In preparing the emerging Labor Market 3.0, it is essential to create underlying technology architecture and infrastructure, the data and identity of individual workers are owned and controlled by the individuals. Individuals should own and control their own learning and employment records. Just as companies can use algorithms to identify the top candidates for the positions that they hire, we must empower individual workers to use the best models available to express their skills and competencies to whomever they desire to do so. Imagine a case where a high school dropout who has been writing codes for years with multiple GitHub repos can leverage the trace data from GitHub to create verifiable credentials on programming skills and software engineering. Or imagine when an Uber driver with positive comments and ratings from customers can use a model to create verifiable credentials for emotional intelligence and great customer service skills. Not to mention, such a decentralized and verifiable data infrastructure will radically reduce friction in the labor market. 

The labor market is an integral aspect of the economy and society, and its evolution has been significantly influenced by technology. We are witnessing a digital transformation of the labor market, characterized by automation, emphasis on skills, and a more fluid and decentralized workforce. The emerging Labor Market 3.0 presents both new opportunities and new challenges. To prepare for this new environment, it is crucial to create a technology infrastructure that empowers individual workers to own and control their data and identity, enabling them to express their skills and competencies more effectively. A decentralized and verifiable data infrastructure can also reduce friction in the labor market and promote a more equitable and fair economy.