Myth: Online Labor Marketplaces Only Lower Worker Wages

Excellent examples of situations where online labor markets increased wages. Also read my post that explains the economics at work in these examples.

Hunter Walk

“By creating competition for task/project-based employment, online labor marketplaces lower average wages for workers. These platforms do increase demand so people can make same/more in total, but only if they work more hours (ie hourly wage down, utilization up).”

Since Homebrew invests in marketplaces, I tend to encounter the above sentiment fairly frequently despite the fact that, in many cases, it’s just plain wrong. Yes it’s true that incumbents utilize regulatory frameworks to create artificial scarcity, which inflates prices, shrinks demand and hurts consumers (eg cosmetologists in Utah being forced to spend $16k and two years of school in order to braid hair). And it’s also true that reducing opacity in connecting supply and demand (as well as geographic boundaries) can lead to price discovery, so if you were getting away with overcharging, marketplaces are a shining light on your dark corner.

But here’s the thing – if you have a…

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‘Talentism’ is the New Capitalism

Wall Street Journal article from July 17, 2014

Arguments for and against the idea that talent is replacing capital as the most important driver of productivity.

The arguments in this article highlight the difference between the economics and the lay definitions of ‘capital’.  In economics capital specifically refers to durable goods used in production (e.g. a sewing machine is used to make clothing).  So the ‘capital’ of capitalism does not refer to financial assets (money), as might be commonly believed; it refers to the physical machinery used in production. Capitalism is an economic system in which that machinery is privately owned; as opposed, for example, to socialism–where the means of production are socially owned.

In this sense, I don’t think capitalism is going to be replaced.  We will continue to protect private property rights.  However, if talent becomes more important in production than capital (due to the rise of service industries, perhaps), then the capitalist (the owners of physical productive assets) will no longer have claim to a lion’s share of output.  How will the increasing importance of talent change our economy and economic outcomes?  Time will tell…