Myth: Online Labor Marketplaces Only Lower Worker Wages

“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 differentiated skill, marketplaces will actually substantially increase your effective hourly wage. I’ll share two examples, one from Homebrew and one from personal experience.

We’re investors in UpCounsel, a legal services marketplace which connects high quality independent attorneys with companies who need legal work (10-300 employee enterprises is their sweet spot). UpCounsel’s founder/CEO is a former attorney with the bold vision that the largest law firm of the future will be a virtual one. That is, not part of a large partnership but instead turning towards a platform like UpCounsel for back office and demand generation. It’s a bold statement about the future of labor in the legal vertical and, obviously, we like it.

As UpCounsel drives more and more demand (platform is at a healthy seven-figure run rate), they’re able to extract some interesting observations about the hourly rates of lawyers on the platform. One phenomena is that lawyers with specialized skills may have been undercharging previously (imagine that, a lawyer who bills too little!). It’s because word of mouth and the other discovery paths for independent lawyers today may not have exposed their full demand curve to them. Imagine there’s a lawyer who understands a very specialized type of immigration law. Networking with local businesses in her hometown produces X hours of demand a month, but getting on a platform like UpCounsel could generate 5x. Boom, wage leverage.

Recently I also saw this in a babysitting marketplace – my willingness to pay more per hour for a sitter with many high reviews. Turns out increased peace of mind is worth a few bucks. Sure in the old days I could find a sitter and call their references but this was a friction. Now with sites like urbansitter or sittercity I can see reviews and even how I might be connected to someone who used the sitter previously. Urbansitter’s CEO once told me that many sitters routinely underprice themselves and she’s excited to see them make material increases in their hourly wage. So here we see that streamlining trust and quality discovery benefits those who are skilled at their profession.

Now I’m sure there are examples where marketplaces lead to greater commoditization of labor but the idea that “marketplaces = labor fights for survival” is just not universally true. It, like many aspects of the future of labor, is more nuanced than that.