Economics Stack Exchange Archive

Does crowdsourcing collapse a labor market?

I was reading this Cracked.com article when the question occurred to me: by pushing work – translation work, genome work, etc – onto crowds, a ton of people are doing parts of the work and often for no material compensation. Which leads me to ask, does crowdsourcing mean a labor market for something – knowledge, low-skill labor, puzzle-enthusiasts, whatever – collapsing?

I asked a similar question about freemium products where it turned out the costs/benefits are tied to network effects. Is the same true here – crowdsourcing works insofar as a network is in play?

Answer 1164

Let me start with this question, "why just labor and not capital as well?" This is going to get specific to the example, but thankfully, I have a large variety of examples at my fingertip. The first point I will argue is that CouchSurfing (CS) is an example of crowd-sourcing impacting a capital-intensive industry but has realistic limits.

CS allows people to "host" traveling strangers on their couch, and no payment is exchanged. The exact reason they do this is complicated, but the act of traveling itself has a high social status associated with it (look at any site where people post self-descriptions and you will find many mentions), and the act of hosting is taken as a worldly thing to do that enables other travelers while also increasing the world knowledge of the host themselves. Also, hosting people makes it more likely that you will get hosted by other people, since the profiles prominently display references from previous hosts and travelers. In this way, a pay-it-forward system is self-enforcing because anyone can evaluate on their own whether or not the traveler has contributed enough to the community to justify their generosity. People use CS as an alternative to hotels. Hotels require staffing, but the cost composition is mostly in the capital cost of the real estate. The industry, as a whole is uniformly denied revenue by the existence of CS. The value that CS provides, of course, wasn't created from nothing, but it did come from the under-utilization of real estate assets.

This last argument isn't unique to CS. While CS has been growing since 2006, Airbnb is a for-profit company that emerged in late 2009. The rules of Airbnb are similar to CS (peer-to-peer, references, mentality) but hosts receive a payment. Here is a quick Google Trends comparison (which doesn't reflect usage directly).

comparison

Now, both of these are "crowd sourced", but one of them is completely free and one of them is not. That is to say, the non-free option emerged as an alternative to the free option. My guess, however, is that Airbnb didn't detract from the usage rate of CS, but instead took more business from the hotel industry (which is still probably large in comparison).

For one last example of capital efficiency, look at one of the most common examples given by advocates of collaborative consumption. They say that a power drill is only used a few minutes in its lifetime, so sharing it is dramatically more efficient. In order for us to make economic sense of this all, we must speak of value. The proposition is that the value of the power tool is the use of the tool (and not the ownership of it). In that sense, increasing capital efficiency has increased the value we have access to. In a more dubious sense, we may say it allows us to consume more with higher efficiency.

The example of Swap Tree is an extreme example because it is so heavily oriented around trading media items, including DVDs and books. Media can already be traded at almost no cost between consumers, which is a story we've seen before. In that case, the production of intellectual products is almost completely disconnected with the cost to consume them. Capital has argued that they need protection from this trading. Developers of video game have complained about used game trading because it reduces demand for their product. You are probably familiar with a similar infamous fight the recording industry waged. Ultimately, the same argument can (and might) be made regarding power tools.

capital changes

This is easier to argue than the case of labor. Ultimately it's the total demand that gets squeezed, but the effect is seen sharply by capital because capital represents an asset that has already been invested in and can decrease in value as a result of sharing and crowdsourcing tools.

The other part of the argument is that people now have greater purchasing power - they can consume more. This would then increase demand elsewhere. Where? Nobody knows, but it should bid up prices wherever that is temporarily, and expand those industries permanently long-term.

That is, unless people work less.

labor changes

An interesting reference to make is The Zeitgeist Movement, which vehemently argues that technological unemployment is a major problem. They go on to argue that a different economic system is needed to accommodate the dramatic efficiency gains to come. A careful reading of the crowdsourcing projects shows that technology plays a large part in their existence and usefulness. Wikipedia, for instance, could not have existed before the wiki software was developed. On another less trivial level, CouchSurfing itself would be dramatically more difficult without the existence of mobile communication and computing devices (which coincided with its rise). It may be useful to look at this as a balance between technology and labor in the long term.

It's also possible that technological unemployment is a complete myth. With greater means, people will likely consume more, in fact, that is inevitable. This may not be true, however, if they work less. Are all the hours spent on Wikipedia hours that would otherwise be spent on leisure? I doubt it is either 100% leisure of work time that is sacrificed. I think we would be looking at a model where people:

Aside from the last point, I think these are characteristic of any gain in affluence, although whether or not such gains collapse labor markets is still an open question. As to whether crowdsourcing can collapse a labor market, I think the answer is clearly that it can. In terms of the total labor market, it depends on your view of technological unemployment. That is, unless you believe crowsourcing can solve that problem as well.

Answer 1130

Interesting question. I am not sure if a full counter-factual has been tested that shows what happens to labor markets with our without crowdsourcing. I guess an actual test would be to examine what happened to the professional stock photography market - once iStockPhoto came online. Several things may be going on in the case of iStockphoto for example:

1 - The number of individuals who can participate in the labor market goes up.

2 - The price may be dropping

3 - More demand may be met

4 - Professionals may have many more venues to showcase their work

5 - A potential compression in the middle ranks - those that are at the top get more coverage and access - those at the bottom get more opportunities at lower prices.

Well worth thinking this through.

Answer 1132

Why do people volunteer? To volunteer for some cause means to knowingly provide free labor for someone else’s benefit. However this hardly means that the volunteer does not get something in return: a volunteer may get as a reward the esteem of his peers, a warm glow for doing something he or she considers right or moral, or some utility from thinking that they participate.

In that sense crowdsourcing is not destroying labor markets. It just transforms them from monetary based ones to “utility” based ones. Noone is forced to enter the crowdsourcing transaction. By doing so, we can infer that the volunteer has something to gain.

Answer 1166

Preamble: There's lots of voluntary activity out there: having collision points between voluntary and paid-for services isn't new, and isn't specific to crowd-sourcing. But crowd-sourcing by definition needs a crowd to source from. Voluntary activity can often have, as its own reward, the building of a direct link between volunteer and beneficiary. Whereas within crowd-sourcing, there is a much greater gap between volunteer and beneficiary. For example, it's unlikely that I'll ever meet more than one or two of the people whose questions I've answered on StackExchange. So, the reward/motivation (accepting that those are two subtly different things) must be coming from somewhere else.

1) Does crowd-sourcing require a network effect?

TL;DR Not necessarily, but they do often go together</em>. It is possible to find crowd-sourcing without network effects - for example some charitable fund-raising - that's a type of crowd-sourcing that (I expect) long pre-dates the coining of the term "crowd-sourcing". But crowd-sourcing as applied to other activities does tend to go hand-in-hand with network effects. The very infrastructure that enables crowd-sourcing, also enables things like:</p>

And all of those things help establish network effects. So, although crowd-sourcing doesn't need network effects in play directly, it certainly can help.

2) Does crowd-sourcing collapse a labour market?

TL; DR It can. Or it can create new employment markets.</em> In theory, crowd-sourcing should open up new economic efficiencies, leading to a greater economic benefit on the whole (though not necessarily to all). It can result in structural changes (e.g. as mentioned in another answer, stock photography), and, like any structural change, that can result in some kind of structural job-losses. In the long run, it will lead to greater net social welfare, but as to where those benefits accrue, that's a political decision.</p>

In some cases, it may be that an industry grows from something that had only been of very very minor economic value previously, so it is conceivable that crowd-sourcing can create net new jobs. For example, protein-folding was never a big source of employment. And yet sites such as fold-it have allowed the execution of what is typically (but not exclusively) very low economic-value work; and the fold-it site itself requires staff to run it, and once in a rare while, the new knowledge obtained will result in new products and new employment.

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