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Kaleberg's avatar

AirBnb is doing well since it provides a way around zoning rules so that one can operate a hotel in a residential neighborhood. Since it can benefit property owners who are also voters and taxpayers, it is hard, but not impossible, to regulate. It drives up local rents and property values, so it can produce a lot of value while strangling a local economy.

AirBnb allows one to maximize the return on one's capital. Uber and the like don't allow one to maximize the return on one's labor. The original Uber ride sharing idea was that Uber would be a spare time operation, but it quickly professionalized when subsidies made it profitable. When the subsidies vanished, a lot of the professionals vanished.

I think Coase was slightly off target. Companies exist because they can cross subsidize operations to support an efficient internal system based on highly optimized and specialized knowledge. A profitable, efficient company is always going to have some components that cannot be justified internally by their own profitability but are critical to their overall success. The necessary transactions could not be justified if outsourced, but can easily be justified if the transaction costs can be hidden. That's hidden, not necessarily minimized. The secret sauce is often that those costs need not be minimized.

One example is Amazon. It internally subsidized the construction of AWS and its logistics systems. It was unable to show a profit for a decade, but as a company it was able to hide the internal cost structure until a dominant position was achieved. Even now, Amazon has a lot of invisible internal cross subsidies. When it starts farming out the relevant operations to Mechanical Turk, it will be time to short the stock.

Another example is Boeing which hid the cost of its engineering based internals. Even assembly line workers were expected to think like and work like engineers. Engineers were expected to have contact with the factory floor and deal with every component of an aircraft. This let them design and build aircraft profitably. When they made the internal subsidies visible, they started outsourcing, relying on contractors and lower cost labor. Now they can barely build aircraft, and it is unclear if they will be able to take the next step in aviation.

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scott kirkpatrick's avatar

In Israel, taxis have always been obtained from many small companies, or even individual drivers who built a customer list. Their response to Uber was swift and effective. An app mysteriously appeared, that all drivers use to respond to your call in the same taxis as before. So they pretty much replaced one dispatcher for each company with the app, and life continues as before.

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DJ's avatar

In the early days of Uber there was an app called TaxiMagic that I used for a while. It was the same as Uber but only for licensed taxis. It worked fine for me but I guess they didn't have the wherewithal to expand as fast as Uber, probably because they had to actually obey the law.

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Paul's avatar

OnlyFans already requires an ID to post content, and release forms from guest stars in videos. There have certainly been cases of minors using fake/stolen IDs, but at some point you have to say they've done enough and not hold them liable when a user defrauds them to post disallowed content.

https://sofiagray.com/blog/how-to-get-approved-on-onlyfans-first-try/

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DJ's avatar

"at some point you have to say they've done enough"

I agree with that in principle, but the anti-sex trafficking organizations (some of which are really anti-porn in disguise) will never say that. Their whole business model rests on finding those edge cases and creating public outrage.

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Paul's avatar

It's really a classic moral panic. OnlyFans has quite strict requirements--much stricter than Pornhub, which themselves weren't so far as I can tell breaking any laws--but it still wasn't enough. So you get overbearing laws like FOSTA-SESTA and overhyped stories about rare instances of child abuse sexual material (despite the ridiculous risks of posting that on a platform that has your banking info), and it's legal sex workers and consumers that suffer the consequences.

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Elias Håkansson's avatar

Love seeing people talk Coase! You're the first person I've seen talk about the gig economy from a Coasean perspective, which *obviously* is the right way to look at it.

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Ven's avatar

I think Uber and Lyft haven’t really worked out because demand for taxis isn’t actually that high. Like, they’re not really that common outside of NYC.

DoorDash is more interesting because it’s structured as a gig company but has a pretty straightforward business model: they sell delivery services to restaurants which otherwise couldn’t afford or manage a delivery service. Understood as a B2B service, it makes more sense why it seems to work better.

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Ven's avatar

Thinking about this more, DoorDash has other advantages. It doesn’t need to be prompt, exactly, and it knows with a fairly good lead time when a pickup can be made. This should give it a greater ability to match drivers and restaurants, ensuring that costs per delivery are low.

On the less positive side, it doesn’t need anyone I’d be comfortable riding with or a car I’d be comfortable riding in. I don’t really care (or know, to be honest) who or what delivers my food, really. Especially when we’re doing touchless delivery.

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Kenny Easwaran's avatar

Demand for taxis has always been a lot higher than the traditional eyesight matching of passengers and riders could support. Lyft and Uber figured that out.

The question is just how much higher.

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lin's avatar

I am confused by "Driving yourself somewhere, or riding a bike, is still usually cheaper than hiring a chauffeur." + "I depend on Airbnb a lot when I travel."

First, owning a car is not cheap. Second, especially for travel, Uber seems far more important than AirBnB to me--the convenience difference between Uber and renting a car is much larger than the convenience difference between AirBnB and a hotel (in fact the former seems less convenient? I still don't really understand what the appeal of AirBnB is other than sometimes price improvements).

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Charles Ryder's avatar

>>>I still don't really understand what the appeal of AirBnB is other than sometimes price improvements<<<

Getting a lot of quality (more space, full kitchen) for less really needs an explanation? I like hotels just fine, FWIW, but you can really get some good deals, especially in resorts: Big condo with all the amenities for same price as a hotel room less than half the size.

And that's for leisure travelers. I was stranded in the USA for much of 2020 (was vacationing when air travel got slashed, and couldn't make it home to China). Long story sort, Airbnb was a lifesaver. MUCH, much cheaper than renting comparably well-appointed hotel room in SF Bay Area and Seattle. And a lot more flexible and less fuss than navigating apartment rental market (I didn't know when ravel restrictions would ease, so it was important for me not to commit long term; and yet I didn't want to be constantly moving; thus I did 6-weeks stays at sundry Airbnbs. Franky it was fun AF -- got to experience lots of different neighborhoods at a massive savings over what I would have spent at hotels).

Anyway, I doubt my experience was completely unique: I suspect a growing part of Airbnb's business comes from customers that once upon a time mostly relied on the "corporate long term stay" sector.

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KetamineCal's avatar

Airbnb also figured out that daily room cleaning isn't essential. Many hotels didn't figure this out before their current labor shortage forced it upon them. I actually prefer Airbnb but haven't had an opportunity to use them since their push to clear out scammers in 2019.

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Ven's avatar

While owning a car is not cheap, Uber doesn’t let you forgo a car unless your car use is tightly constrained. It’s not a solution for people with children nor a way to run errands, really. For those, you’ll typically need a car in the US, which means your tradeoff is between paying Uber and the marginal use of your car.

AirBnB is a short term rental aggregator and, as a result, is able to bring down the cost of short term rentals. Renting some house out for a week used to be almost exclusively a high-end market because that was the only way to make enough money to carry the house.

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Kenny Easwaran's avatar

I think the point is that Uber is competing not just with car *ownership* but also with car *rental*, just as Airbnb competes not primarily with long-term residence but with short-term stay like hotels.

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lin's avatar

Also the other thing about driving is that it is hard. I am bad at it. And at any given point there are a lot of people who, for a night or a month or a lifetime, are bad at it.

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c1ue's avatar

The real appeal of Airbnb is circumventing zoning laws - which in turn drives up housing costs for residents in touristy cities and areas.

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KetamineCal's avatar

What you say makes sense in the travel market. Airbnb, though, isn't trying to get you to give up homeownership or a long-term lease. Uber needs you to make that equivalent change in lifestyle at home.

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Hubert Horan's avatar

Fatal flaw with your piece is right up front--claiming Uber, Lyft, DiDi, Airbnb, Instacart, and DoorDash were “big successes.” In what universe is a company (Uber) that has never generated positive cash flow after 11 years and has never achieved a GAAP net margin on its actual business operations better than negative 38%, and cannot articulate any plausible path to sustainable profitability be considered a big success? The economics of the food delivery companies are even worse.

Your article presumes that the “gig economy” was based on major efficiency improvements and that the huge valuations of these unicorns were largely justified by superior competitive economics, but you can’t provide any objective evidence supporting your gut feel. You seem to have come to the recognition that many of PR claims about these companies (massive potential market, monopoly power, robot cars will replace drivers, huge network effects, etc) were never true. But the total absence of economic evidence doesn’t lead to consider that your presumptions may have simply been wrong. Since your analysis is still based on those vague presumptions and not on operating or financial data you can’t possibly answer your “what will stanch the bleeding?” question.

Traditionally companies that were “big successes” had come up with efficiency/quality/service breakthroughs that created sustainable competitive advantages over incumbents. The magnitude of the gains (e.g. much lower unit costs, higher unit revenue) could be objectively measured. Uber (as its P&Ls demonstrate) is actually much less efficient and has much higher costs that the economically marginal and unpopular traditional taxi operators they drove out of business.

Hundreds of billions in capital have been reallocated to much less efficient uses. Uber’s early investors extracted billions in wealth without actually creating a sustainable company or creating any economic value for the rest of society. As you note, Uber was openly pursuing monopoly power, another form of extractive wealth transfer. But as Didi has demonstrated, even with a 95+% market share this business model is structurally incapable of generating profits.

None of Uber’s vaunted “technological innovations” translated into actual productivity improvements that had any material P&L impact. In 100 years of taxi history nobody has ever found meaningful scale economies. Almost all of Uber’s limited margin improvements come from suppressing (already dismal) driver compensation down to minimum wage levels. This was the sole economic basis for every large scale “gig economy” company. The problem isn’t that network efficiencies weren’t global, it is that no one has any evidence showing that “Gig platforms definitely cut down on transaction costs” in any material way, much less to the point where they could help justify hundred billion dollar valuations.

You claim that “A lot of Uber’s initial success came from its ability to undercut the taxi monopoly in cities like NYC. Users loved Uber so much that the city government was basically forced to accommodate them and legitimize ride-hailing.” This further illustrates the disconnect between your presumptions and basic business economics. All of the popularity and rapid early growth of these companies is because customers liked the fact they never had to pay the actual costs of the service. Pressures on city governments came from massive lobbying efforts and Uber funded efforts to get their massively subsidized customers to bombard officials with emails. Uber did not compete away monopoly deadweight costs in New York or any other city. Traditional taxi prices were undercut by Silicon Valley billionaires pursuing global market dominance in the foolish belief that any company claiming to have an app-based platform could magically achieve Amazon type returns.

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Kenny Easwaran's avatar

Lyft (and then Uber, when it copied Lyft) did actually improve the taxi business model in a significant way - it used to be that you either had to have a passenger and driver of an empty vehicle within eyeshot of one another to set up a ride, or else call in advance and give directions to a location for a dispatcher to send a vehicle. But now, with GPS-enabled apps, you can have a passenger and driver of an empty vehicle discover each other without seeing each other, and without having to discuss the location and directions and plan in advance. This certainly increases the size of the market.

The question is just whether it increases it enough to improve the cash flow by enough to pay for that service.

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Hubert Horan's avatar

This is fundamentally incorrect. 90% of all taxi usage in America (everything excluding Manhattan and places like airports) were summoned by telephone. This dispatching function is a tiny portion of total taxi operating costs. Shifting to internet dispatch didn't fundamentally change taxi economics just as the shift from telephone to internet had no significant impact on airlines or pizza delivery. The increased available of cheap cars that made Uber popular had nothing to do with its GPS-enabled apps (which any cab company could copy) but with the massive subsidies funding Uber's unsustainable service and pricing.

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Greg G's avatar

I think you're just agreeing with the conclusion of Noah's article.

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Elias Håkansson's avatar

Youtube was deemed a success long before they turned a profit. Tesla turned a profit in 2020 for the first time. When assessing the success of a company we also want to factor in future potential cash flow, which is why I think valuation is a better measure of success than profits. Like if Lockheed came out tomorrow and they said they built a Fusion power plant with an energy gain factor of Q = 0.95 then that would be absolutely huge news. Possibly the biggest thing to happen since agriculture or industrialization because that would mean they were 5% away from effectively turning energy into a post-scarcity commodity.

Likewise if Uber is a certain margin away from making ride-sharing profitable, then that is a huge upset because it means with just some clever management and some tweaking you can push that organization out of the red and start changing the world.

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Greg G's avatar

It depends on whether that margin is 5% or 50%. It seems it might be closer to the latter, in which case price tweaking would need to be so large that it would depress demand. Then you're basically screwed. I think Uber will survive, but with 10-20% of today's valuation. Your average user will end up with more or less as poor an experience as back in the day when you would call a cab company.

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Elias Håkansson's avatar

50% isn't necessarily bad unless it never ends up getting better, and when people made the bet 5 years ago that it'd be better, I think that was a totally reasonable move. 50% is only a problem if it never ends up not being 50%, and that's not necessarily as far away from profitability as it seems. Some industries scale extremely well; particularly silicon valley style software industries. If Uber ends up not being one of them then fine - Lockheed's fusion reactor may not get any closer either.

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Tom Dale's avatar

I still find the Only Fans thing baffling, given that other porn sites remain operable and most are apparently able to take credit card payments, including ones which allow users to upload material.

It can't be entirely driven by recent legal changes because there are a number of smaller payment processors who focus on or otherwise accept this type of business. (https://www.quora.com/What-payment-processor-do-you-recommend-for-adult-themed-sites)

There's some scattered reporting out there on the big credit card companies' motivations in this, but much of it is speculative, and has a very unclear relationship to the FOSTA/SESTA regulations.

For example, one key issue seems to be Mastercard's demand that all pornographic content be reviewed pre publication (presumably by a human), which would explain OF's specific restriction on that. Buy why would pornographic content be more likely to facilitate prostitution than merely nude content not featuring actual sex? Sex workers' websites almost always feature the latter and rarely the former.

If the issue is people appearing non consensually in posted images, why would a super rigid/precautionary/one strike reporting system not be preferable to blowing your entire business sky high? (There's some suggestion that an ongoing BBC investigation found holes in the reporting system and a failure to take action consistently, and this might be behind the card companies' decision. If that's the case, is this a story of management failure rather than the business model per se?)

There's also some suggestion the decision relates to OF searching for venture capital funding, but no real evidence that was decisive. Likewise with shareholder pressure on the card companies.

To what extent are we looking at socially conservative activism by the card companies beyond the demands of legislation? Again, unclear.

There's a great story there for an inquisitive business reporter.

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Kenny Easwaran's avatar

My understanding is that it is quite common for people with an OnlyFans account to suggest a "collab" with someone else who has an account. Depending on how this is monetized, it could end up a lot more like prostitution than like joint creation of a pornographic video.

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Tom Dale's avatar

I.e. from Newsweek (https://www.newsweek.com/why-visa-mastercard-being-blamed-onlyfans-banning-explicit-content-pornography-1621570)

"These changes are to come into fruition on October 15 and include age and identity verification for content creators, a content review process before publication, complaint review processes within 7 days and a stringent appeals process for content to be removed."

"Mastercard's decision was lobbied for by Conservative groups such as National Center on Sexual Exploitation (NCOSE), formerly known as Morality in Media, and Exodus Cry."

The content review process pre publication seems the killer there. But also it's very unclear that it's got anything to do with trafficking, prostitution, or any legislation.

There's also some suggestion that the card companies' decisions are related to the high rate of "charge backs" common in porn, which makes servicing those accounts less profitable: https://www.protocol.com/amp/onlyfans-build-payments-network-2654738343.

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Alex Salkever's avatar

I think your bifurcation of the "gig" economy is both correct and incorrect. For low-paid jobs likee Uber and Lyft, I think the transaction costs are higher than people realize. But for higher-paid jobs, like some of the micro-gig stuff you listed, I think transaction costs are quite a bit LOWER than before. A bunch of research out of BCG is finding massive growth in these "hybrid teams" and companies are more and more accommodating of these approaches. But hybrid teams does not mean "gig work". It means someone who is an on call resource and is paid a solid hourly rate or retainer who also KNOWS the business, the politics and the expectations - and is nearly equivalent (or better than) internal resources for the tasks at hand. They just don't want to work at one company. These folks have existed forever (they are called "consultants" or "graphic artists" or "PR agencies" etc) but I believe there is more acceptance to have them doing things that were once considered core business skills (product marketing, fractional CMO or CTO, etc). I'd love to see more exploration of this.

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Matt's avatar

Weird blindspot here Noah. Your last paragraph skirts the obvious answer. The gig economy is miserable low paid labor for services that to the consumer are bespoke luxury services. Our plutocrat dominated regulatory system tried really hard to pretend this great news opportunity to exploit labor even more brutally could take over everything. Unfortunately for them, their 40 years success in crushing the middle+ class to working class means there aren't enough people with enough money to live served by the help.

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Noah Smith's avatar

I mean, sure, but lots of stuff is just that.

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Matt's avatar

I'm no Bernie bro, but I think that's a hint as to why they're so monotonal. Maybe consider when you're commenting on the storms and swell to explain the tides?

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Noah Smith's avatar

I'm talking about the gig economy with reference to creating shareholder value, not in terms of how it treats workers. That's of course an important issue, but you're right, the gig economy is so small in terms of its total effect on the labor market that it's probably not worth thinking about it separately from general labor issues.

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Matt's avatar

Fair enough. I agree it's interesting how it's mostly failed to become a foundation for large, profitable enterprises. I admit I'm a little obsessed with how the racist, reactionary counter since the civil rights movement and 2nd wave feminism have super powered the neo-propritarian - to steal Piketty's label - destruction of the American economy and much of the promise of our societal development in the last 50-60 years.

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Andrew Reamer's avatar

I'll add that I represent research organizations on Labor Secretary Walsh's Workforce Information Advisory Council (WIAC) and chair its Measuring the Changing Nature of Work Subcommittee, which covers contingent work, remote work, and the impacts of technological change. This is my second tour of the WIAC, the first being 2016-18. We have a draft recommendation on measuring the changing nature of work. In 2018, we encouraged the Secretary to support the revival of the Contingent Work Supplement. Those docs are available at https://www.dol.gov/agencies/eta/wioa/wiac

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DJ's avatar

Re: OnlyFans - this is a perfect test case for Ethereum smart contracts. Strong demand for a product that transcends borders and a customer base that's motivated to jump through early adopter challenges.

If and when the happens, I think it will be extended to other gig economy platforms too. Check out how Gitcoin is applying crypto rewards to open source software.

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c1ue's avatar

We've had contracts and lawyers for hundreds of years - that biz is only growing.

We've have software for decades - we are still regularly pumping out egregious bugs and errors.

Why does combining the 2 into a smart contract somehow yield a better outcome?

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DJ's avatar

The main benefit to the OnlyFans types is censorship resistance - they can't be shut down by a court of law or a payment processor. Of course, that can probably will lead to lots of unintended consequences too, but those will be case by case rather than platform wide.

It will take a while for such a system to get up and running and get all the bugs out, but that was true of internet porn in 1995 too. (I'm still remember the first time I saw a nude picture on the Internet - I think it was 1993.)

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c1ue's avatar

I find this naive in the extreme.

Try some child porn and see just how far "censorship resistance" goes.

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Greg G's avatar

I look forward to smart contract advocates explaining to the court of law that they're exempt. Good luck with that. I find the idea of smart contracts really interesting, but avoiding existing laws is not the right use case.

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beleester's avatar

The goal of a smart contract is to make a contract that automatically enforces itself without a legal system (or in spite of the legal system saying no). For most use cases, this adds no value - the fact that a human in the legal system can look at the contract and say "no, this is an illegal outcome that should not be enforced" is a feature, not a bug.

But if you're selling something that the goverment has a problem with (like nude pictures), then having the ability to implement a legal code in software is a benefit.

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c1ue's avatar

The problem with what you've said above is the assumption that implementation of legal code into software is any more robust than the legal code was to start with.

Nor am I particularly convinced that implementation itself cannot be questioned.

Once again: contracts and lawyers have been around for hundreds of years. They still haven't gotten it right. Why again would taking said legal code - which is still so bad that the legal profession continues to grow - and making it software code would change anything?

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beleester's avatar

I never said it was *better* than an actual legal system with humans, quite the opposite. But if you can't *use* the actual legal system because the government has outlawed whatever you're selling, then a pseudo-legal system implemented in software might be your best alternative.

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c1ue's avatar

Selling illegal stuff = crime.

Sounds to me like the use case you are describing is purely criminal.

Is that viable?

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beleester's avatar

Also, it's not an entire legal system, it's one contract, probably something along the lines of "IF userDepositedMoney THEN sendDirtyPictures()."

It's not like you're trying to encode the concept of "fiduciary duty" or something, it's just a tool to let people make a trade without getting ripped off.

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Charles Ryder's avatar

>>>Need someone to run a regression or wrangle some data for you? Want someone to pore over a company’s financials and report key metrics?<<<

Firms already do this kind of "micro" outsourcing a lot. It's just that the vendors that get the gigs are temp/office worker/financial professional outsource specialists. OR, one way of looking at it is that the self-employed entrepreneurs (gig workers) who get the gigs use these staffing companies to line up jobs for themselves. I think this is something of an interesting phenomenon. I know there's a lot of negative reportage on the supposed drawbacks of gig work (especially as opposed to being a regular, FT employee). But there's a sub-population of such workers who make fairly high salaries and enjoy the flexibility. A good friend of mine is a some kind of Senior Financial Analyst model-building whiz. East coast banking background but decided to relocate to Silicon Valley. Anyway, she makes ok money even by S.V. standards, I think (sometimes 200+/hr when she stacks her gigs). And seems to enjoy it.

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Swag Valance's avatar

Ugh. Seeing how Airbnb has weaponized gentrification around the world by destroying the local communities we love (rentals removed from locals, businesses pivoting to serve tourists instead of locals), I'm happy to finally see pushback against the abuses it scales.

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M. Kishan's avatar

Is it to ravenge of Chinese rule by urben people

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