September 28, 2017

From the Informal Economy to the Gig Economy

Written by Adam Grunewald

This post originally appeared on the Pyxera Global website. Reposted with permission.

In a peri-urban neighborhood outside Nairobi, a young man named Mwangi dreams of a career applying his talent in carpentry. Through years of practice, he has honed his skill in furniture design and fabrication. His twin sister, Lillian, has aspirations of building her own cooking business. In spite of coming from an under-resourced community, both Lillian and Mwangi were instilled with a determined work ethic from an early age. They’ve each managed to string together a handful of jobs to support their parents and siblings, as well as their grandparents in the countryside. The future is uncertain working in the informal economy, but they’ll continue to use their tools, talent, and local network to seek jobs, hopefully in their chosen fields.

The concept of the informal economy categorizes a nebulous population of non-salaried workers in urban labor markets. Individuals like Lillian and Mwangi participate in a highly unregulated sector—off the books, small-scale activities and jobs such as carpenter, plumber, or nanny—in roles that are unprotected by government bodies, and characterized by disproportionately low representation and minimal earning or growth potential.

The African Development Bank estimates that Sub-Saharan Africa’s informal economy accounts for nearly 55 percent of the continent’s GDP and 80 percent of its labor force. Given the rapidly increasing youth population, the size and importance of the informal sector will only continue to grow. Unfortunately, without organization, the sector will be unable to support and protect the growing population of entrants.

Rather than watch this sector proceed with business as usual, the recent proliferation of mobile technology coupled with a growing middle class presents an opportunity to transform the sector and offer scores of individuals a path to upward mobility. It was with this in mind that Lynk, a technology-driven platform designed to bring the informal sector out of the shadows and into the mainstream, was born.

“LinkedIn” for the LinkedOut

Anyone reading this has undoubtedly experienced the power of LinkedIn to find a job, an employee, or a new network. Even graduates from the most prestigious universities rely on a carefully crafted LinkedIn profile and CV to land a job. While critical for white-collar workers and college graduates, career platforms like LinkedIn that track skills, certifications, work history, and employer references have the potential to change the dynamics surrounding today’s informal sector.

Most blue-collar jobs typically occur in the gig economy. Short-term arrangements are common, and workers are consistently looking for “the next gig.” Despite a composition of skilled and dedicated individuals, the sector is also plagued by anxiety regarding job insecurity, a lack of opportunity to develop skills, and an absence of resources to locate and compete for available jobs. Individuals in the informal sector have little incentive to strive for higher quality service delivery, particularly when faced with deep distrust from employers who know very little about their skills, qualifications, or reliability.

Lynk, a version of “LinkedIn” for a LinkedOut community, began by formulating online career identity profiles to display workers’ strengths and key information such as certifications, previous experience, and employer feedback. This career identity is the foundation upon which other products and processes can develop. It also incentivizes workers to improve and expand their skillsets. The worker information logged into the system is permanent and accessible to both employers and workers. It creates a virtuous cycle for people who previously operated with little or no recognition of good or bad work by encouraging them to strive for excellence.

Many informal sector workers struggle with limited access to the internet. Lynk addresses this by onboarding workers through in-person interviews with the Lynk team or its partners. The interviews provide an opportunity to vet workers, verify skills and experience, and collect relevant personal and vocational information. When prospective employers request services through the website or app, the system identifies local workers with the requisite skillset and invites them to bid for the job, similar to a tender process.

Rather than standardizing pricing, the developers recognized early on that it was critical to give workers the autonomy to determine their own price. Each job that a professional bids for represents a unique set of costs in terms of time, opportunity, and risk. The worker is best positioned to make this determination. At the same time, multiple workers bid for each job to avoid issues of price inflation and to create pressure towards fair rates without the need to negotiate.

When a worker receives confirmation about a job, the Lynk system uses automated reminders, directions, and alerts to help it run smoothly. Upon completion, automated payment through mobile money or a digital transaction eliminates issues of late payments or a customer’s discomfort with paying in cash. The employer then posts a review on the worker’s profile, promoting good workers and setting them on a path to more work, higher pay, and career growth. It is already clear how significant a role the reviews play in worker selection, as they create strong economic incentives toward quality and reliability, and help to build a meritocratic system in the informal sector.

Beyond ensuring the basic elements of reliable service delivery, streamlined payments, and codified feedback for workers, Lynk will be able to leverage its network for further skills development to amplify its overall impact. The informal sector possesses a wide variety of skills and a high volume of workers in each category, placing Lynk in an optimal position to offer skills training and apprenticeship programs. For instance, registered cooks could help to expand the skillsets of housecleaners, or refrigerator technicians could provide training to electricians.

The digital collection of worker details and customer feedback also lends itself to developing website templates, profiles, and other promotional tools for enterprising workers. In addition to strengthening vocational skills, Lynk’s digital communication channels and unique relationship with workers will be useful to convene service providers for trainings in areas such as financial management, legal rights, computer skills, and much more.

Drawing on experience in data science and statistical modeling, the Lynk team is also eager to dive into a wealth of data about a sector that remains relatively unknown to most governments, regulating bodies, and research institutes. For example, with information related to workers’ employment backgrounds, monthly incomes, and peer references, it will be possible to issue appropriate loans and recommend saving tools.

As a technology-based initiative, the model is highly scalable due to the automated job matching process. In fact, most of Lynk’s processes improve as the system scales. When matching, processing, and receiving feedback about thousands of jobs each week, Lynk gains profound insight about the workers, customers, and the informal ecosystem as a whole. This insight translates into occupational empowerment for informal workers like Lillian and Mwangi in a smart and inclusive way.