The way work is organized has changed significantly in the last few decades. This article considers the challenges facing the recruitment industry in the wake of the emergence of the gig economy, with a focus on a new startup that is using blockchain technology and smart contracts to disrupt it.
Challenges of the Gig Economy
The way work is organized has changed significantly in the last few decades. More and more people are working independently as freelancers on a contract basis. Already, 20 to 30 percent of the working-age population in Europe and the United States work independently. In 2016, the Gartner research company concluded the number of people working as freelancers will continue to increase and the recruitment industry needs new platforms to facilitate connecting independent workers with employers. Existing employment agencies face several challenges:
- High financial risk: recruitment companies take the financial risk of advance payments to employees while waiting for the employer to pat its fees
- Extensive overhead costs: In current employment agencies, approximately 70% of revenue goes towards operational costs
- Dated technology: recruitment currently requires significant human resources with operational costs often resulting in fees in excess of 20%. These fees end up reducing workers’ earnings
A new startup called Hiway will try to address these challenges. How? In effect, Hiway is based on two premises 1) that artificial intelligence algorithms can not only take over the job of a recruiter but can do it better than a human, and 2) that blockchain technology and smart contracts can cut out the financial middleman and reduce bias in the recruitment process.
Smart contracts could help overcome several limits of the recruitment industry. First, they restore trust, particularly for independent workers. One of the main fears of freelancers is contracts will not be honored and/or payments will be delayed, reduced, or even eliminated. Smart contracts address these fears because remuneration is actually embedded in the contract, instead of simply being referenced. With smart contracts, as soon as contractual terms agreed upon are met, payment is automatic and instant.
Second, smart contracts shift in responsibility in ways that reduce financial risk for recruitment agencies. Specifically, they eliminate the need for advance payments to employees because the smart contract exists directly between the person handing out work and the person taking on the job. There is no need for an intermediary third party with whom both parties have an agreement. This not only reduces the financial risk to recruiters but makes it possible for a platform to scale almost endlessly.
Artificial Intelligence and Machine Learning
One of the key technologies to innovation in the recruitment industry are machine-learning algorithms that can match workers and employers. Hiway plans to use AI to optimize matching based purely on professional criteria. On the one hand, AI can ensure an employer will not miss out on great candidates no matter where they are located in the world. On the other hand, workers have access to all jobs that suit their skills and experience. They can rest assured that biases based on age, gender, race, ethnicity or background are not affecting their opportunities.
AI algorithms also reduce operating costs. Hiway plans to use a minimum of labor power by automating administrative and accountancy jobs. This means Hiway will be able to use a significantly downsized workforce compared to the current agency model.
Employers and employees will use Hiway’s centralized website for posting vacancies and applying for them. However, the platform will only be used for bringing together the employer and employee. The blockchain will be used for the financial and contractual operations. Blockchain technology makes sure smart contracts are executed exactly how they are programmed. The employee will receive payment once the job is done or the employer will receive the money back if the job is not finished.
Blockchain technology also guarantees personal data like passports, bank details, social security numbers, addresses and telephone numbers are secure. Hiway will store such data on private servers and encrypt it with crypto-graphical keys stored on the blockchain. These keys are saved in blocks that form a chain These blocks then verify whether the person trying to access a key is a valid owner or not — no middleman is required and there is no risk of data being hacked or sold.
Targeting the Blockchain Industry
Initially, Hiway will focus on what its whitepaper calls “the digital nomad.” These are freelancers who can work from all over the world for anyone, such as graphic designers, web developers or even photographers. The main focus for Hiway are these types of workers in the blockchain industry.
Hiway’s founders already have experience running an employment agency with over 30 employees. Established in 2007, De Speer was built from the ground up as a solution driven business. Today it has over 500 candidates placed with prospective employers every day. This experience provides Hiway with valuable insights from the perspective of both the employer and employee.
As the gig economy continues to grow and become global, it will need new mechanisms for connecting employers and employees. The use of artificial intelligence algorithms to optimize this process seems promising. The benefit of smart contracts to make payment more efficient and less financially risky is also clear.
However, there are two unique things that make Hiway a company that could succeed in developing such tools for the recruitment industry. The first is its plan to start with the blockchain industry. This is a great choice given it is an inherently global industry and matching skilled workers to employers with specific needs is widely recognized as a challenge. The other strength of Hiway is it is run by a team with experience in the recruitment industry. This means that they understand exactly where the weakness of the current model lie. It is likely this experience that told them a good place to launch their platform would be with the blockchain industry.
Disclosure: I do not own Hiway tokens and I have not participated in the Hiway ICO. This article is not intended as investment advice. You should always do your own research.
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Blockchain and Smart Contracts Disrupt the Recruitment Industry was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.