The Essential Worker Economy

The largest segment of the workforce is primed for innovation

What is the Essential Workforce?

The Essential Workforce (shown in green in the chart below) is that part of the U.S. labor force in which workers must physically show up for their jobs. Geography matters. Transportation matters. The personal characteristics workers bring to the job matter more than formal credentials (Essential Workers are less likely than those in other sectors to have college degrees or even have attended college). Showing up for work and other soft skills matter more.

This Essential Workforce represents 63 out of 100 working Americans. For essential workers, there is likely no office to go to regularly, and work is not primarily performed in front of a desktop or laptop computer. The main computing device for this workforce is typically a mobile phone, which many essential workers pay for out of pocket, often foregoing an unlimited bandwidth plan. 

Innovation in the internet era has largely overlooked the essential workforce outside of attempts to gig-ify it. As a result, productivity has stagnated over the last 20 years in this portion of the economy.

Source: Bureau of Labor Statistics

Caveat

There are some exceptions to this characterization of the Essential Workforce, of course. For example, healthcare workers are included and often have extensive training and credentialing. Such training and credentialing vary greatly across geographies and are beyond the scope of this post. Similarly, advanced manufacturing (including the pharmaceutical industry) includes many job functions that require advanced degrees and credentials, though these roles represent a small fraction of the total workforce. Educators are also exceptions to the above characterization of the Essential Workforce, but many of these workers are employed by public institutions rather than the private sector (11 million of the nearly 20 million state and local employees work in education).  Lastly, our investments are focused in medium and large metro areas, so miners and farmers are not included.

Challenges Facing the Essential Worker Economy

COVID has highlighted supply chain, travel and geopolitical dislocation trends that will persist for many years. These dislocations have reminded us that geography still matters. As a result, industries already located in the U.S., the world’s largest and most dynamic economy, will benefit. The importance of geography to the Essential Worker Economy will make it a particularly significant beneficiary of this macro trend.

Productivity has always mattered. However, cost cutting and leverage have been substitutes for true innovation in recent years. The period of ever-lower interest rates that allowed investors to produce returns by leveraging and deleveraging assets at the expense of innovation has ended. Going forward, markets will reward businesses that embrace genuinely innovative approaches amid a tight labor environment and higher interest rates.

COVID has also demonstrated that the labor force of the next twenty years is not the labor force of the last thirty years. There simply will not be enough humans to fill jobs. Employers must empower their workforce to be more productive to survive and thrive in an environment of scarce employees and rising wages.

Why Invest in the Essential Worker Economy? 

The above challenges mean the Essential Workforce must become more productive. That makes employee productivity in these sectors, long overlooked by the innovators of recent decades, a great spot for innovative investments.

The successful Essential Workforce businesses of the next twenty years will be those with the vision to shape culture and deploy technologies to empower their workers to become more productive. 

Fortunately, the information technologies needed for innovation in the Essential Workforce are already mature or maturing. 

At Iriba, we invest in technology companies, principally growing software businesses, that help make essential workers more productive. We also invest in profitable service providers with the vision to drive innovation with these new tools in their industries.