Section 3.3 Type of Labor Employed

Main street entrepreneurs and silicon valley entrepreneurs differ in the type of workers they employ, with Main street entrepreneurs employing more low-skilled labor than silicon valley entrepreneurs.

On Main Street, there are also high-paying, high-skilled employees, such as lawyers, accountants, physicians, dentists, architects, and others in professional high-skilled services. However, while startup technology companies tend not to employ much low-skilled or medium-skilled labor because of the nature of the product and services offered, main street entrepreneurial ventures often depend on these roles—the cashiers, the waiters and waitresses, hostesses, bartenders, dishwashers, beauticians, fast food cooks, and the like. These types of jobs, whether employed by larger or smaller companies (i.e., local grocery store or Wal-Mart) tend to be paid lower salaries because the nature of their job is considered low-skilled. In the most recent Bureau of Labor Statistics (2018) anal­ysis of median wages by type of job—the lowest paid jobs (making below $25,000 a year) were: food and preparation serving workers, shampooer, waiters and waitresses, hosts and hostesses, cashiers, fast food cooks, dish­washers, laundry-and-drying cleaning workers, and a host of others that fall more in line with jobs found on Main Street than in Silicon Valley.^[59] While it is true that some of these roles, such as cashiers, are also being employed by large firms, it is reasonable to assume there are not signifi­cant differences in skill or pay between a cashier at Wal-Mart and a cashier at Lynn's Deli.

Furthermore because of the culture of “lean startups” and “boot­strapping,”^[60] and the fact that startups are unstable and face fluctuating demand, funding, and business models, they tend to utilize contract labor over traditional employees.^[61] The “virtual” and modular nature of jobs at startups also allows for more contract over employee labor. The reliance of contract labor at startups has sparked several controversies and pushbacks. For example, the Innovation Center at MIT posted the following advice article to startups, entitled, “Is Your Lean Startup Violating Labor Laws?” The post explains that while many startups will “forgo hiring employees and instead rely on contractors to perform much of the work,” it is still a violation of the law and they should stop doing it.^[62] The authors explain, “In other words, a contract developer, for example, who is working on your innovative new product on site and for whom you set the work hours is, in fact, not a contractor. He or she is an employee. And whether your organization intends to or not, you are committing labor fraud.” This type of behavior could be considered labor fraud because companies are classifying workers as contractors to forgo paying benefits.

Fieldwork interviews indicated a similar observation—31 out of 42 startups interviewed indicated they used some form of contract labor. Most indicated that it was because of the nature of the role, affordability, and “uncertainty” of the stage of their business. This is captured well by the following statement from a digital health startup CEO in Boston, whose workers are all currently 1099 contractors: “I don't want them to quit their main job yet and I don't have the funds to hire employees and provide the benefits I would like to offer them.”^[63] Another founder of a media platform startup in san Francisco said that most of the people working with him are contractors and consultants because of “labor and management costs.”^[64] A CEO of a small software startup in New York City, with two current full-time employees, said he has four contractors doing IOs developer work internationally and that he would continue to rely on international contractors to maintain affordability.^[65] In a May 2019 survey of 396 technology startup executives, 79% of CEOs indi­cate they use contract labor.^[66] Contrast this to a “typical” U.S.

There are of course several other important differences that are not elaborated in this section. For example, startups primarily engage in equity deals (e.g., from institutional or angel investors) instead of loan deals, whereas small businesses tend to acquire a small business loans from banks. On demographic differences, Silicon valley entrepreneurs are younger, well educated, and tend to come from higher income back­grounds. Main Street entrepreneurs tend to have lower incomes, less educational outcomes, and are older than the typical Silicon valley. In the Kauffman Foundation's report on Main Street entrepreneurs in 2015, adults aged 45-64 make up 59.3% of all Main Street business owners (Kauffman Foundation 2016, 6). And in fact, young business owners— those aged 24-34—were only 15.8% of Main Street business owners in 2015. This is in sharp contrast with the average age of technology- enabled startup founders, who fit the stereotype of the characters from the TV-show “Silicon Valley”—young (in their 20s or early 30s), male founders.

Thus, while there are other differences among these groups, I focus on growth and innovation, products and location, and the type of worker employed because they are most significant for highlighting the differential impact of regulation.