The Labor Economy Becomes the Innovation Economy

My hometown of Baltimore was the first city to install gas street lights in 1816 in an effort to curb crime. More cities quickly followed suit.  By the turn of the century, every evening at dusk, lamplighters walked the streets with their ladders and torches, igniting gas lamps one by one. Twenty years later, electric streetlights became more commonplace, and lamplighters became more or less an extinct species.

In 1890, horses were the mode of transportation and blacksmiths were their mechanics. That year, the U.S. Census reported that there were 205,337 of them shoeing horses and forging the tools of their trade across America. By 1930, their ranks had dropped precipitously as automobiles rendered their craft obsolete.

But these two groups experienced very different outcomes as their industries disappeared.

Blacksmiths had transferrable skills. Their training in metalworking, forging and working with iron at high temperatures was easily applicable to other industrial uses. When the automobile age arrived, they could be redeployed. Many went on to become first-generation auto mechanics, machinists and welders in a growing industrial economy that needed their expertise in new forms. Their skills translated.

Lamplighters weren’t so lucky. Their work was more specialized, more tied to a single use case and technology, so to speak. When electric lights replaced gas lamps, they couldn’t simply move sideways into electrical work. They had to find entirely new occupations, often requiring significant retraining. Their transition was harder, longer and more uncertain. Some workers never made it through.

But that’s the pattern that always emerges with technological change. Some workers can make the transition because their skills transfer. Others cannot, at least not without retraining, structured support and pathways to new opportunities.

Today, we stand at another technology and workforce inflection point.

Headlines warn that artificial intelligence and advanced technology are coming for the 60 million U.S. hourly workers who stock warehouses, move goods, serve meals, staff restaurant and hotel kitchens, support live events, clean rooms, assist patients and staff retail counters.

These workers form something that PYMNTS Intelligence has dubbed the Labor Economy, a distinct and vital economic bloc that drives $1.7 trillion in annual consumer spending in the U.S. The narrative, however, often frames them as the  victims of technology’s next big thing. Replaced, displaced or left behind.

History and current trends tell a more nuanced story. Technology doesn’t destroy opportunity uniformly. It creates winners and casualties based on how transferrable skills are and whether those pathways exist for workers who need them. Or entrepreneurs see the opportunity to create them.

The Labor Economy’s Upward Innovation

Although AI has made headlines for its impact on white-collar knowledge work, the Labor Economy operates in a different dimension. The physical economy still requires human hands, human judgment and humans to be present. You cannot simply automate away the person who changes your tires, unloads the delivery truck, stocks grocery shelves, cleans hotel rooms, prepares and serves a meal, gets Foxboro ready for a Patriots home game or provides care to an elderly patient.

Technology may augment these roles, but it cannot eliminate them. At least not for a while.

This resilience makes the Labor Economy workforce increasingly important, maybe even resilient. As AI reshapes knowledge work, in many ways the hands-on workforce will be the foundation of economic continuity. These 60 million people who keep the physical economy running while the knowledge economy reinvents itself.

Resilience, however, doesn’t always mean opportunity.

Their longer-term prospects may not be safe as AI becomes an important tool they need to use and a partial replacement for what they do now. They will need to learn new skills and build pathways that let them grow as advanced technology becomes a more embedded part of the physical economy over time.

Creating that opportunity means focusing on something I call upward innovation. The application of new technology that creates pathways to higher-skill, higher-value work. The warehouse worker who learns to maintain the robots. The retail clerk who becomes a customer data specialist. The home health aide who advances to become a licensed physician’s assistant.

This isn’t pie-in-the-sky wishful thinking.

The PYMNTS Intelligence Wage-to-Wallet Index data shows these Labor Economy workers are ready for this transition. They are mostly Gen Z and younger millennials. They demonstrate lower job mobility but stronger job security than their white-collar peers.

PYMNTS data shows that 69% of Labor Economy workers have been with their current employer for more than two years, compared to 61% of the general workforce. They’re loyal, building tenure, establishing relationships and demonstrating reliability.

What they lack is the structured pathways to turn their stability now into stability down the road through upward innovation.

The Labor Economy: America’s $1.7 Trillion Foundation

PYMNTS Intelligence data shows that approximately 36% of U.S. workers participate in the Labor Economy to some degree. The highest participation rates are among workers in transportation, hospitality, retail and personal services.

These 60 million workers form the connective tissue between production, distribution and service delivery in the U.S. Most earn $25 an hour or less, typically between $30,000 and $40,000 per year, and spend nearly every dollar they make, accounting for roughly 15% of all consumer spending in the U.S. Their paychecks power their households, their communities and a large share of the broader economy.

When their pay is smooth and on time, spending stays steady. When it is choppy or delayed, consumption stalls. Even small wage changes of 15 to 20 cents per hour impact GDP by $17 billion annually.

That said, financial fragility is the Labor Economy’s steady state.

PYMNTS Intelligence Wage-to-Wallet Index data shows these households hold about $5,737 in liquid savings, compared to $9,869 for the general population. Fewer than one in three could cover a $2,000 emergency within a thirty-day window. Higher credit-to-income ratios and revolving balances compound their paycheck-to-paycheck strain.

Speaking of paychecks, inflation hits hardest where they live, and need to spend their paychecks — buying groceries and gas, paying the rent and monthly bills. These 60 million workers stretch their budgets by trading down, waiting for sales and buying from lower-priced merchants, and often lower quality goods. Those choices are not about preference. They are the reality about how these households make ends meet.

Their spending patterns closely track the hours they work and when they are paid. A missed shift, reduced hours or a late paycheck can trigger overdrafts, late fees and deferred bills that may take weeks to recover from.

For this workforce, the timing of when they get paid is as important as the amount of their paycheck. When they earn and spend, local economies thrive. When they pull back, the ripple effects reach every corner of Main Street.

The Innovation Layer: Platforms That Match Capacity With Demand

Out of the financial fragility of the Labor Economy has come a powerful wave of innovation that has redefined how these hourly or shift workers earn, access and manage income. Platforms such as WorkWhile, Care.com, Uber, Lyft, Instacart, Snagajob, Clipboard Health, TaskRabbit, GigSmart and DoorDash (among others) have become the essential infrastructure for the Labor Economy.

According to PYMNTS Intelligence data, shift work placed through these platforms often represents 15% to 30% of workers’ total income and economic lifelines for millions. They connect available capacity with real-time demand, filling gaps between shifts and providing a level of income consistency that traditional hourly scheduling rarely delivers. These platforms have turned the risk of financial instability into a mechanism for earners to achieve financial control.

At the same time, innovations in instant pay give workers access to the money they’ve already earned in real time, instead of waiting one or two weeks for a scheduled payday. More than 20 million U.S. workers now use on-demand pay, with adoption reaching 60% in sectors like retail, hospitality and healthcare, according to PYMNTS Intelligence data.

For the workers living close to the edge, instant payouts give Labor Economy workers greater control over both the timing and predictability of their income.

The Three Forces Reshaping the Future of the Labor Economy

The first phase of innovating the Labor Economy proved that technology could give workers more control over when they work, how they earn and how they access their pay.

The next phase of growth for the Labor Economy depends on how three forces connect workforce flexibility to worker stability: how technology advances, how innovation builds pathways for workers to advance, and how employers rethink the structure of work itself.

How they interact will determine whether the Labor Economy becomes stronger and more dynamic, as it should, or more fragmented and fragile, which it could.

Advanced technology and AI. As AI shifts from basic task automation to workforce augmentation to autonomous systems, some routine tasks will disappear while new roles emerge. The question isn’t whether jobs in the aggregate will disappear, but whether today’s workers can access and perform the new ones that emerge. Notably, AI’s most immediate disruption has targeted knowledge workers rather than the hands-on Labor Economy workforce. These disparate shifts underscore the continuing importance of physical work that requires human presence, judgment and adaptability.

Upward innovation. Advanced technology should create pathways to higher-skill, higher-value work. These transitions require training, certification and support. That’s achievable with the right infrastructure, funding and commitment to reskilling.

New staffing models. The rise of digital platforms and flexible work has created a labor market that is more agile, more distributed, always on but more complex. Workers now move fluidly between employers, shifts and income streams, while benefits and protections are often left behind. Worker flexibility is the benefit, but income and benefits uncertainty have become the risk. At the same time, employers are rethinking workforce management, blending full-time, part-time, contract, and on-demand workers in ways that were not possible before. AI has the potential to create the conditions for flexible work to also be stable work, and for worker and workplace productivity and prosperity to move in lockstep.

Together, these forces will redefine the structure and value of work itself. As automation and AI absorb more repetitive tasks, the human side of the economy, the people who move, serve and care, will only grow in importance. The question now is who will design for that future. Whether we’ll build the infrastructure that connects technology innovation to Labor Economy and workforce inclusion.

Innovators, and history, offer a blueprint for how it can be done.

When Work Turns Over

When the whaling industry collapsed in the mid-19th century, Massachusetts faced what felt like an ending. Whale oil, once the fuel that lit the world, had been replaced by cheaper kerosene. Ships sat idle, fortunes disappeared and entire communities built around the sea lost their economic engine.

The transition to something new was anything but easy. Workers whose skills had been passed down for generations found themselves adrift. Some shifted into fishing or factory work. Others never recovered. Families that had known stability faced years of financial uncertainty. Change created opportunity, but only for those who could find a way to make the most of what new technology had to offer.

Over time, new industries emerged. The capital and ingenuity that had ignited the whaling industry were redirected toward manufacturing. Immigrant sailors who had come to crew the whaling ships stayed and became part of the state’s evolving identity. The transition reshaped Massachusetts, but it took decades. And it came at a cost to businesses and the people employed by them during that period.

The difference today is speed. Transitions that once took generations are happening in years. Artificial intelligence is collapsing the time it takes to invent, build and replace entire industries. The pace of change has outstripped the pace at which businesses and people adapt.

But the lesson from history is clear. Progress depends on people. Technology may drive transformation, but human readiness determines whether technology expands prosperity or narrows it. The challenge for business leaders and innovators today isn’t just to innovate faster.

It’s to help people keep up.

Designing the Next Chapter of Work

History shows that technology creates more opportunity than it destroys, but only when we build the systems that let people capture that opportunity.

There is an opportunity for innovators, business leaders and investors to create the infrastructure, platforms and incentives to turn their potential displacement into economic opportunity for these workers and the broader economy. The Labor Economy deserves that investment because the 60 million people who comprise it drive growth, productivity and stability.

We don’t need to invent new technology to get there. Rather, we need to adapt what innovators have already created to help workers advance. That means rethinking the workforce status quo and creating new models that make progress possible on the job.

To make skills more portable and standardized. And Labor Economy workers more employable. Reliability scores, standardized skills badges and micro-credentials should follow workers across employers and platforms, unlocking higher-paying shifts and supervisory tracks. And giving employers confidence that workers can perform the job.

To recognize that payouts are the new paycheck. Instant pay and cash-flow tools can make income predictable enough for the Labor Economy workers to plan, save and invest to create financial certainty for themselves and their families.

To make benefits as flexible as worker hourly shifts. Harder but also important is to rethink health, retirement and insurance benefits that provide the same sort of portability as Labor Economy skillsets and credentials.

To challenge conventional thinking on how the Labor Economy acquires new skills. For these workers for whom every hour is an opportunity to earn money for their families, training has to fit into the flow of earnings, not outside of it.

Taken together, these new models don’t just improve individual outcomes, they can strengthen the entire economy. Labor Economy workers are the connective tissue of commerce and the communities in which they live and work. When they thrive, the economy accelerates. When they struggle, growth stalls.

The Labor Economy isn’t waiting to be saved by technology, nor does it see itself as a casualty of it. It has already shown resilience, loyalty and adaptability. In fact, it’s a workforce that’s ready to step into the next era and help lead it.

Until NEXT time.

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