💰The Creator Economy Is Creating More Inequality
But policy can help us address this
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💰 The Creator Economy Is Creating More Inequality
Automation is displacing workers, especially those in blue-collar jobs, at an increasing rate. For displaced workers seeking new opportunities to earn a livelihood, creator platforms seem the perfect solution. The allure of earning a livelihood by using one’s individuality to educate, empower, entertain, and engage others is powerful, and the increase of tools in the space makes it easier than ever to do.
The top-earning writer on the paid newsletter platform, Substack, earns more than $500,000 a year from reader subscriptions. The top earner on YouTube is earning $29.5 million annually. The top content creator on Podia, a platform for video courses and digital memberships, makes more than $100,000 a month. And teachers across the US are bringing in thousands of dollars a month teaching live virtual classes on Outschool and Juni Learning.
However, the creator economy may not be the “great leveler” that we may have hoped for. Many of the same incentives pushing the creator economy forward are perpetuating inequalities at an equal (or greater) rate.
To better understand how inequality is accelerating in the creator world, it’s helpful to examine the rising inequality in the “real world” first.
Rising inequality in the real world
From the 1960s to the 1980s, job opportunities created through technology largely benefitted low-skill workers. But since the 1980s, the tides have quickly turned. Not only are low-skill workers the most at-risk to be displaced by automation, they now have additional headwinds that make it increasingly difficult for them to re-enter the workforce.
Much of the technological change we’ve seen is “skill-biased,” meaning it benefits high-skill workers while reducing the value of low-skill workers. New jobs are created at a slower rate and, of those created, most are benefiting high-skill workers, creating a wage premium for skilled workers.
Although many white-collar jobs are being replaced at unprecedented rates, most new jobs are adopted by displaced white-collar workers.
The high-skilled (and generally upper-income) workers have more leverage in the changing world.
Inequality in the creator world
Similar to the real-world economy, the creator economy also creates leverage for the upper-income segment. A few of the factors that contribute to this are regressive taxes, the “superstar effect,” and zero marginal costs.
Regressive taxes: many platforms that assist with distribution for creator content require a fixed cost. As creators grow their following and their income increases, they pay an ever-decreasing share of their income towards these platforms. These economies of scale decrease the burden of content creation cost as income increases.
The “superstar phenomenon”: in the ’80s, University of Chicago economist Sherwin Rosen predicted that the “superstar phenomenon” (when top performers in a given field achieve disproportionate success) would become more pronounced as a result of technology.
“…lesser talent often is a poor substitute for greater talent … hearing a succession of mediocre singers does not add up to a single outstanding performance.” - Sherwin Rosen
On most creator platforms, success is accrued disproportionately by the best creators. For example, if you’re looking for a free course on the fundamentals of AI, chances are you’ll choose the most recommended one, according to your research.
This creates what I’ll call an "economies of exceptional quality,” giving already-successful creators a major leg up, as the positive reputation they’ve accumulated increases their chances of success in subsequent projects.
Zero marginal costs: For most middle-class jobs, there is a non-zero cost to treating an additional patient, pitching to another sales prospect, or changing one more set of tires. In the digital world, the cost of reaching each new viewer is zero. This characteristic exacerbates the impact of regressive taxes and the superstar phenomenon in the creator economy. Successful creators can scale to an unlimited market at virtually no cost, eliminating cost considerations from the equation as they grow massively.
These advantages accrue to create conditions that favor the top creators on most major creator platforms. Here are some examples of this playing out:
On Roblox, the leading game accounts for 20-25% of users in 2020, increasing from 8-10% in 2019
On Patreon, only 2% of creators made the federal minimum wage of $1,160 per month in 2017
On Spotify, artists need approximately 3.5 million streams per year to earn the annual income of a minimum-wage worker ($15,080)
To contrast this, in America in 2016, 52% of adults lived in middle-income households, with incomes ranging from $48,500 to $145,500.
Not all doom and gloom
On the bright side, the undesired outcome of an unequal creator economy is avoidable.
Similar to real-world economics, creator platforms are incentivized to nurture a thriving "middle class". There needs to be a possibility of success; if there is no opportunity for upward mobility, platforms will alienate new creators.
Platforms that focus on growing their middle class are also hedging their bets; for platforms that cater to established influencers, there is an imminent threat of falling into a downward spiral towards failure in the event of an exodus of large influencers from said platform.
Suppose these incentives alone aren’t enough to combat the forces of inequality. In that case, we can pull inspiration from US policy on addressing a lacking middle class.
The size of America’s middle class, which included 61% of Americans in the 1960s, was majorly shaped by policies like Roosevelt’s New Deal and the Fair Labors Standards Act.
Policies can place certain guardrails in place or reshape incentives to force a more desirable outcome; in this case, the desired outcomes are more power to new creators and distributed opportunity for wealth creation.
In a similar vein, creator platforms can implement several things to systemize a growing middle class of creators. These are highlighted in Li Jin’s HBR article, "The Creator Economy Needs a Middle Class," which is the primary motivation behind this article.
Note to aspiring creators
We're still in the early days of the creator economy, and opportunity is abundant. Yes, some forces perpetuate inequalities, but no one would blame you for using some of them to your advantage. Until the creator economy is better suited for fostering a middle class, you can consider it fertile pastures for establishing a strong creator presence online.
If you are able to capitalize on these issues for your benefit, then more power to you. If you can't, I’d advise you to look for platforms where these forces aren’t as strong.
Next week, I’ll discuss why I’m still bullish about the creator economy as an opportunity for displaced workers. Make sure you’re subscribed to have it delivered to your inbox!