Universal Labour Market

Labour laws haven’t evolved to reflect the way we work — they were originally written for manual and tedious work during the Industrial Revolution. Now that majority of work is digital, location doesn’t matter much beyond time zones — these laws are archaic. Changing them is both complex and paramount for a prosperous and equal world.

Companies should have the ability to simply hire talent worldwide.

The location of talent and the country of incorporation of a company should not hinder access to economic opportunities. Companies should not be required to establish a legal entity in every country where they wish to hire. Varied labor laws, corporate tax rates, and administrative requirements increase the burden on companies and hinder their ability to hire talent globally.

Inefficient labor markets are preventing the broad distribution of economic opportunities.

As the share of workers with multiple revenue streams increases, we expect the vast majority of employees to become contractors. Abolishing IR35 rules would simplify cross-border employment. In the coming decade, the advent of AGI will lead to UBI - a societal safety net that will cover basic human needs such as food and shelter, providing everyone with the freedom to pursue their own interests.

Guilty Gyoza has written an insightful article on cryptography-powered labour relationships.

IR35 rules should be abolished and employment should resemble contractor relationships.

With web3, companies and individuals can enter commercial agreements without needing to trust each other or rely on jargon heavy legal contracts. The parties can audit the smart contract that governs the agreement and be confident it will be followed as code is law.

For the first time ever, a universal labour market is now possible. This has far-ranging consequences for incorporation, taxation and worker protections.

Where to incorporate an INC? Onchain

Several factors influence a founder's decision to incorporate in a specific jurisdiction, including the availability of talent, access to capital, R&D tax credits, ease and cost of incorporation, annual filings, and the corporate tax rate.

With INCs, incorporation occurs onchain, rendering these factors irrelevant. The blockchain will function as a transparent and auditable registry. In cases where privacy is necessary, cryptography tools will be utilised (zk, fhe, mpc).

Incorporation will be as simple as creating a multisig wallet, listing and conducting KYC checks on the signers (founders), and having them purchase their shares onchain (contributing to the treasury).

If an INC wishes to offer a product or service to residents of a particular country in a regulated industry, it will need to undergo the process of obtaining the necessary license.

How to tax an INC? Onchain

It is widely accepted that taxes should be collected where economic value is generated. This principle is difficult to global corporations (as the Apple and Starbucks examples illustrate) and products that have no marginal costs (software).

So, where should an INC that is incorporated onchain and whose employees are scattered around the world pay taxes ?

The answer is simple: onchain — where economic value is generated and gains are realised.

The ideal structure would be for all countries to agree on a universal corporate tax rate. However, considering the stakes involved and historical difficulties, achieving a political solution seems unrealistic.

Two potential solutions emerge:

  1. Supply tax: Tax INCs on a per employee/contractor basis in every jurisdiction where employees reside. To simplify taxation, we should eliminate IR35 rules and tax employees in the same way we tax contractors. Partnerships are tax transparent entities but they don’t have legal personhood and don’t offer limited liability. This limits the capacity of partners to take risks and requires higher degrees of trust.

    This supply tax has a positive externality, the profit per employee metric will become broadly used which will lead to further capital efficiency and further investment in productivity. Countries will be motivated to invest in worker productivity by funding education, healthcare, and infrastructure.

    How this could work

    Wallets receiving a salary stream would have to be KYC’d (with an SBT) and holders will provide a proof of residence on an annual basis. The alternative is a service localising the holder of the private key 24/7 (which seems more intrusive). These wallets would automatically streaming the appropriate amount of taxes to relevant authorities with a smartcontract similar to debtDAO’s spigot.

  2. Demand tax: Tax INCs at the point of sale - like VAT. Wherever a product or a service is consumed, it is taxed.

    Under this model, countries will be incentivized to promote high consumer economies in order to increase their tax revenue. This may lead to negative externalities, such as prioritising consumption over investments and implementing government policies that benefit the wealthy while harming the poorest.

    How this could work

    dApps will use geolocation to localise the buyer. Wherever a purchase is made, the demand tax will be streamed to the right tax authority. VPNs may be an issue.

Regardless of which system is chosen, two things are certain:

  • Corporate tax should be charged uniformly, either based on profit per worker or point of sale.

  • Certain actors will attempt to manipulate the system, as they do currently. Tax evasion will become more difficult as transactions are publicly recorded.

We recommend implementing a supply-side tax, as it has more positive externalities.

INCs will be tax transparent entities that have a legal personhood and limited liability.

How to protect INC workers?

Labour laws were developed to guarantee workers' rights in their hierarchical relationship with the company. These laws establish regulations such as the maximum number of working hours, minimum wage, overtime compensation rules, paid time off (PTO), maternity and paternity leave, and health insurance.

However, as the worker-company relationship shifts from hierarchical employment to transactional contracts, these regulations may become less significant. Many companies already go beyond legal requirements to offer additional benefits in order to attract talented employees.

By dismantling barriers to employment, we anticipate that competition for talent will intensify, leading companies to provide even more benefits to their workers. This shift could result in more fluid labor markets, where employees are less reliant on a single employer, have multiple revenue streams and access to better opportunities.

Consequently, we expect a decrease in the number of labor laws and an increase in the availability of benefits.

If INCs were subject to a supply tax, countries would also have an incentive to compete and allocate funds for ensuring a certain level of worker rights.

How it would work

These benefits should be programmed directly into a smart contract, reducing the likelihood and necessity of policing abusive behaviours.

For instance, if labor law mandates a 3-month pay as a severance package, a minor adjustment to the smart contract of a streaming protocol could incorporate this requirement. Employees could verify the presence of this clause by auditing the smart contract.

While we acknowledge that not all labor laws can be written and enforced through smart contracts, approximately 80% can. The remaining cases can be addressed through arbitration.

The birth of Universal Labour Markets

Covid has shown us that we can drastically change the way we work. The advent of AGI in the coming decade will force us to come up with novel ways to organise work and society. Blockchains will be used to govern and execute contractual relationships between machines as well as between humans and machines. We believe they should also be used to frame labour relationships between humans.

We cannot expect for lawmakers to catchup and coordinate on labour laws and corporate taxes worldwide. We need to build infrastructure that abstracts away the complexity of employing and contracting with workers compliantly onchain.

Companies like Deel, Noxx and Toku have already started making hiring talent internationally and compliantly easier through their EoR, tax compliance and stock/token compensations offerings. These efforts are vital to birth a universal labour market that will democratise access to economic opportunities.

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