The Self-Employed Workforce Comes with Benefits, Caveats
An increasingly self-employed workforce would provide many benefits for business leaders looking for a more agile source of talent. Still, caveats remain.
The self-employed workforce makes up about 10 percent of the United States labor market, and its roughly 14 million workers also provide about 29 million jobs to others, according to Pew Research Center’s analysis of 2014 data from the U.S. Census Bureau. Some might argue these entrepreneurs embody the American dream — although their numbers are falling. Between 1990 and 2014, the number of all self-employed people in the U.S. dipped from 11.4 percent to 10 percent.
Despite the decline in self-employment, the rising gig economy and desire to have more flexible work schedules and autonomy could push more people to participate in freelance work.
“We have a prediction that by 2020, we think at least half of the workforce will at some point in their career be working this way,” said Gene Zaino, president and CEO of MBO Partners, a technology company for self-employed workers based in Herndon, Virginia.
In some ways, businesses can benefit from more talented, self-employed people. An ever-evolving business environment could be better served with more freelancers for leaders to hire on a project-by-project basis. Zaino said using contract labor when scaling up or working on specialized projects provides agility and competitive advantage, while reducing cost.
Talent can benefit as well. While gaining flexible work arrangements and being their own bosses, freelance workers also tend to earn more. According to a 2017 report from MBO Partners, the average income for the full-time, self-employed worker in 2015 was nearly $10,000 higher than the median family household income.
Contingent Work Cautions
Despite these benefits, there are some challenges to a potential influx of the freelance workforce for both individuals and busineses.
When people choose self-employment, for instance, they lose many of the social safety nets that companies offer, such as health insurance and workers’ compensation. “Our economy is not really designed to handle this,” Zaino said, before adding that new technologies are emerging to help mitigate the process of gaining benefits when self employed.
If business leaders aim to be successful in using contract labor, Zaino suggested they create a department to keep contract worker output speedy. “You need to be very agile as a company today. You always want your core employees, of course, but you need a ring around those employees that you could tap into to quickly get things done,” Zaino said. Organizations need to put programs in place to make it easy for projects and workers to find one another, while adhering to typical corporate compliance. “There are minefields of risk in terms of worker classification,” Zaino said.
Because of the money and flexibility available with self-employment, as well as the many platforms available to find work, those with marketable skills are finding they can live well in this style of employment. This, combined with a tight labor market and competition for top talent, means being that employer of choice is increasingly important nowadays.
But not all self-employed people choose this working arrangement. According to the MBO Partners report, 9 percent of independent workers said they do so because of factors such as layoffs or illness. Also, the number of people who work independently occasionally is growing, from 10.5 million in 2016 to 12.9 million today, according to MBO Partners’ report.
This is an important trend to monitor, Zaino said, as those providing an undifferentiated service, such as with ride-hailing or delivery services, could simply be doing these tasks for supplementary income.
This potential for growth in freelancing for supplemental income has Joyce Klein, director of FIELD, which aids microenterprise development at The Aspen Institute in Washington, D.C., worried as well. “One of the questions as you look at the growth of self-employment, particularly the growth of freelancing if it’s a secondary source of income, is it starts to raise the question of why so many people are doing this work on the side,” Klein said, adding that stagnant wages and more contingent work could be to blame for people taking on side work.
Results of trends like these could be lowered productivity. With a dispersed workforce, there is less of a unified mission for freelancers, said Maureen Conway, vice president for policy programs and executive director for the Economic Opportunities Program at The Aspen Institute. Rather, teamwork would be more productive, she said.
With contract gigs, these workers have little stake in seeing the company thrive. Building a company on this type of worker seems odd, she added, as they’re less likely to provide consistent customer service and turnover is high. “If they’re truly not sort of integral to the work of the company and what the company does, then those are the times that you want to think about using contract workers,” Conway said.
Small Business Success
Although much of the focus on the self-employed workforce is in contract or gig labor, there are also local businesses supporting local economies and large businesses.
These employers see a rise in per capita income and job creation, thus reducing family poverty levels, according to a 2011 study from the Federal Reserve Bank of Atlanta and Pennsylvania State University.
Also, “people who are business owners tend to have higher levels of wealth than people who are not business owners,” Klein said. Further, they create jobs and hold wealth within a community, as the workers tend to spend money locally, thus creating a multiplier effect in that economy, which benefits the community more than large firms. Among organizations that have headquarters elsewhere, those dollars aren’t necessarily spent where work is performed, she said.
Additionally, microenterprises tend to pay workers more than the minimum wage, according to a report from FIELD that Klein co-authored. Researchers found that 94 percent of those surveyed earned more than their states’ minimum wage levels.
However, big businesses can benefit from smaller enterprises, especially if small-business owners are their customers. These large companies can invest in these businesses or contract work through them.
“In some cases, obviously, if that’s the market you’re selling into, the stronger the small businesses are, the better customers they are,” Klein said.
Lauren Dixon is an associate editor at Talent Economy. To comment, email firstname.lastname@example.org.