I have been a freelancer for most of my working career. The specific jobs vary, of course - I've been a freelance writer, a freelance journalist, a freelance programmer, a freelance information architect, a freelance trainer, a freelance teacher - the list goes on and on. While there is a standing joke that freelance is another word for unemployed, I'd definitely have to disagree there ... I have had years where I've cleared six figures as a freelancer, though there have also been a few years where I've made just barely above the poverty line.
There are certain professions that lend themselves well to freelancing, most of them in the information sphere. Programming is a natural - projects have a beginning, a middle and an end. After the project is done, you may or may not need the skill-sets of the person involved. Ergo, freelancing. Writing is another intellectual pursuit that has a definite terminus. You teach classes for a quarter or two, but unless you're tenured there's no real advantage to keeping a teacher when all you're looking for is someone to impart this particular wisdom at this time.
There are similarly professions that don't lend themselves well to freelancing, though they are becoming rarer. Indeed, as I'm writing this, I'm scratching my head about what professions can't be done in freelance mode. And that, in a nutshell, may be the problem.
Full time work makes a great deal of sense in an industrial society - the need for producing X number of widgets per hour every day means that you need to have labor there every hour of that day, you need managers for that labor, then need managers for the managers. The cost of disruption in that labor is high - if someone quits then you have to get someone else trained up in that new role, and you have holes moving through the organization until you can find someone from the outside. This translates into significantly reduced productivity.
Most of the "benefits" provided by business have their origins in this mindset as well - health care originally made sense by having an onsite doctor or working closely with a nearby hospital, in great part because it made sense financially to insure that workers had as few disruptions due to illness or injury as possible. Pensions (and later investment vehicles) similarly emerged as a way of keeping employees long term - people were far less likely to quit for a competitor (and take potentially valuable information with them) if the company held on to their retirement savings. In general, retention was the rule.
However, today, this process is going in reverse. Businesses are disaggregating. Conglomerates are selling off or IPO-ing divisions because the costs involved in a large labor force are increasingly outweighing the benefits. Health care costs are skyrocketing as the workforce grows older, as the multiple layers of "managed care" extract ever larger portions of the pie, and as fewer doctors and nurses enter the field. Pensions had long been something of a running joke - a borrowable pool of funds for the company that was often used to invest in fairly risky investments, and as those investments failed to play out, companies are now faced with new retirees asking for their pension funds just as those funds have been wiped out by malinvestment and mismanagement.
What makes this worse is that the technologies are increasingly in place such that people no longer need to be in one place to work, and that if a person does in fact leave they seldom have the same negative impact on productivity (in the short term) that they once did - even if that person is a stellar performer. Longer term, of course, losing those start performers can be the death knell for a company, but the difference is that the impact is seldom felt for a while.
Thus, for many companies, the ongoing recession is a chance to reduce their existing obligations - purge their full-time ranks and then, as people become more desperate, rehire them on a contingency, freelance or part time basis. From an accounting standpoint, this is the best of all possible worlds - you don't need to pay for ever-increasing health care, don't need to make contributions into a pension plan that you know will never actually be fully capitalized, don't have to dilute existing stock, can hire more people when demand rises and can then lay them off when demand falls, either on a project basis or over the course of a general economy's rise and fall.
However, from the labor standpoint, this is also the worst of all possible worlds. As a freelancer, you are essentially running your own business, but almost invariably without the level business support that corporations routinely have. You become responsible for your own health care, for doing your own taxes (and usually get taxed at a fairly high premium for being "self-employed"), for your own retirement. Work becomes episodic and sporadic - you either are searching for new work or you are facing a glut that you can't fill, but you don't dare outsource it because you need the money to tide you over in the lean times.
Most independent freelancers compensate for the sporadic nature of the work by charging a premium for services - a contractor should, in theory, cost a company more than a full time employee short-term because the freelancer is paying for his or her overhead that would otherwise be paid for by the company. However, in practice, unless you are highly specialized, you are competing with a (currently growing) pool of similar contractors which mean that companies can effectively bid on competing contracts to keep these wages low.
This practice is exacerbated by agencies, which usually end up acting as a buffer between the freelance labor force and companies. Most of them may offer very short term benefits for the duration of the contract - minimal health care policies, for instance, that the employee usually has to purchase - but usually nothing beyond that. In exchange for that, they absorb that 20-30% pad that freelancers would otherwise save up for down-time, meaning that from the hiring company's standpoint, the labor is still expensive, but can be let go at a moment's notice without significant contractual problems - and because the agency itself can cap the wages, the wages are still less than they would be for an independent contractor.
Currently 29% of the workforce in the United States is contingency contract, up from 24% in 2005. That includes both part time workers (those that are deliberately held below the minimal 35 hour line that costitutes full employment) and freelances who may work 40 hours or more a week but are hired on a temporary basis. It's likely, as companies continue to shed jobs that this will grow to between 33 and 37% by 2015, meaning one in three people will be working outside of the established "safety net" of full or salaried employment, including a rising percentage of professionals - management executives, medical practitioners, financial services professionals, lawyers, engineers, marketing and communication specialists, designers, system architects and software developers, along with the whole plethora of "creatives" - artists, writers, musicians and so forth.
Of those, roughly 70% are female, which reflects less upon a bias against women (though that's there too) and more on the fact that women have entered the workforce more recently than men, are more likely to be in information-centric careers and are thus perhaps more indicative of future trends than men are. It's worthwhile noting that the percentage of contingency workers under the age of 40 is also much higher than it is for those older than forty, though how much of this is due to structural changes in the workforce vs. the fact that younger workers are more likely to have fewer commitments that make contingency work more attractive is hard to tell, save that the under-forty contingency percentage has been creeping up steadily for decades.
The question for policy-makers is what to do about it. First, its worthwhile to note that there is a world of difference between a freelance lawyer or programmer who has specialized knowledge and can usually afford to handle insurance, taxes and retirement savings and the part time Walmart worker who likely can't - and for clarification, I'll refer to the first as freelance workers and the second as contingency workers.
The freelancer in general should bite the bullet and incorporate as a small business, and press for better legislation to provide more legal rights to these microcorporations. I see this ultimately happening, especially as the number of web businesses rise - businesses that have significant "virtual" presence, but that may represent a group of one or a handful of active partners. Overall the IRS has taken a dim view of such small organizations, but they represent the bulk of all new incorporations, and as the force multipliers of technology have increased the ability of such small companies to have an oversized presence, it's likely that most of these businesses will stay small, people wise.
Unfortunately, contingency workers may not be as well positioned. In the 1930s, Franklin Delano Roosevelt worked with the Federal Reserve to create a plan to put Americans to work long term - an decision was made to allow for a certain amount of inflation in the monetary base in exchange for full employment. In essence, every year the monetary base was allowed to grow by between 2% and 3%, which devalued the dollar by a corresponding amount. Prices rose, and with them real wages dropped, but as more people were entering into the system at that point than leaving it, it meant that people entering the system were actually making marginally less that, in the aggregate, freed up a lot of capital, which in turn was used for starting new projects and hiring more people while keeping people happy that their wages (at least on paper) were stable or growing slightly.
This worked for a while because it was a Ponzi scheme - so long as the work population itself was growing, such a model was sustainable. However, in the last eighty years, the demographic pyramid has inverted, and there are now more people near the end of their career than there are starting out. Add into this the effects of technology in making work more efficient, and you get the rather ugly situation that we're in now - a situation where you have more people who are staying in the workforce at the higher wages that their skills and experience should support (and who are desperate now to refill their coffers after the last couple of years) and fewer people at lower wages that support the Ponzi scheme.
What this means is simple - many of the jobs that are being shed now by business are not coming back. Middle management has been hemorrhaging for the last two decades because the value provided by these managers is no longer as critical. Retail sales jobs are disappearing at a rapid rate as retail centers collapse in the face of low demand and Internet distribution. Manufacturing looks to be in its death throes in the US (if the bankruptcy of Chrysler and GM are any indication), and it is likely that moving forward the jobs being replaced will not be at the upper end but at the lower with new designers and engineers who are more familiar with cutting edge tools, fabrication methods, and technologies. Construction will likely be at an ebb for the next decade. There are more marketing people out there than there are markets, and again as new jobs do arise, they will be in areas where you have the young and savvy rather than the experienced.
What makes this worse is that even in those areas where growth may occur - health care, energy production, high speed rail, education and the like - you are generally going to be talking about specialist jobs requiring long term training - and an education/training system that is still bound up in a large corporate model. What's more, even if the education did exist, the absorption rate for these professions is comparatively small - you need more doctors, for instance, but if even one half of one percent of the unemployed work force were to go back and get medical degrees, it would easily swamp the field.
This will set in place the great forces of the next decade. Each recession is likely to result in higher unemployment than the previous one, while each recovery will see a smaller percentage re-employed. Against this will, paradoxically, be the growth of spot shortages in the labor markets in specialized areas - those that are capable of going freelance and are successful at it will end up creating loci of specialized job growth, but the growth will remain limited.
This is always a dangerous mix for political stability. Shadow economies usually emerge once you get a certain level of unemployment - people still have an imperative to survive, and will do so any way they can. Drug trafficking typically rises during recessions, even as prices for those drugs fall, because drug dealing provides not only income but organizational structure (albeit very dangerous organizations). Prostitution rises as well for much the same reason. Both left wing and right wing paramilitary organizations usually tend to do quite well during these periods, providing both places to live and organizations to be a part of, and such organizations, while possibly carrying out political agendas, usually provide "security" services to that same underground economy. The Internet in this case will likely only hasten this process; it is very easy to set up online communities and exchanges that can't be easily regulated, taxed or even monitored. As people become more desperate, expect that barter and trafficking on these sites will increase dramatically.
On the other hand, its also likely that a virtual side of the shadow economy will show up in online games and other environments. Already, there are people that are making a living either producing goods and services in games like World of Warcraft or Second Life, are playing automated gambling sites, or are fully engaged in eBay or other online markets. The irony here is that while this market is likely growing dramatically, its metrics are so different from those of the "real" world that it's hard to tell how many people who are technically unemployed are actually making a living there.
Note that these are also freelancers, though they don't show up in official measures as such - and there's a lesson to be learned from this. Over the next decade you're going to see a generation grow up on the Internet, learn to make a living there, and develop an entirely new conceptualization of business there. They're growing up in a grey area that's neither "corporate" nor governmental, becoming very entrepreneurial while at the same time working outside of the bounds of contemporary business.
Many (and certainly the best and brightest) of these younger men and women are going to grow up with nothing but disdain for the modern corporation. The more that they establish themselves on the Internet, the less likely that they are going to put up with office politics, small cubicles, long commutes, and the increasing uncertainty of job stability in an organization that could cut 10,000 jobs in one fell swoop. The talented ones will be on the cutting edge, creating new virtual company after virtual company, each staffed with perhaps a couple dozen people tops that communicate with one another from remote locations, each company with a killer product or idea that will chip away at market share of conglomerates piece by piece.
When the economy does improve, this generation will not come to work for the old corporations. The smart companies will change in response. Most won't. Many of these companies will sink into irrelevancy, no longer able to tap into a mindset that is radically different from anything that the senior managers can even begin to imagine. These people will have become used to starting with next to nothing and being exceptionally frugal - they will be anti-consumerist, highly innovative, and with very little use for traditional social structures.
Hiring managers, beware. The freelancer is about to take over your business.
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