Emerging features of work

The National Bureau of Economic Research (NBER) calculated that the self-employed comprised about sixteen percent of the American workforce in 2015, up from 10% in 2005. Morgan Stanley estimates that as many as 35% of American workers are self-employed. Deloitte reports that 27% of Millennials are self employed and 54% have either started their own businesses or plan to do so. The fairly wide disparities among these estimates of the currently self-employed reflect the challenges in precisely defining and counting the wide variety of people whose incomes are not derived from traditional long-term employment. While there is uncertainty, these figures have substantial implications for the U.S. and the global economy.

The rise of contingent employment (the blanket term for contract, consulting and freelance jobs) is related to the ever-decreasing amount of time that people spend in a job. The median amount of time that employed wage and salaried workers have been in their current job is 4.2 years as of 2018. As people move employers more frequently, they also have more opportunities to consider contract or freelance work arrangements–they are simply in the market more frequently. Having grown up in an era of frequent layoffs and downsizing, younger workers have learned to be professionally nimble and to be far more proactive about knowing where opportunity lies. In addition, workers have less incentive to stay with an employer for a long time. Traditional pensions, which were tied to a specific employer, have been replaced by 401(k) accounts for which balances are easily shifted between employers or from an employer to an individual retirement account.

If workers are likely to remain in a job for just a couple of years, contract or long-term consultant relationships may look more attractive to individuals and companies. For the employer, finding and getting a new employee situated is both expensive and time consuming. Hiring a consultant or contractor has little or no up-front cost and there is far less time and overhead involved if a contractor turns out not to be a good fit. These benefits have parallels for the individual worker as well. Consultants and freelancers have their own infrastructure. Landing a new client does not require a consultant to set up new health insurance, a new retirement account, etc. In economic terms, contingent workers and employers have far lower switching costs between jobs (the former) and workers (the latter).