January 09, 2001, 5:08 PM — State and federal labor statistics have lately shown a big drop in the number of self-employed workers. This wasn't supposed to happen. Management gurus like Tom Peters and Thomas Malone declared the advent of a free-agent nation, which would blow apart corporate structures and change the very nature of work. The Internet makes it easier to work from home, knowledge is the currency of the new economy, Baby Boomers want more time with their families -- the litany is familiar.
Are there really fewer self-employed people? If so, why? Perhaps the numbers hide complexities that tell us more about the true nature of the freelance workforce.
Entrepreneurs vs. IPs, consultants, and freelancers
My editor and I started pondering these issues after reading a Dec. 1 New York Times article by David Leonhardt entitled "Self-Employment on the Decline" (see the link below). Leonhardt cited a US Bureau of Labor Statistics (BLS) survey of 50,000 households. It shows that, since 1994, the number of self-employed people outside agriculture declined by 146,000 to 12.9 million, and that 1994-1999 was the first five-year span since the 1960s in which that number fell. Meanwhile, the percentage of the total nonagricultural workforce that was self-employed, which had grown for decades, dropped from 10.9 percent to 9.9 percent during the late 1990s.
A number of self-employment advocates read the article and didn't like what they saw. Two, the National Association for the Self-Employed (NASE; Dallas) and the Office of Advocacy of the US Small Business Administration (SBA) in Washington, D.C., shot back unpublished letters to the Times. NASE vice president Ginny Beauchamp argued that the BLS numbers improperly exclude the incorporated self-employed (instead lumping them in with other traditional workers), adding that the number of sole-proprietorship tax filings -- 17.4 million in 1998 -- was much higher than the BLS's 12.9 million.
Jere Glover, chief counsel of the SBA advocacy office, emphasized the importance of entrepreneurs in the independent workforce, saying only lower-earning independents are declining in numbers, while those making more money are growing in number and driving more of the country's economic growth.
The Labor Market Information Division of the California Employment Development Department corroborates the BLS trend. Reporting in an October 2000 newsletter, the agency said the number of self-employed, nonagriculture Californians dropped 6.3 percent between 1998 and 1999, down 122,000 from 1.5 million in 1993, the peak year. It's worth noting, however, that the self-employment numbers are still in the ballpark for the 1990s, which averaged around 25 to 50 percent higher than the 1980s.
Interestingly, the California agency also found that the self-employment rate closely trailed the overall unemployment rate: self-employment apparently dropped as more people found "traditional" jobs in corporations. (The BLS numbers bear roughly the same correlation to national unemployment trends.) That's hardly surprising, but it does suggest the self-employment ranks consist partly of people who are only between jobs -- often layoff victims forced to go it alone for a few months until traditional work comes along.
But such short-timers aren't the core of the free-agent nation anyway, if you can believe the rhetoric of the Websites and staffing firms that specialize in independent professionals (IPs). Rather, the self-employed people who stick with it, who more or less permanently adopt the truly independent work style, are a different animal altogether. They're more likely to be entrepreneurs of small companies, or professionals who traditionally have gone solo -- lawyers, doctors, and consultants. And despite the Times' gloomy picture of freelancers fleeing back to corporations' warm embrace, IPs are happy with their choice.
Declarations of independents
So say the IP advocates and companies like Aquent (formerly MacTemps Inc.), a Boston talent agency for creative, Web, and technical contractors. In November, Aquent published its second annual 1099 Index, a study of 800 IPs and traditional workers. Seventy percent of the IPs said they were very satisfied with their work, compared to 50 percent of the "W-2s". Nearly 9 in 10 said they work independently by choice, not because of downsizing or other external circumstances; 80 percent expected to continue working independently, and nearly a third vowed never to return to the traditional workforce, according to Aquent.
Many of the IPs that Aquent places are committed independents, such as programmers, IT consultants, and Web designers. "They certainly don't want to have a boss, and they don't want to be one," says Steve Kapner, an Aquent cofounder and director.
