From: www.itworld.com

Is the free-agent nation a bust?

by David Essex

January 9, 2001 —

 

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(NASE; Dallas) and the Office of Advocacy of the US Small Business Administration (SBA) in Washington, D.C., shot back unpublished letters to the Times.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.

Blurring the differences

The Times article makes another intriguing assertion, that the walls between traditional and freelance jobs are falling; flex time, telecommuting, and other perks are luring people back to the corporate world. Self-employment advocates agree, saying that in fast-growing tech companies especially, many employees behave like entrepreneurs, developing new products, leading key projects, and expecting the traditional rewards of ownership, such as wealth from stock options. "Working in a company is becoming more like working independently," agrees Kapner.

However, there are a lot more services for the self-employed these days that brings more of the benefits of traditional employment to independents. Aquent, for example, runs a nationwide insurance agency for the self-employed, handles billing and other back-office issues, and has a Fast Cash service that, for a five-percent fee, will collect oft-delayed payments and funnel them into regular weekly paychecks. A competitor, FreeAgent.com, a unit of Opus360 Corp. (New York), essentially hires contractors as employees, providing invoicing and collaboration tools and giving them health insurance and a paycheck. MyBizOffice (from the Netplex Group, Reston, Va.) is a similar service that recently launched a cobranded site with Monster Talent Market, the free-agent site run by TMP Worldwide (Maynard, Mass.).

What does all this mean for IT hiring managers who want to tap into this pool of independent-minded talent and bring some of it in-house? Kapner says there's little that distinguishes IPs from traditional workers, despite the stereotype that they are difficult loners. In fact, he recommends treating both groups nearly the same. To keep employees in today's tight labor market, Kapner says, you must provide them with satisfying opportunities and learning experiences. The same goes for contractors. Both will quickly head elsewhere if they don't view the work as a steppingstone to their next opportunity or feel it doesn't support their independent work styles.

Corporations should therefore follow a results-oriented management philosophy that focuses on deliverables -- the same approach they already use with contractors, who by IRS regulations can only be judged by the results of their work, not told how to produce it. "All work should essentially be designed to be done by independents," Kapner says. "Once they deliver it, it's almost secondary whether they get paid by a 1099 or a W-2."

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