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Contracted Change

A generation or two ago, workers were able to count on companies large and small to take care of them. More than just their pay, the working people of America got something critical from their job – security, a promise that the material things in their life were something they could depend on. In return, there was loyalty – and after decades of work, a pension.

There is little doubt that the nature of work is changing. The exact nature of these changes and the magnitude is hard to pin down, but it’s clear that people don’t work the same way they used to. As we contemplate the next version of the economy forming around us as this Depression slowly comes to an end it is more and more clear that the nature of work – and the corresponding social arrangements that come from it – will continue to change.

This is why reform in policy, taxation, and many other fixed arrangements is essential.

The fuure has to have room for everyone, 'cuz we're all going there.

The fuure has to have room for everyone, ‘cuz we’re all going there.

Today about 140M Americans are employed at least part time. The total number of unemployed and underemployed (those working fewer hours than they want) is about 13.1M by the comprehensive U6 unemployment rate, a staggering figure that is down about 5.5M in the last 18 months. There is reason to be concerned but still reason to hope.

Many of those who have jobs work as freelancers, contract workers, or some similar definition of people who work primarily from one gig to the next. The definition of such workers is important because it is completely not fixed by anyone – resulting in a lot of confusion as to who exactly works for themselves.

Disclaimer: I am a freelance writer, and I fall into this definition anyway you call it.
Sales Pitch: I am always available to hire!

How many people work for themselves? By the official figures, it’s only about 9.5M of today’s workers, or 6.8% of the workforce. The official Bureau of Labor Statistics (BLS) numbers show this number actually dropping over the last 65 years that data has been kept:

The official "Self Employed" number from the BLS over time.

The official “Self Employed” number from the BLS over time.

This is a measure only of traditional “self employed” people such as farmers and shop owners. The BLS has not changed its definition, so anyone who works for someone else for more than 20 hours a week does not count. It does not matter if they are a contract employee on an 1099 form – employment is employment to the BLS.

Sign it and get to work!

Sign it and get to work!

Two different studies were done in 2014 on people who work for themselves, and the results vary dramatically. The most cited is the most dramatic, last September’s report from the Freelancer’s Union that showed up to 53M Americans got at least some of their income from freelance work, or 38% of the workforce. Of these, 21.1M (15% of the workforce) were full time “Independent Contractors” and 14.3M (10%) were “Moonlighters” who received a supplemental income from freelance work. The rest are independent business owners and people who received income from a mix of work.

Another study, performed by MBO Partners, is part of a series that has been done since 2011. They found that 17.9M (13%) were full-time “independent” employees and 12.1M (9%) were “side-giggers” who freelanced for additional income. The definitions, again, are important because they vary from one report to the next.

What we can say from MBO partners is that the number of “independent” employees rose from 15.M in 2011 to 17.9M in 2014. That 2M jobs is an impressive 30% of the 6.8M jobs created in total in the same period. Clearly, independent and/or contract work is growing in popularity.

This is important for many reasons dealing with how workers are protected, taxed, counted, and generally taken care of.

Employees are ready to work, but the terms keep changing.

Employees are ready to work, but the terms keep changing.

There is little doubt that such workers have lower overhead per employee than a traditional employee. The attraction for companies is obvious and immediate simply for the cost per employee. It is also beneficial to have a flexible workforce that can take care of projects as they come along for many companies.

Separating health care from employment, one of the goals of the Affordable Care Act (ACA or Obamacare) is obviously essential as more workers are on their own. There may even be a net spike in such workers even as the economy grows as this kind of relationship becomes more attractive.

The benefits almost certainly end there, however. High tech companies in particular have no control over intellectual property, despite non-disclosure and non-compete contracts, in this environment. Workers also have far fewer protections against discrimination and other employment problems – and have to constantly find work for themselves.

Then there is the system that is setup to tax workers’ incomes. How much income doesn’t quite make it to the Form 1099 Misc Income? It’s impossible to say, or let’s leave it that I won’t say. It’s … a number. Add to this the worker’s responsibility for the employers share of social security, which is the 7.2% FICA tax on all income called the “self employment tax”, and we have a terribly antiquated system that is doing no one any good.

Try anything.  It's bad out there.

Try anything. It’s bad out there.

The 9.5M measured “self employed” that the BLS keeps track of is obvious low by about half, but what is the exact number? It’s very hard to tell because there is no fixed definition. But we know that the percentage is growing and covers about one quarter of all workers.

That number of people essentially outside the system as it was constructed is simply far too large and cries out for reform in every way workers are considered.

The relationship to work is obviously changing rapidly – beyond even the elimination of loyalty to one company for the duration of a worker’s career. Getting a handle on the needs of today’s employees must become the top priority for reform if we ever develop a Congress that is capable of doing any actual work to prepare us for the next economy.

25 thoughts on “Contracted Change

  1. Several comments come to mind. But rather than repeat myself you might search through my blogs on work and such. Essentially the drill is this. When we talk about productivity we talk about reducing the need for workers of what ever stripe is needed. Productivity comes from reducing the labor requirement by either more capital for machines the leverage labor or though processes that reduce the number of hours of labor needed.

    Now given that basic idea, we see that in reducing the number of employees needed we will need to find some way of employing them elsewhere. Ah, th is the rub. Trying to retrain a pipefitter to become a computer programmer is not an efficacious way of dealing with the problem since the pipefitter may not have the skills or the ability to deal with the needs of computer programming. If we reduce the pick and shovel labor count then what should we train those whose skill level and educational attainment are not the best for improved skill training?

    The other problem in dealing with the statistical data the US Bureau Labor Statistics provides it that it tends to lie. Better look at the percentage of adults in the labor population against all those adults of working age. We are at the lowest lever, percentage wise, in 39 years. What this tells us is that the unemployment rate is very high even though the official rate is single digit. Make no mistake, there is no recovery. I also cover this in a few of my blogs.

    Technology does not create job replacement at the rate of job loss, it accelerates job loss. The other problem is trade imbalance. Where was your Apple iPhone and Ipad made? Not here in the US. We haven’t had much manufacture of electronics in this country since the mid 80s, and it ain’t coming back. Neither is clothes manufacture nor textile work. Shoe manufacture went from the US to Spain and Italy and and then to China and now to Indonesia. That is not coming back. How much of your American made automobile is made in southeast Asia? More than fifty percent?

    Many of our employment problems can be traced to free trade agreements.

    • Several things here:
      First of all, I don’t believe the BLS “lies”. The U6 Unemployment rate is there for everyone to see, and it’s still at 11.4%. That’s down considerably, but a very large number. Nearly everyone agrees it’s a good number, but the press hardly reports it. The problem we have with this, and all economic issues, is that the quality of reporting is horrible. I refer to that when it comes to the transparency of the Fed as well.
      Secondly, I agree that technology tends to reduce the number of jobs needed. I have speculated that there seems to be a limited amount of paid work in a developed economy, and that does seem to go down with more technology. It implies that the workweek has to be shortened or other social arrangements simply have to change to accommodate this. I think that Kurt Vonnegut saw this coming more than 60 years ago – and he was right.
      The trade imbalance comes from many things. The US Dollar as the world currency means that there is an increasing demand for the greenback proportional not to our economy but to the growth in world trade generally. Our greatest export becomes US Dollars – and it makes our manufacturing very expensive. Add to that a very high overhead per employee and the opportunities for working people are very limited. There is so much reform needed at many levels – and part of it seems to be a need for a new world currency based on trade.
      I’ll read your stuff too and comment. But free trade agreements are good for everyone in the long run – but given the imbalances we have built into the system they are playing Hell on the working people of the US right now. If we are going to insist on free trade we should be taking much more positive reform action here at home, IMHO.
      Reply with some specific links, but I’ll peruse your stuff as I can in the meantime. Yes, let’s all talk about this!

  2. I think this is a temporary thing and not a trend. There has to be an upper limit given the need for training, ect.

    • There is definitely an upper limit, but I don’t think we are anywhere near it. More to the point, enough of the economy is in this kind of work now that we need reform just to accommodate what we have today – even if the level doesn’t rise. How are workers protected? What does “unemployment insurance” mean in this environment? How are we handling health care? How are we taxing, especially FICA?
      There is a lot to think through and make serious changes. And we have a broken government that is incapable of even measuring the problem.

  3. Good blog. I think you’ll find this goes back to the skills gap where workers with a lot of skills can always find the next gig but those who don’t have marketable skills have trouble finding any steady work.

    • A good point. But I wonder what skills wind up being in the gig economy and how people acquired them. I think that’s a very big question, and I don’t even know where to look for an answer. But I’ll think about it.

  4. I would like to know how many clients the average independent contractor works for. My guess is that it is like 3-4 meaning there is only enough work for a part time person in the first place at any client.

    • That’s a good point. It’s really PT work in the first place, meaning that employee overhead is a HUGE issue, among other problems. If that’s the case, and it seems to be for me, then this is certainly a permanent trend that reflects the nature of work itself.
      I keep wondering about Jim’s comment as to whether this is a depression-end event or a real trend. I don’t really know yet.

  5. Depressing. But change often is. I came from a micro-chip industry many aspects of which are now elsewhere … or rather, global. The CEO of my company was gifted a golden parachute the day before I received my severance package. I like to describe this much-too-often scenario as not unlike the train conductor who grabs the bag of gold just as the train and its passengers plummet into the gulch. I did get a chuckle out of your ” ‘side-giggers’ who free-lanced for additional income.” BTW thanks for following my blog.

    • Thanks for your comment! Your story is far too familiar. But this is the reality that we have to learn to deal with. I have a few ideas for a new post on this topic. I really do feel that major changes are in order if this is the new reality.

    • So what are we going to do to change that? What can we change so that the workers at least have the protections they need? It’s one thing to complain but another to work for real change.

  6. From 1948 to 1951 President Truman issued a series of executive orders banning racial discrimination by defense contractors. President Eisenhower extended this to all government procurement contracts. Now I dont’ know what the impact these had, given that Civil Rights Act of 1964 was still needed.

  7. I have never heard the idea that the dollar fluctuates in terms of world trade. The euro price of a 1 dollar declined for much of the 2000s and only since the start fo the recession does there seem to be an upward trend in the euro price of a dollar.

    I always thought that the dollar to euro ratio is a judgement on the soundness of the U.S. economy vs. Europe, especially in terms the bets on the respective real inflation rates for each economic zone. So I dollar is going up vis a vis the euro since we have more of our shit together than we have had in a in 15 years. Let clap for congress and Obama.

    The chinese currency has gone down in value presumably because growth projections there are not as high as they once were. In addition some key world commodity prices are down which means there is slack in the whole world economy.

    I’m not sure who needs to consume more in order to rev up the world economy

    As noted in Barataria and I agree is that the US has older private and pubiic infrastructure compared to China, Europe and Japan. So that would be where you want to invest. But the US still tends to have a lot of research and entrepreneurial spirit, so those capitalists collectively decide where the investment flows.

    High speed rail is good for dense corridors and maybe connecting metro areas, but Americans like to fly.

    • Sorry to be so slow, I missed this.
      The value of the USD doesn’t fluctuate with trade because trade doesn’t fluctuate – it’s steady. 85% of it is USD denominated, versus about 25% that goes through the US. That 60% of the roughly $45T in trade in 2015 is about $27T in USD that moves around the world above and beyond what you would expect if we weren’t in this position.
      If you figure that central banks carry about 3 months worth of USD backed bonds to support their need for USD, this comes to about $7T in debt that we can float above and beyond what we should be able to otherwise. It’s also about what our foreign debt holdings are right now. Without this we would have to finance ourselves, and be a lot more careful with our debt than we have been.
      It’s a big effect.

  8. Another thing I want to comment on overhead.

    I think we should think in terms of total compensation, including future pension and health benefits.

    If you are saying that some workers are not worth there total salary and future pension and benefits, that is a good point. Typically most workers feel they are underpaid and overworked. That is why state and local budget projected spending overages are generally not dealt with by reducing compensation. Morale tends to go down and workers get mad.

    Also there is there are observations that the middle class is being squeezed. The fact is that city, county, state and federal employement provides a lot of people a good living and good career. They have excellent salary and benefits and more job security usually than the private sector.

    Everyone knows that the salary and compensation differentials in the private sector between the lowest and highest paid are greater than the public sector. That is just how it is in the sense that government does not control wages above minimum level. Federal govt does affects the structure of benefts in the private sector.

    • I think it’s best to compare overhead between workers in developed and developing nations. It’s not clear just how much pensions raise the overhead for German workers, as an example, so I have trouble making the comparison. But in their case health care comes from general tax revenue, meaning that there is less tax on employment.
      The overall compensation is the key, yes, but some of it is a fixed cost. We set up FUTA to be on the first $7k of salary, for example, which is essentially a fixed cost. That’s pure overhead. It would be great to cut that back – and I am thinking about how we can have that come from corporate income taxes rather than as an employment tax. I’d also really like to have the employers FICA 7.62% come from the same source, but that’s a huge change. Reducing this overhead has a solid chance for at least reducing the cost to employers of a solid Minimum Wage increase, for example, which would make an interesting bargain overall.

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