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Demystifying the Freelance Economy

Posted by Matt Nagler, Managing Partner  

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The phrase “freelance economy” is everywhere now. Radio pundits, the news, magazines and in the minds of many job seekers.  Like any hot topic, it’s hard to unravel the basics – what is the freelance economy and are the assumptions we’re making about it hype or based in fact.

 

Just what is it, anyhow? Freelance Economy is a loose term and it’s not always clear what kind of workers it’s referring to in any given venue (or study.) While the first ideas that come to mind may be rarified - people who work in tech or creative fields like graphic design - at its core it includes anyone who makes money outside of traditional employment. Someone who drives for Uber in his off hours, someone who does contract work for a variety of companies – or even just one company, the tech guy you hired to set up your computer. It encompasses everyone from the motivational speaker at the last conference you attended to the construction workers who are hired on a by project basis.

 

People who take part in the freelance economy may have full-time or part-time traditional jobs, they might do 10 hours of freelance work a year, or 1,000. Over the years, a lot of other terms have been used to describe freelancers: 1099-workers, contingent workers, independent contractors, free agents, people who work in the sharing economy, and on-demand workers among others.

 

Just how big is it? Judging by the ubiquity of the term and the metaphoric exclamation points everyone uses when talking about it, it’s hard not to think that the freelance economy is growing exponentially every day. The popular expectation is that by 2020, the freelance economy will be 16% of the entire economy, up from approximately 7% today. (In terms of people, it’s estimated that 34% of the workforce do some kind of freelance work now and 50% will by 2020.)

 

So what’s the reality? Freelance labor is on the rise. But no one is quite sure how much. The IRS reports that the freelance economy had been steadily on the rise since the 1990s. The Bureau of Labor Statistics indicates that the numbers have been roughly the same for well over a decade. So what accounts for the discrepancy? The IRS and the BLS collect slightly different data, for one, and it appears that more people are reporting their freelance income to the IRS in the past decade than had been before. Additionally, the numbers don’t differentiate between people who only freelance and those who do it in addition to a traditional job. The bottom line? Yes, the freelance economy is growing and will most likely continue to do so, but it won’t subsume the traditional economy any time soon.

 

So the next time you read an article about the shift away from traditional employment or the freelance economy, knowing the basics should give you a better lens through which to think about it.