America’s Hidden Economic Force

Feature

Economic reports continue to be bleak and colorless in this political year where businesses are venting their frustration against candidates and their parties. Job numbers continue to move at a snail’s pace, but there is one sector that is finding a stable and happy outcome in the midst of the economic downturn: the freelance industry.

Freelancers have long been an unseen force in the economy and with so many people being displaced with recent trends there has been a massive migration toward going solo. In a recent report by the Kauffman Foundation, 543,000 entrepreneurial businesses were added every month in 2011. This unbelievable statistic is reinforced by several reports over the last year showing that one third of the economy is now made up of sole proprietors, many of these being freelancers, consultants, and contractors.

While many news outlets are talking about unemployment statistics being affected by disenfranchised job seekers giving up on their hunt, I’m surprised that no one seems to be paying attention to the rapidly growing freelance industry. I was one of those people who gave up on finding a job. I never went on the dole – never took welfare– and I think there are a lot of people like me who decided to take their career into their own hands.

Since finding work has proven to be difficult despite the recently reported 365,100 jobs added in California, displaced workers need to pay the bills and maintain their skills while keeping their dignity. Freelancing has proven to be a much more satisfying way to work and some believe that this may be the direction that the US economy is headed.

A report studying freelancer’s lives was just released and covers some of the benefits and challenges of freelancing. In the Freelance Industry Report 2012, created by www.internationalfreelancersday.com, several statistics point out that while many new freelancers are struggling to maintain steady work they tend to be better off overall. Despite many newcomers being forced into freelancing, there is a high degree of optimism for the future. Several workers feel more secure about their prospects as freelancers than in their previous careers.

Generally speaking, freelancers share a common list of benefits including more free time, being more satisfied with their work, and enjoying being their own boss. Flexibility of time is reported to be the number one benefit for freelancers in the Freelance Industry Report (FIR). A good portion of freelancers claim that they are better paid too: 38% said they are earning more than they did under traditional employment.

Freelancing also appears to be a more stable field to enter, with about 80% of freelancers reporting that they have felt moderate or no impact at all from the economic downturn. This is largely reflected in a high degree of optimism about the future of the industry.

Interestingly, the longer you freelance, the better you will do. The FIR shows that experience is a major factor in how much freelancers get paid, the number of hours they work, and how many clients they have. Freelancers that had 10 or more years of experience held stronger beliefs that they were happier than those just starting out. Presumably due to more consistent work that aligns with a well-developed sense of identity, but also because they get paid better. According to the report, 21% of freelancers with greater experience are making $100 to $200 or more an hour.

This is good news for those of us who are just starting out. If we can stick with it through the hard parts we will see higher returns in the long run.

It’s worth mentioning that while freelancers report higher wages, roughly 30% to 40% of freelancer’s earnings go to taxes. While freelancers tend to charge more for their services, they also have to pay for Social Security and Unemployment Insurance (which they don’t get access to if they find themselves without work) and other taxes that are normally partially covered by employers. Additionally, new regulations for healthcare may prove to be a further burden to freelancers. All of which is stacked on top of normal business costs which amount to huge out-of-pocket expenses.

Freelancers are not taking these hardships lying down. New groups are forming to advocate on behalf of the growing population of freelancers like the National Association for the Self Employed and Freelancer’s Union. While traditionally a fragmented industry, freelancers are starting to build a supportive community, further demonstrating the entrepreneurial American spirit that can be found during difficult times. I would argue that freelancers are probably among the most industrious and self-supporting workers in this economy and can provide a substantial model for improving employment opportunities.

There are other difficulties too, such as finding new work which is listed among top concerns for freelancers. 1 out of 5 FIR respondents said that finding clients is their top challenge. One issue is that there are few reliable resources for connecting clients and freelance professionals. Craigslist for example, has a bad reputation for harboring flaky, demanding, or disgruntled people. While reasonable jobs posts exist on Craigslist, the majority of ads have little or no information to go on, making job offerings seem like scams. Other websites like Elance and Odesk charge either the hiring company or the freelancer for use of their service, increasing overhead costs. Also, Odesk is an international company, so any American freelancers that register with the site are competing against the much lower rates of international workers.

In all fairness, freelancers don’t spend a lot of time marketing their services, which the FIR points out, “Considering that finding clients is the biggest challenge for most freelancers today, there seems to be a disconnect between the severity of the challenge and the time spent on this critical activity”. Half of all freelancers in the study said they spend less than 5 hours per month on self-promotion (guilty as charged). This suggests that freelancers may need to step up their marketing game.

Perhaps there is a future opportunity to develop marketing resources that help freelancers, but the data shows that if we spend about 20 hours a week promoting our services we are more likely to earn higher rates, with 41% of freelancers reporting wages of $70 an hour or better for their efforts. This shouldn’t be surprising to Americans who tend to believe that hard work pays off, but this is one of the things that make freelancing so gratifying: hard work actually means something and is rewarded, unlike many regular jobs. Especially the low wage kind.

Freelancing also provides the opportunity to give clients a personal touch that can be a really gratifying and genuine experience. Freelancers seem to prefer personal connection since most of our new work comes from networking. 51% of new clients are found either through referrals or by word of mouth. It should not be surprising then, that social media appears to be the best way to find freelancers because 41% use tools like Facebook, Twitter, Pinterest, and blogs to promote their services.

Yet, despite our boasting about freedom, we are still dependent upon business to provide work. Business-to-business work accounts for 73% of freelancer’s projects, with individuals making up a very distant 16.8% and even smaller numbers for nonprofit or charity work. This may be due to the reluctance of businesses to hire new workers. Outsourcing to contractors allows companies to avoid paying taxes which get deferred to the freelancer.

This has led to an unfortunate increase in abuse of contracted labor that the IRS is taking very seriously as are freelance organizations. The IRS and the California Tax Franchise Board have promised to crack down on companies that claim to use contractors. Indeed, some of you may remember the 1099 scare when Congress was considering a law that required companies to report expenses for all outside services. Despite such efforts, many companies continue hide behind contractors paying low wages and avoiding taxes. This creates a bad situation for workers who may not want speak up about abuses, putting their jobs at risk in an unpredictable economy.

The distinction between contractor and employee is very fine, but there are certain guidelines that determine a workers status including who sets the hours, where you work, who pays for business expenses, and the ability to direct how work gets accomplished. If the government finds that a company is not allowing workers to be independent, then abusive companies could be fined back taxes to cover the period the worker has been employed. You can find more information about contractors vs. employees from the IRS.

This new economic force represents an interesting turn of events in our history. The combination of the technology and financial forces has combined to drive people, not to handouts like some would have you believe, but to entrepreneurialism. While this new path for America’s workers holds challenges, we freelancers are fighting to form a foundation for a stronger nation on our own terms. Speaking for myself, I feel like I am a frontiersman, living on the edge of new era where we can carve out the paths for future generations to follow.

There are challenges for this burgeoning industry, but these challenges can also provide opportunities. Opportunities that can create jobs in a new, responsive, and flexible workforce. Marketing is the biggest challenge that freelancers face and if innovative people can find a way to solve that problem, then there is a huge opportunity to tap a large, growing market. Policy needs to the developed to protect this segment as well, which is a great way to get involved with a supportive community and get your name out into the world. This is something that should be nurtured and it begins by sharing what you see here.

Tell your friends. Hound your family. Post on your representative’s Twitter feed. Spread the word and show everyone that the pioneering spirit of America is not dead.


Robert C. Olson is a freelance graphic designer and writer in Orange County. As a recent graduate that struggled to find employment, Robert set out to create his own opportunity and actively supports new freelancers. You can learn more at Roblotter.com.

Advertisements

One thought on “America’s Hidden Economic Force

Comments are closed.