Small Business Labs

Growing Consensus: Obamacare Good for Entrepreneurship

There's a growing number of studies suggesting that the Affordable Care Act (a.k.a. Obamacare) is going to increase entrepreneurship and self-employment.

The New York Times article The Affordable Care Act Could be Good for Entrepreneurship covers a Robert Woods Johnson study that finds Obamacare will likely increase the number of self-employed by more than 11% as a direct result of the law.  

This study adds to a recent report by the Kauffman-RAND Institute for Entrepreneurship and Public Policy saying the law could increase the number of new U.S. businesses by as much as 33% over several years.

The reasons these studies say self-employment and small business formation will increase is due to the reduction in job lock. This is the term economists use to describe the reluctance of workers to leave their jobs because doing so would mean losing fringe benefits, especially health insurance.

Obamacare allows individuals going out on their own to get health insurance through mandated state or federally run insurance marketplaces.  This means, at least in theory, the end of health insurance related job lock.  

Before you send hate mail - yes, the jury is still out whether or not Obamacare's overall economic and societal impacts will be positive or negative.  And yes, we've seen the articles on Obamacare increasing the costs of individual insurance rates in California. 

But despite these issues, we're mostly in agreement with these studies. While we think they overstate the impact of job lock - and overstate how many new businesses will result - we think Obamacare will lead to more people being self-employed.   

Self-Employed Happier With Lives Than Employees

Life Satisfaction and Self-Employment is an interesting academic study out of the UK.

It shows that those who choose to be self-employed are not only more satisfied with their jobs than traditional employees, but they're also more satisfied and happier with their lives as a whole.  

There's been many studies showing the self-employed tend to be more satisfied with their work than folks who are employees.

Most of these studies show the autonomy, control and flexibility associated with being your own boss are the main reasons.

But due to methodological issues and problems, few studies have attempted to link overall life satisfaction and happiness with self-employment. The authors of this paper use a pretty clever research approach (see the paper for the details) to overcome these.

According to the paper the bottom line is:

"... we find that individuals who move from regular employment into self-employment experience an increase in life satisfaction."

The research also differentiates between people who chose self-employment (called "opportunity entrepreneurs") and those that became self-employed due to unemployment ("necessity entrepreneurs").

Not surprisingly, opportunity entrepreneurs are happier with their work and lives than necessity entrepreneurs.

Also, while opportunity entrepreneurs are happier than traditional employees, necessity entreprepreneurs tend to show the same level of work and life satisfaction as traditional employees.  

These findings are very much in alignment with the results of our work surveying and interviewing the self-employed. We've consistently found that choice is the single most important indicator of self-employment satisfaction and success.

In other words, those that choose self-employment are more likely to be satisfied and self-identify as being successful than those that become self-employed due to a lack of other options.

This does not mean necessity entrepreneurs are doomed. Just the opposite, our research shows that the average necessity entrepreneur is both satisfied with self-employment and self-identifies as being successful.

But statistically speaking, on average they aren't as happy or consider themselves as successful as those who chose to be self-employed.

Coworks - A Social Online Talent Marketplace

Coworks is a new online talent marketplace with a twist. Instead of offering talent buyers a large number of potential hires like an Elance or oDesk does, it connects buyer and sellers of talent  based on personal connections and recommendations.

According to the press release announcing the company, Coworks:

"... provides freelancers and buyers with a unique online platform that takes the “word of mouth” practice, which has worked for so many years in the freelancing industry offline, and combines it with the power of online social media capabilities."

The site works on a referral model. Once you list a job, the website suggests contractors who've been recommended by people within your own network on the site. 

I haven't had a chance to test the site, but it appears you can link it to your LinkedIn and Facebook accounts. This means you can check and see if you have an existing relationship of some sort with potential freelance hires.  

The site was only recently launched and is still in Beta.  

We find Coworks interesting on several levels.  At the broad level, it's another example of how social is being added to many types of products and services.  

Second, it's another example of the growing importance of online networks and reputation for freelancers.  

And third, it's yet another example of the growing number and diversity of online talent marketplaces.  

Self-Employment Shifting to the Creative Class

Well known author and academic Richard Florida has written extensively about the rise of the creative class.

According to his work, the creative class - a grouping of knowledge-based professions - has rapidly increased its share of total employment over the last 2 decades and now comprises about one third of all U.S. jobs.

While the majority of creative class members have traditional jobs, a growing share of the self-employed are also members of the creative class.

The chart below shows the percent of total self-employment for 2 of the 3 broad employment sectors. I left off the services sector because it made the chart too busy.  

 

The working sector consists consists of manufacturing, construction, retail and related industries. The creative sector consists of professional, managerial and educational services; finance and insurance; information services and related industries.

The data does not map exactly to Florida's definitions due to differences in source data. But this data, which comes from the U.S. Bureau of Labor Statistics, is directionally consistent with Florida's data.

As you can see from this chart, the share of creative class jobs has increased from roughly 25% in 2003 to almost 30% in 2012. The working sector's share of self-employment fell from almost 40% to about 34%.

The chart below shows the number of self-employed by sector. It shows the number of self-employed in the working sector has fallen substantially since 2007. This is mostly due to the recessionary bust in the construction industry and falling retail self-employment.

  

And while self-employment job growth in the creative sector has been weak, it did grow through the Great Recession - which is quite an accomplishment.

It will be interesting to see if the working sector recovers as the economy improves. A bit more than one third of all constructions workers are self-employed (and 1 in 6 of the self-employed are construction workers), so a pick-up in this industry could easily shift these numbers.

But we think the long term trend towards more creative sector self-employment is strong and this sector will continue to gain share.  

Temps Working More Hours Than Employees

Prior to the Great Recession temporary workers worked, on average, fewer hours per week than regular employees. 

But as the chart below (from a NY Times Economix blog post) shows, this shifted in 2009 and temps now work, on average, 30 minutes more per week than regular employees.  

  

I think this shift is an example of broader changes taking place in the economy as more firms increase their use of temporary and contingent workers. 

BTW, another interesting tidbit from this chart is according to the U.S. Bureau of Labor Statistics, you need to work 35 hours or more to be considered full time.

This means on average the U.S. workforce is part time.  

Self-Employment Increases With Age

One of the interesting aspects of self-employment is that the likelihood of being self-employed increases with age.

The chart below shows self-employment as a percentage of total employment by age group. The data comes from the U.S. Bureau of Labor Statistics (BLS) and includes both unincorporated and incorporated self-employed.

It shows how self-employment increases with age, peaking with over a quarter of workforce participants 65 and older being self-employed. This works out to about 1.9 million 65+ self-employed workforce participants.  

By way of comparison, overall about 10% of the U.S. workforce is self-employed.  

Also illustrating this point is the age composition of the self-employed.  85% of the self-employed are 35 or older, 64% of the  are older than 44 and 12.5% are 65 or older.  Only 15% of the self-employed are younger than 35.

Based on our interviews and other research on the independent workforce, there are several reasons self-employment increases with age:

1. Older workers are more likely to have the skills, networks and financial resources to become successfully self-employed.

2. Older workers are more likely to be interested in the work flexibility and control self-employment provides. This is especially true for workers 65 and older.  

3. Older workers, especially those 65 and older, face diminished traditional job prospects due to age discrimination and other issues associated with hiring older employees (increased benefits costs, etc.).  

One of the reasons we're forecasting a continued increase in the number of U.S. independent workers is demographics.

The large cohort of aging baby boomers are moving into the years when they are more likely to become self-employed.  Aging boomers are also more likely to delay their retirement and stay in the workforce longer than prior generations. The result of these trends will likely be an increase in self-employment.

Special thanks to BLS economist Steve Hipple for providing me with this data. See his report on self-employment in the U.S. for more information.   

The End of Work - Or the Beginning of an Independent Economy?

Well known tech journalist and analyst Tom Foremski's Futurists ... and the 'End of Work' looks at the employment disruption being caused by digital technologies.

He argues that technology is destroying more jobs that it's creating, leading to a potential future where there simply isn't enough work to go around.  Key quote from the article:

We face a future that will be defined by the end of work - it can become a golden age or one of horrific consequences. Horrific because we have no means of dealing with this type of future. We have nothing that has prepared us for it. We only know how to punish and ridicule those that don't work. But what if there is no need to work? 

A good example of this is Yobot (shown in the 30 second video below), the luggage storing robot at the Yotel Hotel in New York city.  It replaces a bell boy by automatically storing your luggage.

 

We're more optimistic about the future of work than Tom appears to be.  But we agree automation, technoloy and global competition means work will be very different in the future.

We think more people are going to have to create or invent their own jobs. This is why we are focused on studying the growing role of the independent worker and independent economy.  

We admit the jury is still out on whether or not the independent path will be successful for most people. But based on our research, we're cautiously optimistic many can achieve success this way.

We'll have more on the independent economy in the coming weeks.

The Growing Independent Worker Ecosystem

The growth of the independent workforce (freelancers, temps, self-employed, etc.) has also led to a growing ecosystem of companies supporting independent workers and the firms that hire them.

This ecosystem includes a wide range of firm types, including:

Talent marketplaces: firms like Elance, Odesk and Freelancer.com that connect independent workers with those interested in hiring them.

Crowdsourced Services: firms/services like CrowdFlower, Mechanical Turk, Live Ops that crowdsource large numbers of independent workers for buyers.

Micro-Task marketplaces: firms like Task Rabbit, Fiverr, Rev.com, that allow buyers to hire independent workers to do even the smallest of tasks.  

Peer to Peer Commerce Companies: firms like Airbnb, Uber, Poshmark that allow anyone to become an independent businessperson by selling a good or service.  

Technology companies catering to independents: firms like Intuit, Square, 37 Signals that have built products specifically for independent workers and micro business owners.  

Coworking facilities offering office space, community and activities oriented to the needs of independent workers. 

The list goes on and on and, of course, includes Emergent Research client MBO Partners.  They provide back office infrastructure services for independent workers.  

This growing ecosystem of companies is a clear indicator that the independent workforce is growing both in terms of numbers and importance to the economy.  

Flexibility is Why Companies Hire Contingent Workers

Staffing firm Allegis and the Human Capital Institute teamed up on a study on how corporate procurement and HR departments view the growing contingent workforce.  

It's a broad based study looking at a number of issues related to the contingent workforce. But I most liked the chart below, which shows the reasons companies use contingent talent.

As is clear from the data, flexibility is one of the key reasons firms use contingent workers. They allow firms to quickly and easily staff up and down as needed. Contingent workers also don't add to fixed costs.

This last point - that traditional employees add to fixed costs - is a relatively new issue. It wasn't that long ago when employees were not considered fixed costs.  This is no longer true.

Because business conditions shift a lot quicker than they used to, cost committments that last more than a year are now considered fixed costs (5 years used to the norm for fixed costs). And because it's gotten harder to fire or lay-off traditional employees - especially quickly - more firms are viewing employees as fixed costs.

This is an important shift because businesses large and small are increasingly focused on reducing their fixed costs.  We call this the shift to a variable cost economy.  

The trends driving the growing interest in contingent workers are accelerating, which is a key reason we're forecasting that roughly 40% of the U.S. private workforce will be contingent by 2020.

Profiling Mature (Aged 67+) Independent Workers

Older workers - those over the age of 65 - don't get much attention from researchers or the media. The reason is pretty straight forward. Historically the vast majority of older people were not in the workforce. 

But that's changing. Over the last decade the workforce participation rate for Americans 65+ has consistently risen even as the overall workforce participation rate has fallen to levels not seen in several decades.

Increased longevity, better health and financial need are the primary drivers of the increases. And now that baby boomers are entering this life stage, expect to see even greater numbers of workers past the age of 65. 

To better understand this age group, as part of the MBO Partners State of Independence study we surveyed and interviewed a group of independent workers (self-employed, independent consultants, freelancers, etc.) aged 67 and older.  We chose 67+ because the oldest baby boomers are 66 and we wanted to exclude the boomers from this study.  

Some of the findings of the research include:

There are about 1.35 million Mature independent workers in the U.S: This is about 8% of all independent workers. We expect this percentage to grow as aging baby boomers enter this age cohort.

Mature independents are highly satisfied with independent work: 89% said they were either highly satisfied (80%) or satisfied (9%) with independent work.  Only 3% said they were dissatisfied.

Mature independents plan to stay independent or retire: 77% plan to continue working independently over the next 2-3 years and 14% plan to retire. Only 4% plan to seek full or part-time traditional employment.

Mature independents often did not choose independence: 50% of matures chose independence versus 58% of non-matures. Also interesting is 26% said job loss played a part in them becoming independent versus 19% for non-matures.

Most are not working due to financial need: Only 24% reported working because they had to for financial reasons. 38% reported they worked because they wanted to and 26% said they became independent because they had the financial security to do so. 

Our interviews with Matures provide some more details. Like younger independents, Matures value the freedom, flexibility and control independence provides.

Most (54%) report working less than 35 hours per week (to be included in the study respondents had to work, on average, 15 hours per week or more) and in interviews tell us they often take multiple vacations a year.

But a major difference is their view of their job and career options.

While most independent workers tell us they are confident they could get a traditional job, few Matures tell us that. The vast majority of Matures believe companies will not hire them in traditional jobs and their only choice is independent work.  

They also tell us even if companies were willing to hire them, they wouldn't want to work on the employment terms required by most companies.  

We'll have more on Mature independents in the coming months as we finalize our research.