Small Business Labs

The Global Survey on Platform Based Freelancers

The recently released Global Survey on Freelancing covers data gleaned from over 1900 freelancers from across the globe. 

To gather this data, the survey team - a collaboration between the Agile Talent Collaborative And the Department of Psychology at the University of Toronto - worked with 75 freelance platforms, agencies and communities from various countries who helped them collect the data.

This study breaks new ground because it's the first global study we're aware of that focuses on freelancers who provide services to businesses via online platforms.  

The study includes an 8 factor freelance satisfaction index (click on the study chart below to enlarge).  

Key report quote on the satisfaction index data:

Most freelancers understand and accept the trade-off they make by trading traditional professional employment for a solopreneurial life and career. The data line up with earlier results; Freelancers value the flexibility and independence that freelancing provides, enjoy the quality of life it offers, and appreciate the chance to build satisfying client relationships. And, they accept the occasional volatility of opportunity, and the challenge of a frequently changing workplace and colleagues.

As noted in the quote above, this data is consistent with other studies (including ours).  But almost all the other studies (including ours) are limited to one or just a few countries.  This study shows that globally freelancers share many views on independent work.

The report covers a lot of ground - way too much to cover here.  It's well worth reading for anyone interested in freelancing.  

Click here to download the report.

The Rise of the "Elite Expert Segment of the Gig Economy"

How To Be A Rock Star In The Elite Expert Segment Of The Gig Economy is an interesting white paper from The Luxury Institute, which claims to be "the world's most trusted luxury and premium goods and services consulting firm ...".

The Luxury Institute is an expert network firm. These firms provide clients access to industry experts, most of which are independent consultants. 

The Luxury Institute calls their expert network GLEN (Global Luxury Expert Network) and say they have hundreds of independent luxury goods and services experts who are part of it.

The white paper points out highly skilled expert talent is in demand. Key quote:

Whether an individual chooses to be a full-time employee, or an independent expert, it has never been easier to market and sell expert skills across the entire planet. With a tremendous skills brain drain occurring in business as baby boomers have started to retire, leaving in their wake an army of novice millennials to take over in the cockpit, literally, elite experts are in high demand.

And they point out if these people choose to go independent, they can do well. Again from the white paper:

... if someone is a rock star in the gig economy, they will see their market value magnified by going solo rather than being employed. This is simply because they have the ability to sell their expertise to the highest bidders. Similar to fields such as professional sports and entertainment, and now high technology and e-sports, the gig economy will ensure that elite business experts benefit from what economists call a “power law distribution,” where the top achievers earn a highly disproportionate amount of the revenue. 

This echos what we found in our research looking at highly skilled and compensated independent workers. 

As the chart below from the MBO Partners State of Independence study research brief Highly Skilled, High Earning Workers shows, the number of U.S. high earning independent workers (those making $100k or more) has increased by 70% since 2011.

There are many drivers behind the growth of high earning independents - see the research brief for details. 

But the main driver, as is pointed in The Luxury Institute's white paper, is the growing demand for highly skilled workers.

And since firms are increasing their use of highly skilled independent workers, we see no reason why the number of highly skilled independent workers won't continue to grow.

Use of Contract Labor by Small Businesses Continues to Grow

The IRS released their 2016 tax data on sole proprietors. 

The data covers business receipts, deductions, and net income reported by taxpayers on Schedule C of tax Form 1040.

This includes the vast majority of small businesses, including small businesses that report on a pass-through basis (LLC's, etc.). 

 In 2016 about 25.5 million sole proprietors reported about $1.422 trillion dollars in gross receipts. 

As with prior years, sole proprietor spend on contract labor caught our eye. 

As the chart below shows, U.S. sole proprietors spent about $56.8 billion on contract labor (freelancers, temps, etc.) in 2016, up from $34.4 billion in 2010.

 

This is an increase of 65% between 2010 and 2016. 

Over the same period, spending on salaries and wages (meaning traditional employees) rose from $73.7 billion to $90.9 billion, an increase of 23%. 

Way back in 2003, contract labor was only about 20% of the labor costs of sole proprietors. By 2010 it has risen to 31%. And in 2016 it reached 39%. 

This is similar to the non-employee share of the workforce at large corporations, which has also increased substantially over the last two decades.

Expect to see the growing use of non-employee labor by firms big and small to continue.

Independent Workers Feeling More Secure

One of findings that most surprised us when we first started researching independent workers was how many think independent work is more secure than traditional jobs. 

Back in 2011 when we first starting asking about this in surveys, we assumed the vast majority of independent workers would view self-employment as being less secure than having a traditional job. 

But as the chart below shows (the data is from the MBO Partners State of Independence study series), we were wrong.

In 2018 49% of full-time independent workers feel working independently is more secure than having a traditional job. This is up from 41% in 2012.

There are several reasons about half of independents feel independent work is more secure. 

The main reason given by independents is having multiple sources of income and/or customers provides more security than having a single employer.

Independents also point out that being charge of their work lives makes them more able to adjust to changing economic conditions, which makes them more secure.

They also say traditional jobs are no longer as secure as they once were, making independent work relatively more secure.

The data is trending up for several reasons.

First, the improving economy has made it easier for independent workers to find work. This is particularity true for independent workers with sought after skills and experience. 

The strong economy is also allowing reluctant independent workers - those that would prefer a traditional job- to go back to traditional jobs.

Reluctants, on average, report feeling independent work is much less secure than traditional employment. So as they leave independent work, it raises the share of independents who feel more secure working independently. 

The growing infrastructure of products and services that make being an independent easier is also making independent work more secure. 

These include low-cost, Internet-based tools and services for everything from billing and project management to marketing and sales. It also includes things like the ACA (Obamacare), which makes it easier for independents to get health insurance. 

But being independent is still not secure enough, especially for those without in-demand skills.  We'll have more on this topic in the near future. 

We contribute to the MBO Partners State of Independence report series.

Survey: Almost 4 in 10 Americans Have a Side Hustle

Bankrate recently released a survey showing that 37% of Americans have some sort of side job. 

The survey was of adult Americans, of which there are about 250 million. This means the survey found about 92 million Americans have side hustles. 

We don't have access to the survey questions, so we' don't know how they defined "side job". But it must have been a broad definition to get to 92 million. 

That the question was broad is backed up by the study chart below. It shows only about 11% out of the 37% work in their side hustle weekly. Most do it only a few times a month or less. To capture people working on a 2nd job less than once a month requires a broad definition. 

 

The report also has data on the most popular side hustles. These findings are consistent with our work in this area. 

 

The Bankrate study is yet more confirmation of the growing role 2nd jobs and supplemental income are playing for many Americans.

Expert Network Industry Big and Getting Bigger

The report The Rise of the Expert Economy is a interesting look at what it calls a "little-known, high-growth sector, made up of networks that connect experts with companies that need them." 

The firms in this sector, such as GLG (Gerson Lehrman Group), Guidepoint and Third Bridge, are surprising large.

GLG, for example, has 1500 employees across 22 offices and has revenues in excess of $500 million.

These firms provide access to experts (who are independent workers) to investors and corporations looking for expertise. Guidepoint, for example, describes what they do as: 

Guidepoint connects clients with vetted subject matter experts—Advisors—from our global professional network. Our clients leverage the insights and perspectives shared by our Advisors to stay informed and make better business decisions

Unlike traditional consulting firms, most of this work is done over the phone in one hour calls between the experts and clients. 

This doesn't come cheap. These firms charge up to $1,000 per hour for access to the experts.

As shown by the report chart below (click to enlarge), there are about 1.5 million people working as experts for these firms. Based on these numbers, it's likely there are more Americans working as experts for these firms than working for Uber as drivers.

The industry is also growing rapidly, with industry revenues expected to exceed $1 billion by 2022. 

The partners at Emergent Research (that's us) have done work for several of the expert network companies.

And while we didn't command anywhere near the $1,000 per hour some experts get, we found it a highly flexible way to leverage our expertise. 

There's little doubt the need for on-demand talent and expertise will continue to grow. So too will the companies connecting specialized talent with corporations and investors who need their expertise.

The Rise of the Expert Economy is well worth reading for anyone interested in the gig economy and/or the future of work

The Top 15 Cities for Specialized Freelancers

Fiverr's Understanding the Impact of the Freelance Economy study focuses on what they call "specialized freelancers". These are independent workers who provide professional, technical, or creative services. 

As the report chart below shows, there are about 2.5 million "specialized freelancers" in the U.S. 

Fiverr and their research partner, Rockbridge Associates, dug deep into the U.S. Census non-employer business dataset for this analysis. 

Non-employer businesses are businesses that have a business owner, but no traditional employees. The data comes from tax records (forms 1120, 1065, or Schedule C).

Fiverr and Rockbridge analyzed the non-employer industry data to develop their estimates for the number of "specialized freelancers" (see the report for more details on their methodology, which is quite clever). 

The most recent non-employer data is from 2015 and it showed were are about 24.3 million U.S. non-employer businesses at that time. So the specialized freelancers are about 10% of all non-employers.

The non-employer data also provides some geographic details. This allowed Fiverr and Rockbridge to develop city estimates for the top 15 U.S. metro areas.

As the report list below shows, New York, Los Angeles and Chicago are the top 3 cities in terms of the total number of specialized freelancers. 

We've long tracked the non-employer business statistics. It was the dataset that first alerted us to the rise of independent workers back in 2006. 

The non-employer data tends to get less attention than other government data on self-employment. This is because the data are messy and include a hodge podge of business entities that aren't related to self-employment, such as passive businesses, firms no longer in business and LLCs owned by major corporations.

But we find this data to be a useful general indicator of U.S. self-employment.

It's also one of the few sources of regional and metro area data on self-employment (and, in our opinion, the best one). So it was a good choice for the analysis done in this study.

The Strong Job Market's Impact on Self-Employment

The U.S. unemployment rate fell under 4% for the first time since 2000, continuing a steady decline that started in 2010.

Despite the strong traditional job market, according to the BLS self-employment has increased slightly over the prior year and is also up from 2010. 

We've also found in our research that the number of independent workers has also increased since 2010.

The relationship between the traditional job market and independent work is complex.

The impact of strong job market varies by independent worker segment and leads to increases in the number of independent workers in some segments and declines in others.

A strong job market means independent workers who would prefer a traditional job (we call them "reluctant independents") can more easily find one. 

This is shown in the data on reluctants from the 2017 MBO Partners State of Independence study. The share of reluctant independents fell to 24% in 2017, down from 26% in 2016 and 34% in 2012.

So clearly reluctants are taking advantage of the strong job market to return to traditional employment.

At the same time, the strong job market means independents have an easier time finding work due to labor shortages. Independents can also charge more in a strong economy. This is especially true for independents with in-demand skills.

Because of these factors, we've seen an increase in the number of highly skilled independent workers over the past 8 years. And our early 2018 data (which we're still working through) shows another increase over the past year.

We've also seen a continuation of the strong growth in the number of Americans who work as independents part-time or occasionally. This reflects two issues with the jobs recovery that aren't good.

The first is middle wage jobs continue to hollow out. This means more people are "falling downhill" - losing middle wage jobs and replacing them with jobs that pay less.

Another problem is stagnant wages. While wages have picked up a bit over the past year, they've only gone up 2.6% in the past year. This is just above the rate the overall inflation and well below the inflation rates for housing, healthcare and education. 

The combination of middle wage jobs hollowing out and wage stagnation means more people are picking up 2nd and 3rd part-time jobs as independent workers to make ends meet. 

Most of these 2nd jobs are gig economy jobs. So even with a strong traditional job market, more people are turning to gig work to supplement their income. 

Because of strong growth in the number of 2nd and 3rd gig economy jobs, we've found the total number of independent workers has increased over the past decade. 

We'll have more on this topic once we finish the analysis of the data from the 2018 MBO Partners State of Independence study. We plan on releasing this study in a few months.

NPR on Anxiety in the Gig Economy

NPR's recent Marketplace-Edison Research poll data (below) shows that gig workers "report significantly higher economic anxiety than regular full-time workers."

Regular readers will not be surprised by this. We've long reported on what we call the "yin and yang" of independent work. 

The yin and yang is most independents like the freedom, control and autonomy being independent provides. In exchange, they must deal with the hard work, uncertainty and anxiety that comes with it.  

NPR-Edison’s survey also found the yin and yang. Key quote on the positives of gig work from their article What Makes Gig Worker Anxious:

"Our survey finds that gig workers highly value setting their own schedule and being their own boss."

in our work we've found substantial risk profile differences between independent workers and those with traditional jobs. The net of this is independent workers are more willing to accept and deal with these risks – and the anxiety that comes with it - than those who have traditional jobs.

Even highly successful freelancers and independent workers face higher levels of anxiety. Key quote from the Harvard Business Review's The 4 Things You Need to Thrive in the Gig Economy, which covers a study of successful gig workers:

"All those we studied acknowledged that they felt a host of personal, social, and economic anxieties without the cover and support of a traditional employer—but they also claimed that their independence was a choice and that they would not give up the benefits that came with it."

So yes, gig workers experience more anxiety. But most think it's well worth it.

We've just started a new study looking at how independents and non-independents view and respond to risk. We'll report our results in a few months.

Do Uber Drivers Only Make $3.37 Per Hour? (The Quick Answer is No)

A study on ridesharing drivers - The Economics of Ride-Hailing: Driver Revenue, Expenses and Taxes - was released last week by the MIT Center for Energy and Environmental Policy Research.

Their finding that the ridesharing drivers working for firms like Uber and Lyft have median earnings $3.37 per hour was widely covered in the press.

The only problem was their analysis was flawed, something they conceded this week. 

The main flaw was pointed out by Uber in a post by their chief economist. It's a technical flaw, so we won't bother covering it here. See the Uber post for the details.

After reviewing Uber's rebuttal, the MIT researchers re-ran their numbers and are now saying ridesharing drivers median income is between $8.55 per hour and $10.00 per hour.

Both Uber and Lyft say this is still too low, and point to several studies showing higher earnings. In response, the MIT researchers say they are going to spend a few weeks reviewing their revised results. 

Our research 18 months ago on ridseharing driver earnings (net of expenses) found a $12-$14 per hour range for an average Uber/Lyft driver. 

But our data - like the data used in the MIT study - was based on survey questions asking rideshare drivers what they estimate their hourly gross earnings to be.

It's well known that people often misstate their earnings (intentionally and unintentionally) on surveys, which makes this data imprecise at best. 

It's also important to point out that there is no "average" or "median" rideshare driver. Most work part-time, drive different types of vesicles, pay different amounts for insurance, gas,etc. This means rideshare drivers have different cost structures. So using a set of average costs - as the MIT study and our study did - also leads to imprecise results.

Combining these two factors means any findings using surveys to get revenue and averages for the cost data are going to have large margins of error.

So large, we believed, that didn't publish our rideshare earnings study results. We simply didn't have enough confidence in the data.

All of this points out how hard it is to study this stuff.

After all, the folks at the MIT Center for Energy and Environmental Policy Research are obviously smart, talented researchers. But even they got it wrong. 

So, do Uber drivers only make $3.37 per hour? No.

But we still don't know how much, on average, they actually make.

For more this, see The Rideshare Guy's article on the study. In addition knowing the rideshare industry as well as anyone, their data was used in the MIT study.