Small Business Labs

The Six Fold Jump in Work From Home

Nick Bloom is a Stanford Economics professor and one of the leading authorities on the shift to remote work.  

He's part of the team at WFH Research, which produces a steady stream of high-quality research and data related to the shift to remote work.  

He posted the chart below on LinkedIn yesterday. Key quote from his post:

"The shift to WFH is the largest shock to labor markets in decades. Pre-pandemic WFH was trending towards 5% of days by 2022. Now WFH has stabilized at 30%, a 6-fold jump."

Companies have been trying to get their workers back to the office, but most of these efforts have been unsuccessful.  

We continue to think the hybrid model has won, which will lead to more workers returning to offices.  

Because of this, we think the share of days worked from home will trend down to around 22%-25% over the next 2-3 years.  

This is still a substantial increase relative to before the pandemic.

McKinsey finds 36% of Employed Americans are Independent Workers

McKinsey's Freelance, side hustles, and gigs: Many more Americans have become independent workers, covers the results from their American Opportunity study.

And this study found that independent work is booming. Key quote:

"... a remarkable 36 percent of employed respondents—equivalent to 58 million Americans when extrapolated from the representative sample—identify as independent workers. This figure represents a notable increase since we estimated the US independent workforce in 2016 at 27 percent of the employed population."

The study asks survey respondents to self-identify as independent workers. Those answering yes to either, or both, of these questions are considered to be independent:

• "Is your current job as a contract, freelance, or temporary worker?" 
• "Would you consider yourself a gig worker or part of the gig economy?"

The article covers a range of data from the study, but the data on how workers view economic opportunity jumped out at us (click to enlarge the chart below). Key quote:

"Given the broad range of reasons why people work independently, it's surprising how united this group is in one distinct characteristic: they are among the most optimistic workers in the country."

Striking out on one's own requires a certain amount of optimism.  So it's not surprising to us that independent workers, on average, are more optimistic about their economic opportunities than workers overall.  

See the article for more details.

New Business Applications Continue at Historically High Levels

The number of new business applications in July was 425,698, which is another strong month.

Although down from their all-time high in 2020, applications in 2022 have averaged about 420,000 per month. This is about 40% higher than before the pandemic.

The business application data comes from IRS Employment Identification Numbers (EIN) applications. EINs are the tax id number that identifies a business for tax purposes.

Most applications (about 70%) are from firms the Census calls "applications other than high propensity" (grey in the chart; click to enlarge).

These are applications from businesses that are unlikely to have employees, such as freelancers, independent contractors, and other types of solopreneurs.

"High propensity applications" (yellow in the chart) is Census speak for firms they think are likely to hire traditional employees.

As the above chart illustrates, the share of solopreneur applications has steadily increased over the past decade.

Retail continues to be the industry with the most applications. This has been the case since the surge of applications started in 2020. Professional services is second, consistent with its position since the pandemic began.

As we pointed out earlier this year, only about 20% of applications for tax I.D.s result in a new business starting.

But the continuing high levels of business applications means a corresponding surge in new employer small businesses and solopreneurs.

Is Reshoring of Manufacturing Finally Happening?

The Wall Street Journal's U.S. Companies on Pace to Bring Home Record Number of Overseas Jobs covers data from the Reshoring Institute showing that American manufacturing firms are shifting jobs back to the U.S.

Key quote:

"American companies are on pace to reshore - or return to the U.S. - nearly 350,000 jobs this year, according to a report expected Friday from the Reshoring Initiative. That would be the highest number on record since the group began tracking the data in 2010."

Reshoring is a trend that has long been forecast to happen. The New York Times 2010 article Is Manufacturing Coming Back to the U.S. reads much like the recent Wall Street Journal article.  

And while the four words most wrong in forecasting are "this time it's different," this time it seems different.

The pandemic exposed the weaknesses and lack of resiliency in global supply chains.

And the war in Ukraine, coupled with geopolitical strife between the U.S. and China, has countries worldwide looking to become more self-reliant - or at least not reliant on countries not viewed as close friends.

This may lead to a world with two major trading blocks. Key quote from Foreign Affairs' The End of Globalization?:

"But it now seems likely that the world economy really will split into blocs—one oriented around China and one around the United States, with the European Union mostly but not wholly in the latter camp—each attempting to insulate itself from and then diminish the influence of the other."

So it does appear that reshoring - and the related trend of nearshoring - may finally be happening.  

Ezra Klein Show on Rethinking the Office and Work

One of our favorite podcasts is The Ezra Klein Show. It dives deep on various topics, the interviews are excellent, and the show's guests are experts in their field.

The show's recent episode, The Office is Dying. It's Time to Rethink How We Work, features Anne Helen Petersen and Charlie Warzel as guests.

They're the authors of Out of Office: The Big Problem and Bigger Promise of Working From Home.

Key quote from the podcast landing page describing what the episode covers:

The office is dying, but a new, viable model of work has yet to be born. And that liminal space raises all sorts of new questions: What is the office actually for? What will the post office's future of work look like? And if the future of work means working from home in some capacity, how do we make that future better for everyone involved?

We don't agree with everything Petersen and Warzel say in the podcast - especially some of their forecasts.

But they clearly have deep expertise on these topics and provide an excellent overview of the current state of the office and potential ways the office may evolve in the future.

Anyone interested in the future of work, remote work, or the future of the office will find this episode well worth listening to.

Like all Klein Show podcasts, this episode is long - 1:34. 

But one of the reasons we like The Klein Show is that it takes the time required to explore topics in-depth.  

The Inflation Reduction Act and the Growth of Microgrids and Virtual Power Plants

The Inflation Reduction Act, which was just signed into law, has a variety of tax credits and incentives to encourage homeowners and businesses to install green energy systems.  

One of the biggest incentives is for solar power systems. The bill extends a current tax credit for ten more years and raises the tax credit to 30% of the system's cost.  

The law's various credits and incentives will lead to broader deployment of microgrids.

These are localized power generation grids that can disconnect from the traditional grid and operate autonomously.

They can also feed power back to the traditional grid.

The growth of microgrids is allowing the development of virtual power plants.  

Virtual power plant (VPP) consists of distributed microgrids that are used in concert to provide power plant levels of electricity to the grid.

An example is Tesla's virtual power plant agreements with California's two largest utilities.  

Under this agreement, Tesla connects Tesla Powerwalls (a battery storage device fed by solar panels) to the grid and supplies power during peak power usage. Tesla's Powerwall customers are paid $2 per kilowatt hour for contributing energy to the VPP.

Generac, which also provides solar systems with battery storage to homeowners and businesses, has a similar arrangement with Arizona's largest utility.

Given the advantages of distributed solar microgrid systems - cleaner energy, lower costs, resilience to outages - we expect the deployment and use of microgrids and VPPs to grow rapidly.

And as we pointed out in our article The Clean Energy Economy = Small Business Opportunities, the distributed nature of microgrids means numerous opportunities for small businesses.  

Why Direct Sourcing of Freelancers is Growing in Popularity

One of the most interesting findings of the MBO Partners Contingent Labor Imperative study, which looked at the use of contingent labor by large corporations, is the growing use of direct sourcing of freelancers by these firms.   

The study defined direct sourcing of freelancers as:

"Direct sourcing of contingent labor (also called “self-sourcing”) is when a company builds a proprietary labor candidate pool comprised of independent contractors, freelancers, etc., which the company can engage directly instead of through staffing companies or third-party labor suppliers."

The study found that 28% of the firm surveyed widely use direct sourcing and another 32% use it in some areas of their firm. Another 28% report experimenting with direct sourcing. Only 12% say they are not currently using direct sourcing for contingent labor.

And as the study chart below shows, most firms plan on increasing their use of direct sourcing over the next 18 months and 5 years.

The report chart below explains why firms plan on increasing their use of direct sourcing (click to enlarge).

Simply put, direct sourcing addresses the top challenges corporations face in hiring and utilizing freelancers and other forms of contingent labor.

In our work, we've done many product-market fit studies.  And we've rarely seen a service so extensively address the business challenges of its target market as well as direct sourcing of freelancers does.  

Because of this, we're confident the plans by large firms to increase their use of direct sourcing in the future will happen.

See the study report for more information on the use of contingent labor by large corporations (those with 1,000+ employees). 

Emergent Research (that's us) worked with MBO Partners on this study.

Teens Embracing YouTube and TikTok; Facebook Usage Declining

Pew Research's Teens, Social Media and Technology covers how American teens' usage of social media has changed since 2014. Key quote:

"TikTok has established itself as one of the top online platforms for U.S. teens, while the share of teens who use Facebook has fallen sharply."

As the Pew chart below shows (click to enlarge), almost all teens (95%) use YouTube, and 2/3rds of teens (67%) use TikTok.  

     

But the share of teens using Facebook has fallen to 32%, down from 71% in 2014-15.  

The study also examined the frequency teens use leading social media platforms.  

YouTube was the leader, with 19% of all teens saying they use YouTube almost constantly, 16% saying this about TikTok, and 15% saying it about Snapchat.

Only 2% of teens say they use Facebook almost constantly.

YouTube and TikTok aren't usually considered social media platforms. But social media and entertainment have been blurring over the past decade, so this usage comparison is valid.

And with the social media platforms adopting TikTok's approach to making recommendations, they will likely blend more in the future.

The Rise of Digital Nomad Villages

Digital nomad villages are organized communities that provide the work infrastructure remote workers need to be productive - and social activities to keep them happy.

The villages are generally in scenic locations and have coworking spaces, places for remote workers to live, decent WIFI, networking events, and a range of social activities.

The first digital nomad villages evolved organically and informally. 

Ubud in Bali and Thailand's Chiang Mai are examples and have been popular with digital nomads for many years.

But with the growth of remote work, local governments are starting to invest in the development of digital nomad villages.  Their objective is to attract digital nomads and the economic activity they provide.

The Portuguese island Madeira is often cited as the location of the first planned digital nomad village.  It has a very active social scene. Key quote from the village's community manager:

“It can be very social. In high season for nomads, which is in March until June, you might have to make a conscious effort to take a break from all the social interaction, depending on your personal social battery."

According to Sifted's Where are Europe’s top digital nomad villages? there are now quite a few digital nomad villages across Europe.  

Brazil recently decided to jump on the digital nomad village bandwagon.

According to Skift's Behind Brazil’s Plan to Launch South America’s First Digital Nomad Village, the beach town of Pipa (pictured below) was selected as the country's first digital nomad location. 

Work has begun to create the infrastructure needed to attract and support digital nomads.

Brazil is partnering with NomadX to build out Pipa. They're the firm that helped create the village in Madeira and several other locations.  

The competition to attract digital nomads and remote workers is heating up.  Countries and cities have realized digital nomads spend money, don't take local jobs - and even create local jobs supporting the needs, including work needs, of digital nomads.  

We expect many more purpose build digital nomad villages to be created over the next few years.

Corporate Use of Private Freelance Talent Marketplaces Accelerating

MBO Partners Contingent Labor Imperative covers a recent study looking at the use of contingent labor by large corporations (those with 1,000 or more employees). 

This is the second year of this study, and Emergent Research (that's us) worked with MBO Partners on this project. 

The study covers much ground, including contingent labor's share of corporate workforces, reasons for using contingent labor, challenges with using contingent labor, and the use of direct sourcing of freelancers and other forms of contingent labor.

But what we found most interesting was the year-over-year growth in the use of private freelance marketplaces — company branded and operated talent platforms that directly connect vetted freelancers with the firm's hiring managers.  

As the study table below (click to enlarge) shows, 54% of firms surveyed reported using private freelance marketplaces. This is up from just 32% in 2021.  

Also, users of private freelance marketplaces report broader and more intensive use of private freelance marketplaces. 

The study table below shows that 71% of companies that use private freelance marketplaces use them in 3 or more areas across their organization, compared to just 42% in 2020.  

There a several reasons for this surge in the use of private freelance marketplaces.

Companies have increased their use of contingent labor to access specialized labor, find hard-to-hire talent, and increase their workforce agility and flexibility.

The pandemic-induced shift to remote work has also increased the use of all things online, including private freelance marketplaces.  

But a significant reason is the ability of firms to establish a pool of known and vetted external talent that can be confidently reused across the firm.

This leads to reduced sourcing costs and faster fill times - and more importantly, because the firm vets and reuses the freelancers, higher work quality.    

In our 2016 Harvard Business Review article How PwC and The Washington Post Are Finding and Hiring External Talent, we covered some of the first corporations experimenting with private freelance marketplaces.

Six years later, the use of private freelance marketplaces has entered the mainstream.