The businesses of many freelancers, contractors and other self-employed people took a beating during COVID-19, according to new research.
As unemployment rose among traditional workers, independent professionals lost work, too, MBO Partners found in its sweeping 10th annual State of Independence Report.
Some self-employed professionals, freelancers and gig workers put their businesses on pause, as they became eligible for unemployment insurance under Pandemic Unemployment Assistance for the first time via the CARES Act.
The number of working independents dipped by 7 percent from 2019 to 2020, declining from 41.1 million to 38.2 million in 2020, the report found. The number of full-time independents declined by 11 percent in 2020, to 13.6 million. Even with the dip, however, they contribute $1.2 trillion to the U.S. economy—equal to 5.7 percent of the U.S. GDP, the report notes.
“Simply put, less economic activity leads to less work across the board for all types of workers,” the report explains. “Independents have been negatively impacted by the pandemic-related economic downturn, though less drastically than traditional workers.”
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The online survey was conducted by Emergent Research and Rockbridge Associates in August 2020. It included responses from more than 3,600 U.S. residents ages 18 and up.
MBO Partners found that 80% of independent workers said the pandemic negatively impacted them, 61% agree the pandemic set them back financially, 44% lost income and 39% said their work hours had decreased.
As with workers in general, lower-paid workers and women reported the greatest pain from the pandemic. While only 19% of independent workers making $75,000 or more said COVID-19 set them back financially, lower-paid independents suffered more pain. Among those earning less than $75,000, 36% reported such setbacks, and among those earning less than $40,000, 57% did. Among men, 29% said “COVID really set me back financially,” compared to 38% of women.
As in the workplace in general, some female independents left the workforce or cut back on work, as many bore the brunt of additional caregiving responsibilities ushered in by online and hybrid school. While the gender breakdown for the study is usually 50-50 male and female, this year women made up only 42% of independent workers.
Despite the pandemic-related dip, MBO Partners believes the number of independent workers will rebound, given a steady rise in self-employment over the last 10 years. Currently, 48% of the U.S. workforce has reported doing independent work at some point in their career, and MBO Partners predicts that the percentage will rise to 54% in the next five years.
The report also points to trends such as millennials growing into prominence as drivers of independent work, Baby Boomers continuing to work well past their retirement years, and Gen Z emerging as one of the most entrepreneurial generations ever. Other drivers will be the increasing prominence of remote work, the ascent of online marketplaces and the growth of cloud computing tools, the report notes.
The report also offered a fascinating window into some other emerging trends:
· The rise of “skilled service independents.” These are the folks HBR once called “super temps.” They are skilled professionals who work with clients such as government agencies, corporations and nonprofits. Many of these organizations have increased their reliance on independent contractors and consultants, driving up demand. The number of these skilled pros has now risen from 4.5 million in 2011 to 7.7 million in 2020—a 71% uptick. The top niches are consulting, coaching and research (19% of skilled service professionals), creative services (15%) and IT (13%).
· Sink-or-swim entrepreneurship: Many people are being forced to start businesses because their jobs have evaporated, which often happens in recessions. From 2011-2019, the percentage of people starting businesses by choice rose from 55 percent to 67%. In 2020, those saying it was their choice fell back down to 59%, the level it was in 2016. Among 2020 respondents, 18% said they were starting businesses due to factors beyond their control, including 14% who cited a job loss or inability to find a job.
“There is no question the carnage in the pandemic labor market forced a large number of people who prefer full-time payroll jobs into independent work,” the report explains.
· Changing levels of satisfaction with independent work: Many self-employed people saw their businesses grow during the economic boom of the past few years. Now that the economy is hurting and business is harder to win, some are pining for traditional jobs. The survey found that while the percentage of people who wanted to continue working independently rose from 63% to 70% from 2011 to 2019, that number dipped in 2020 to 59%.
· While only 7% of independents said they wanted a full-time job in 2019, 15% said so in 2020. Nonetheless, the survey found that a large percentage of independents remain committed to running their businesses for the long term. Among respondents, 61% said they won’t go back to a traditional job in 2020, compared to 53% in 2019.
· Greater appreciation of the power of income diversity: Although some “involuntary” freelancers crave the steady paycheck that comes with a job, many Americans have been reminded recent layoffs that traditional jobs are an increasingly shaky foundations for their financial lives. Despite the disruption of the past year, the percentage of those saying they feel more secure working independently rose to 56% in 2020, up from 32% in 2011.
· The mainstreaming of the side hustle: The number of people running part-time freelance and gig economy businesses rose from 10.5 million in 2016 to 15.8 million in 2020. With salaries at traditional jobs not keeping pace with the cost of living, many people are finding that a side gig is a viable way to make ends meet.
· Growing awareness of the health benefits of self-employment: Many people in traditional jobs worry that work-related stress is taking a toll on their overall health. While running a business isn’t stress-free, it does offer two things that are good for people’s health, according to recent studies: autonomy and control over their work. This proved true for respondents, with 71% saying working on their own is better for their health.
· One-person businesses are going global: With much of the world working online, the barriers to winning overseas customers have come down for independents. In 2020, 28% reported doing business outside of the U.S., compared to 12% in 2013.
· A new era of teaming: Rather than finding freelancers one-by-one, more hiring organizations are preferring to retain teams of independent workers who have the collective capabilities to get an entire project done. This demand for help from small groups of freelancers—whether they have formed an agency or work together informally—has driven a trend in which about one-fifth of independents teamed up with other independents in the past 12 months.
All told, the report forecasts a more fluid future of work—and one that could be better than the current reality for many workers.
“For an increasing number of Americans, it’s not simply a matter of having a payroll job or working independently,” the report says. “Instead, many will do both, developing their careers and professional capabilities by shifting back and forth between independent work and traditional employment, depending on the needs and desires of both companies and the workers themselves. Rather than behaving like employees, we believe people will adopt a talent ownership mindset—with independent professionals owning a career that may shift between fixed and flexible employment according to life stage.”
That could be very empowering for everyone with a passion to work on their own terms.