Europe’s 1099 Economy: Is Self-Employment the New Normal?

A new study from the UK’s Institute for Public Policy Research examines the state of self-employment in Europe and finds that, as in the US, self-employment or freelance work is the fastest growing segment of the workforce.  Across Europe, 14% of all workers are now self-employed, and interest in self-employment is growing.  In fact, 45% of survey respondents expressed preference for self-employment over a traditional “real job,” and a large share of the currently self-employed express strong job satisfaction.

The challenges facing Europe’s version of the 1099 economy as similar to those found in the US.  A fundamental trade-off exists:  swap flexibility and options for steady pay and security.   Independent work can be fulfilling and exciting, but it can create lower pay and tougher working conditions.   For most Europeans, the trade-off may not be as stark as we find here at home.  Thanks to more solid social safety net programs, many of the concerns faced by America’s self-employed—how to pay for health care, retirement, and education—are less pronounced.   On the flip side, many European nations are actively encouraging more start-ups and seeking more flexible and dynamic economies.  So, Europeans may benefit from an even greater upside of a strong freelance economy.   In the end, the growth of Europe’s self-employed workforce offers further evidence that these trends are not unique to the US, but are about an ongoing transformation in the world of work.

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2015: What’s Ahead for the 1099 Economy?

What do Washio, HomeJoy, Mechanical Turk, and SpoonRocket have in common?  They are all emerging players in the growing on-demand economy.  Like their better known compatriots Uber and AirBnB, these firms all provide on-demand freelance services in a host of areas.  SpoonRocket delivers meals, Mechanical Turk supports data tasks, Washio provides laundry services, and HomeJoy provides housecleaning services.  All of these firms are seeking to establish lead positions in the fast-growing on-demand economy, and their success (or failure) will greatly affect the growing ranks of U.S. freelancers and independent workers (the 1099 Economy).

As an excellent new issue summary in The Economist notes, these developments are sparking a debate on the future of work—a discussion that will likely gets lots of attention in 2015.   The battlelines are pretty clear.  The on-demand economy can be a great thing.  It provides needed services at lower cost, and provides employment opportunities for workers who prefer a flexible schedule and opportunities to pursue other interests as well.  The deal is less sweet for those seeking stability, good regular pay, career ladders, or enough income to raise a family.   Creating multiple job and career opportunities is a good thing—as long as the freelance economy grows along with an economy that can generate other more stable “real jobs.”   That’s the open question as many developed economies continue to struggle in creating good jobs for large shares of the workforce.  As The Economist notes, the on-demand economy is a great thing for “outsiders and insurgents.”   The debate in 2015—and beyond—will focus on how to make it work for everyone else as well.

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Uber, AirBnB and Beyond: The Fight over Occupational Licensing

On a visit to Manhattan last month, I spent a cold rainy rush hour fruitlessly trying to hail a cab.  Like many, that experience led me to thank my lucky stars for my Uber account and to curse the old hidebound taxi industry.  It seems like I’m not alone as one of the surprisingly hot policy topics today is the not sexy issue of occupational licensing.  Does the practice of occupational licensing (for hairdressers, caterers, cab drivers and the like) represent an unfair barrier to entry for budding or new entrepreneurs?

Over the past few months, I’ve read a ton of studies on this issue of occupational licensing.  The Kauffman Foundation has been especially prolific with its study “License to Grow” and related materials.   The Progressive Policy Institute similarly refers to these rules as part of a new “guild mentality.”  As these studies note, there has been a huge jump in the number of professions requiring licenses—up from 10 percent in the 1970s to 29 percent today. These licenses help ensure safety and quality, but can also block entry into the licensed fields.  And, while we all might prefer a licensed heart surgeon, we may not demand a licensed florist, hair braider or travel agent.   These barriers to entry help increase costs and block budding entrepreneurs, although more rigorous, long-term studies suggest that the impact of licensing differs greatly by occupation and over time.

While there is a big (and legitimate) push to drop occupational licensing, let’s also recognize that some professional certifications make sense.  In fact, much of our push for technical education, career pathways development, and creation of middle skill jobs is about certifications—providing people with the certifications (and yes, the licenses) that serve as a “seal of approval” and help prepare them for better jobs and better careers.  Moreover, the evidence that occupational licensing has wider community economic effects is somewhat limited.  For example, a recent study from Kentucky looked at the linkages between occupational licensing and local start-up rates.  The researchers found that the use of county occupational license taxes had no connection to county-level business start-up activity.  Instead, the county’s “culture” of entrepreneurship—in government and more generally—had a much bigger effect.

As a business owner and a user of rush hour taxis, I dislike occupational licenses as much as anybody else.  But, as in some many policy debates, it’s important that we look before we leap.  In our rush to block the licensing of hair braiders or teeth whiteners, we need to be sure that we attack these rules with a scalpel, not a battle axe.

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Rethinking Innovation at MIT

Whenever there is talk of innovative universities, it’s not too long before you hear mention of MIT, the Massachusetts Institute of Technology.  MIT is one of the first universities to embrace innovation and entrepreneurship as a core mission, and, for the most part, they started in this business as a global leader and remain at or near the top today.  But, even mighty MIT cannot sit on its laurels, and, for the past year, the university has been involved in a major rethinking of its innovation initiatives and policies.

The preliminary fruits of this work were released late last week in a report entitled, “The MIT Innovation Initiative:  Sustaining and Extending a Legacy of Innovation.”  The report frankly notes that much current MIT programming dates back to old models of innovation, i.e. the proverbial vision of the scientist toiling alone in the lab.  Today, innovation is “hybridized,” emanating from across multiple disciplines, requiring skills  and talents in diverse areas, and the capacity to access to key physical, virtual, and computational resources.

The preliminary report offers a detailed review of current MIT programs and initiatives and proposes a host of university-led new directions.  These include:

  • A major expansion of infrastructure, with a focus on new scale-up facilities and funds and dedicated innovation spaces located around MIT’s campus.
  • Creation of vibrant, small-scale innovation communities that are global in scope and move MIT’s innovation activities off campus and around the globe.
  • Creation of a new Laboratory for Innovation Science and Policy to help foster new thinking and new directions in innovation policy.

This report is the first of series of efforts to rethink MIT’s innovation footprint.   This effort should send a strong message throughout higher education circles:  if MIT is rethinking how it does innovation, maybe you should consider the same!

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The Five F’s of Innovation

The Five F’s of Innovation

I spend a lot of time on this blog touting the many start-ups and entrepreneurial innovators that are helping to drive our economy.  But, more established firms—the middle market—also innovate.  In fact, when these firms innovate, they can likely have more profound economic development impacts as their rapid growth creates more jobs, more capital investment, and more spin-offs than their newer start-up brethren.   A new report from the National Center on the Middle Market, a research center on these growth companies, offers a useful typology of how these middle market firms innovate—what they call the Five F’s.

The Five F’s stand for First, Focused, Frequent, Finder, and Fat.  Most of the categories are pretty straightforward.  “First” firms are first to market with a new idea.  “Focused” firms own a niche market, and “Frequent” firms live and die on their ability to design new products/services and predict the next thing in advance.   Unfortunately, many middle market innovators employ the “fat” strategy, where profits from a lucrative market niche prevent managers from rethinking the business model or developing new markets. Blockbuster Video is classic example of this model.   “Finders,” the clear favorites in this report, “create value by anticipating previously unarticulated needs.”  Apple is a classic example of a finder, but many smaller and less-well known firms, such as Jen’s Ice Cream and Patagonia, also fit the bill.

While the “fat” strategy is not recommended, each of these business models can be sustained over time.  But, they require a different mindset and approach. For example, “Frequents” must become masters of process so that they can do things quicker and better than the competition.  This is why many of the world’s most successful food chains, like McDonald’s or Subway, can also boast that they have the leanest processes and procedures.  In contract, “Firsts” need to be first to market and continue to out-innovate the competition or convert their technology into the market standard.   Again, the secret is not necessarily to have the best business model, but to build practices and procedures that align with your “best” business model.

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Community Foundations: New Anchor Institutions for Local Development

This month’s elections sent many strong messages, including some tough love for us community economic developers:  Don’t expect much new public money focused on local economic development.   This is just the continuation of a long-term trend, but it further reinforces the need to identify new ways to pay for our important work.  Fortunately, lots of new ideas are emerging in areas like crowdfunding and various Buy-Local initiatives.  The rise of community foundations as key economic development partners is another very exciting opportunity.

A new report from the Democracy Collaborative examines this somewhat new role for many community foundations.  “A New Anchor Mission for New Century” profiles 30 community foundations that are doing innovative work in terms of supporting community economic development.  This list includes foundations from across the nation, and profiles investments occurring in a diverse array of urban, suburban and rural locales.   As the report notes, something different is happening in these communities—a new and sustained commitment to building community wealth.  I have had the pleasure of working with and for several of the profiled foundations, and have seen firsthand how their investments have helped change their region’s economic trajectories.   I would suspect that these foundation models and practices will soon become the norm as more community foundations become actively engaged in local economic development.

The report is a useful how-to guide for foundation leaders and for community leaders in general.    If you don’t have a community foundation in your region, start one now!!  If you have one but it is not investing in economic development, engage them and encourage them to read this report and see the positive impact that these new investments can spur.

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Growing Pains for Rural Broadband

Over the past decade, governments at all levels have made big investments to help close the digital divide, especially in terms of bringing broadband and related services to rural areas. This work makes sense as success in today’s economy requires full access to the latest communication technologies.   A number of recent news articles note that, while progress has been made, rural areas remain far behind in both access to and use of the latest broadband tools and technologies.  Some of the remaining problems result from the higher costs of deploying broadband to rural areas or due to existing laws and rules that impede the roll-out.  For example, in North Carolina, state laws are blocking the expansion of successful municipal wireless networks to neighboring communities.

Even more worrisome:  there are indicators that take-up of broadband services in rural America—even in locations with high-quality service—greatly lags that of other regions.  A recent Governing article notes that nearly half of rural residents with access to high speed internet service have not signed up for service.   Senior citizens make up a large share of non-adopters, but 49% of low income rural households also lack access.  A related survey of rural and urban consumers (from Connected Nation) found that 39% of current non-adopters would purchase broadband at a lower price point.  This suggests that cost, not access, may be the biggest issue in expanding rural broadband access.   So, as we search for technological fixes, we should also be addressing the cost of services as well.

The good news is that many folks seem to share these concerns about both cost and access.  The Federal Communications Commission recently closed the application period for the first investments from its Connect America Fund.  This Rural Broadband Experiments initiative generated lots of interest.  Over 181 applicants (with projects valued at nearly $885 million) have applied for the $100 million in new funding.   Connect America and related efforts must be continued to ensure that broadband access—essential infrastructure in today’s economy—is available for all rural residents, businesses, and communities.

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Some New & (Somewhat) Random Development Resources

I have been at a lot training and conference programs over the past couple of weeks and have thus been exposed to a lot of new reports, studies, and the like that I’m struggling to keep up with.  But, in the interest of sharing, here’s a few that I have found interesting or worth a second look.

Cultivating A Competitive Advantage:  How Rural Counties are Growing Economies with Local Assets and Regional Partners- This National Association of Counties report contains case studies of 15 rural counties doing interesting economic development work in areas like business retention, transportation, food systems, and renewable energy.

Accelerate:  Founder Insights into Accelerator Programs:   Personally, I’m a little burned out on stories about business accelerators—I think I must see at least 10-12 per day lately.  But, this guide is a helpful compendium of how accelerators work and how they deal with some of the challenges they face around fundraising, marketing, and managing programs. Worth a read if you’re considering starting or applying to an accelerator.

Community Heart & Soul Field Guide:  The Vermont-based Orton Foundation has spent the past few years working on new approaches to community engagement and strategic planning in small towns, what they call “Community Heart & Soul.”  They’ve now produced a pithy and engaging guide for doing this kind of planning and it’s definitely worth a look.   I didn’t find any major new insights, but I think the Field Guide does a great job of covering the key issues and promoting practices that help communities develop in a way that nurtures and preserves their collective “heart and soul.”   You can download the Field Guide for free, but registration is required.

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Time for Urban Acupuncture?

I recently read a short and punchy little book with the great title of Urban Acupuncture: Celebrating Pinpricks of Change that Enrich City Life.  Author Jaime Lerner is well-known in urban planning circles from his stints as governor of Brazil’s Parana province and mayor of the city of Curitiba, where he introduced a host of innovations such as the city’s world-renowned bus rapid transit systems.

This is fun and easy read, and Lerner is a very likable character chock full of ideas.  He would be a pleasant companion over dinner, drinks or coffee.  The book is a series of short vignettes on various types of “urban acupuncture,” which Lerner refers to as “pinpricks” of action—projects, people, and initiatives—that ripple out and have outsized impacts on city life.  His message is very hopeful and inspiring.  When done right, small actions can change the trajectory of a city.   Much like acupuncture!

Urban acupuncture can take many forms.   Chapters include dissections of how 24-hour shops enliven street life, how waterways and river access improve city life, why buildings with dignity matter,  and how cities can benefit from spaces  that embrace, among other things, music, silence, light, and  memory.   To his credit, Lerner doesn’t try to give a template or guide to urban acupuncture; he simply tells stories of how it works.   If you wanted to briefly summarize his perspective, I’d suggest this passage:  “The city is an integrated structure of life and work.  The city is a melting pot of human activities.  The more you blend incomes, ages, and activities, the more human the city becomes.”

Kudos to Island Press and the Knight Foundation for supporting publication of this book.  You can learn more about the book and Lerner’s speaking tour here.

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Do People Move to Avoid Taxes?

Do people and businesses move to avoid high taxes?  That’s certainly the claim of many politicians and policy advocates who contend that wealthy residents and successful businesses flee high tax states like California to seek out more hospitable business climates elsewhere.    Given that many people seem to think these tax migration claims are a “fact,” it’s surprising that there is so little evidence to back this view.   A few years ago, the Public Policy Institute of California did a very useful analysis, estimating that about 1.7% of California’s job loss between 1992 and 2006 was due to company relocations outside of the state.  Instead, nearly all of the state’s job creation—and job loss—was home grown—due to the expansion or contraction of existing businesses.  Now, we have another set of similar findings in a new study by the Center on Budget and Policy Priorities entitled: State “Income Migration” Claims are Deeply Flawed.

This research, by Michael Mazerov, examines the economic literature and finds fault with two basic claims made by many observers:

1) There is little evidence that people move in response to differences in interstate tax levels.  Instead, most people move for more prosaic and hum-drum reasons.  They took a new job, moved for family reasons, sought a nicer climate, or wanted more affordable housing.

2) There is little evidence that high-tax states are losing residents due to their less favorable business conditions.  Moves from high-income tax to low-income tax states are not any higher than moves in the reverse order:  from low-income tax to high-income tax states.  Moreover, very few Americans actually move across state lines each year.  About 1.5-2 % of Americans move each year, and that rate has been declining in recent years.

So, what is happening?  Americans certainly do move, but they rarely move to avoid taxes.  Instead, they move for a better climate, better schools, or better employment opportunities.  Between 1993 and 2011, every state (except Michigan) that lost residents still saw an increase in local jobs and income.  Thus, even when people do move, it doesn’t seem to have large-scale economic impacts.

These trends don’t mean we should ignore out-migration.  If people are leaving a state in droves, it’s not a good thing—especially if out-migrants have high demand skills or high education levels.   And, even if it’s true that people don’t move to reduce their tax burden, out-migration has hugely negative economic impacts.  As talent leaves a state, the ability to attract or grow companies weakens, and the quality of schools, parks and other institutions declines.  If you fear out-migration, act to stop it.  But, don’t assume lower taxes will make people stay.

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