Is the 1099 Economy Becoming the “New Normal?”

A very informative new survey on the 1099 Economy is out from the Freelancer’s Union, the first and leading organization seeking to promote the interests of 1099ers, freelancers, and independent workers.  (Note:  The Freelancer’s Union was formerly known as Working Today.)   The study estimates that 53 million Americans now work as freelancers—an astounding 34 percent of the total U.S. workforce.   All indications suggest that these numbers will grow in coming years.   Surveyed freelancers project an increase in demand for their services, and a very large share of existing workers (80%) note that they would consider moonlighting or doing other work on the side.

The report also offers a useful typology of the 1099 economy, dividing freelancers into five groups:

  • Independent Contractors (traditional freelancers)—40% of freelance workforce
  • Moonlighters (those with a day  job too)-27%
  • Diversified Workers (multiple jobs)-18%
  • Temp Workers-10%
  • Independent Business Owners-5%

The categorization scheme is helpful, although I might quibble with these percentage shares.  For example, the share of independent business owners is much smaller than seen in other data sources.   The categories highlight a key point:  there are many points of entry into the 1099 Economy:  some by choice and design, while others reluctantly accept this new work status.

The survey also includes some useful findings on key issues facing freelancers.  These include the most important issues of finding work and generating steady income.   The report also notes that the freelancing life is slowly becoming easier as new services and organizations (like the Freelancers Union) are now targeting the 1099 Economy.   As I have been arguing for years, providing new support tools for 1099ers ought to be a high priority for economic development organizations.  It’s not happening yet, but I hope that the hard facts presented in this survey and elsewhere can help turn the tide.

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EntreWorks Insights, October 2014 issue now available

The October 2014 issue of our regular e-newsletter, EntreWorks Insights, is now available. This issue focuses on how American manufacturing will be transformed (or not) by the current shale energy boom.   You can subscribe and access previous issues here.

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Tackling Wealth Inequality

Yesterday, I attended a very interesting event sponsored by the CFED-sponsored Asset Building Policy Network, a coalition of organizations focused on supporting asset building policies such as individual development accounts and more consumer friendly banking policies.  The topic was “Unfinished Business:  Winning the Battle for Economic Opportunity,” and the discussions focused on what needs to be done to make progress in the fight against growing income and wealth inequality.   It was an enlightening and sobering discussion, but I’ll just highlight two big takeaways for me:

1)      Income inequality is a growing issue, but the challenges of wealth inequality are even more profound.   We’ve all seen reports about growing income inequality in the U.S., but the findings on wealth inequality are even more sobering.   Many Americans, especially Blacks and Latinos, are living one calamity away from economic disaster.   Roughly 1/3 of Blacks and Latinos have no financial assets whatsoever—compared to 14% of Whites.  When it comes to available liquid assets (those that could be immediately deployed in an emergency), the situation is more scary.    African Americans have a median liquid wealth of only $200; Latinos hold a median level of $340.  Meanwhile, many Whites ($23,000) and Asians ($19,500) have access to liquid assets, and overall net worths that are 13-15 times higher than their African American and Latino counterparts.  (All data used here come from the May 2014 Beyond Broke study by the Center for Global Policy Solutions.)

 

2)      Family wealth generation and preservation is an inter-generational matter.   The real generators of household wealth pass across generations—in the form of home ownership, educational benefits, and inheritances that come from a lifetime of hard work and savings.   A good job can help reduce immediate gaps, but it might not address sustained wealth gaps on its own.  For this reason, we may need to think bigger and consider other kinds of policies that address the wealth gap head on.  One example might be the use of baby bonds where each newborn is provided with a small savings account (e.g. for $500) that will grow and can be used for needs like education when the child reaches adulthood.  The UK experimented with this approach in 2005, but the program was eventually ended by the current government.

Big ideas can also be accompanied by some smaller scale solutions such as expanded use of coaching where people can gain access to “coaches” who offer advice on financial management, savings, and other strategies.   Yesterday, NPR’s All Things Considered profiled a successful model program used in Pennsylvania and elsewhere.  Under the Circles program, poor families are matched with 3-4 middle class volunteers known as “allies.” These allies provide coaching, advice and support on a host of issues from commuting to child care to savings to grocery shopping strategies and the like. This kind of intensive hands-on coaching has been shown to have big impacts in helping families move out of poverty.

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Reshoring Manufacturing Jobs: We’re Still Waiting

Like many people, I’ve been getting pretty excited when I read studies about the potential for reshoring of manufacturing jobs back to the U.S.   Many trends, such as technology changes, changing energy cost structures, and rising labor costs in China and elsewhere are all coming together to make America a more competitive location for manufacturing facilities.  I don’t need to belabor the potential benefits of reshoring—more capital investment and, most importantly, a larger base of high quality jobs for working families.    Unfortunately, preliminary results from a study by researchers at MIT’s Center for Transportation and Logistics suggest that the promised new jobs and investments have yet to materialize.  The researchers, Jim Rice and Francesco Stefanelli, examined fifty recent announcements of large-scale reshoring projects and found that few of these announced projects were ever completed.   In most cases, the announced project has not yet happened.  In a few instances, the deal occurred but few new jobs actually ensued.

It is possible that many of the announced deals will ultimately happen—delays in projects of this type are the norm.   But, the findings do suggest that we should remain somewhat cautious in our hopes for reshoring—even when our hearts push us to do otherwise.    The resurgence of U.S. manufacturing is not going to magically happen on its own.  It’s going to take lots of hard work and a commitment to new investments, workforce training, and on building a more competitive and responsive business environment for manufacturers of all sizes.

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Emerging US Labor Market Challenges?

America’s flexible, responsive, and resilient labor markets have long been among the least well-understood “secrets” of U.S. economic competitiveness.   In contrast to many European or Asian economies, America’s labor markets are quite open.  It is relatively easy and low cost to both hire and fire workers, and this labor market churn helps spur career progressions and ensure that workers are available for new and growing industries.   Unfortunately, some recent reports and data releases suggest that we cannot assume that these labor market strengths will continue indefinitely.   In a paper prepared for the Kansas City Fed’s recent gathering in Jackson Hole, Wyoming, economists Steven Davis and John Haltiwanger describe how U.S. labor markets are becoming much less dynamic.

Workforce turnover rates, which occur via job reallocation (when firms close and workers lose jobs) or cyclical churn (the normal process of hiring and firing workers) have dropped in recent decades.  In 1999, worker turnover per quarter was 33.5 percent; in 2010, the turnover rate was 24.1 percent.  This stiffening of labor markets is having outsized impacts on the young and less well-educated, who find it harder to change jobs, change careers, or obtain better pay and work conditions.

A recent Governing magazine analysis of labor market trends offers further evidence of these trends. The analysis examines how displaced workers are faring in today’s economy.   The story leads with some good news—in January 2014, 61% of displaced workers found new employment—a big jump from recent trends.  However, roughly half of these re-employed workers were forced to take pay cuts.  Fifty-two percent of re-employed workers reported that their new jobs paid the same or more than their previous positions.   These trends vary greatly across industries.  In strong sectors like IT, education and professional services, large shares of workers are able to obtain new jobs with comparable pay.   However, many other sectors face big challenges.  For example, manufacturing workers are especially pressed to obtain new quality jobs.   While 59.3% of workers succeeded in obtaining new employment, only 43% of these reemployed workers found jobs with comparable pay.  Even worse, a large share of re-employed workers (29%) faced pay cuts of more than twenty percent in their new jobs.

What explains these labor market trends?   Some of these changes result from structural changes in the economy, such as an aging workforce, a decline in new business starts (see more here), and the replacement of Mom-and-Pop firms with large corporations like Walmart, CVS, of Best Buy.   Davis and Haltiwanger also point to the spread of occupational licensing rules which block new entrants in sectors like hair styling, food, and other retail services.  (You can access a 2012 Kauffman Foundation study on licensing here).

What can be done to address these problems?   While we can’t (and shouldn’t) seek to increase churn and turnover for its own sake, we can try to remove unneeded barriers (such as some arcane licensing rules) and take other steps to enhance worker flexibility.   The Affordable Care Act should help on this front, as workers can now rely on having health insurance in event of a job or career change.  Enhancing access to training, retraining, and education resources will also help.   Finally, efforts to reinvigorate the American business start-up machine must also continue.

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The Resource Curse in America?

International development experts often talk of the “resource curse,” where resource-rich countries suffer economically even in the face of massive pools of resources, such as oil, minerals or other commodities.  Examples include economies such as Nigeria or the Congo, where massive resource bases have not been effectively used to spur economic growth.   A new study from University of Oregon researchers Grant Jacobson and Dominic Parker suggests that the resource curse might also apply in the U.S. context as well.

The researchers assessed the long-term economic health of towns that gained from the oil booms of the 1970s and 1980s.  All of the 391 assessed counties were based in the Rocky Mountain West, with large concentrations in Colorado, Montana, Utah and Wyoming.   The experience of these communities suggests a clear-cut boom and bust cycle.  A major bust set in after the oil boom petered out in the mid-1980s, and no signs of recovery have returned ever since.  Despite a quick boost of local wealth during the boom, these regions now continue to face lower average wages, higher unemployment, and major economic challenges decades after the boom subsided.

This experience should offer important lessons to communities in North Dakota, Pennsylvania, and elsewhere where the shale energy boom is underway.  The researchers suggest that these long-term results stem from a lack of economic diversification in these resource-dependent economies.   While the paper does not contain detailed policy recommendations, its findings suggest that boom areas must pay special attention to supporting economic diversification by using new resources to invest in building other locally-based economic engines and sources of wealth creation.

NOTE:  For more information on economic diversification, I highly recommend a recent Appalachian Regional Commission study (developed with support from EntreWorks Consulting and other partners):  http://www.arc.gov/research/researchreportdetails.asp?REPORT_ID=108.

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The Rural Entrepreneurship Challenge: APPLY NOW!!!

I’ve blogged in the past about the Rural Entrepreneurship Initiative, a program sponsored by the American Farm Bureau Federation and Georgetown University (with consulting support from EntreWorks) that is designed to raise a spotlight on the many world-class entrepreneurs now building and running companies in rural America.   The program is up and running and two exciting opportunities are on the way.

1)      REI Webinar Series:  We are hosting a series of monthly seminars on key topics of interest to entrepreneurs.  Our next webinar is August 26 at 3:00 PM Eastern time.  The topic is “Finding Business Information,” and addresses how businesses can do a better job of finding and using market intelligence.  We’ll be joined by Jessica Nelson of the National Center for Economic Gardening and Steve Radley of Network Kansas.  All of the webinars are free, but do require advance registration.  You can register here.

2)      The Rural Entrepreneurship Challenge:   The first national business competition for rural entrepreneurs, the Challenge is an exciting opportunity for rural entrepreneurs to spread the word about their exciting new ventures.  Winners receive cash prizes and other support—as well as lots of great publicity.   The application deadline is September 15, 2014.  So, if you are a greta rural entrepreneur, please apply and/or spread the word!

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New Global Entrepreneurship Data

Two helpful new global entrepreneurship assessments have been released in recent weeks and are definitely worth a look.  The Global Entrepreneurship and Development Index 2014 ranks the quality and scale of the entrepreneurial process in 120 countries.  (Note:  the report is available free, but does require an email registration).   The index ranks countries on their capacities and performance in terms of supporting business formation, expansion, and growth.  Despite much recent evidence about declining U.S. business dynamism, the 2014 GEDI Index ranks the U.S. as the world’s top performer, followed by (in order):   Australia, Sweden, Denmark, Switzerland, Taiwan, Finland, Netherlands, the U.K. and Singapore.  All of these nations tend to score highly on measures of both entrepreneurial aspirations (do residents have interest in entrepreneurship?) and institutional and business support mechanisms.

Meanwhile, the Paris-based Organization for Economic Cooperation and Development (OECD) has released its annual assessment of entrepreneurial performance in key developed economies, with a special focus on Europe.  Entrepreneurship at a Glance, 2014 finds that start-up rates diverge greatly across OECD countries.  Most nations have failed to return to pre-economic crisis start-up rates, and entrepreneurial performance was especially weak in Denmark and Spain. Meanwhile, Australia, the U.K. and Sweden (all highly ranked in the GEDI index too) are showing strong start-up performance.    Most new businesses remain quite small, but a small portion of high-growth firms are having a big economic impact.  For example, in France, 15,000 high growth firms (about 2-4% of all firms) employ more than 1 million people.  Across OECD countries, the researchers find that overall barriers to entrepreneurship are declining and that the number of opportunity entrepreneurs (those who start-up to capture a business opportunity as opposed to out of necessity) is growing.

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Strong Rural America.Com: Resources for Rural Entrepreneurs

This week, the American Farm Bureau Federation, unveiled its new Rural Entrepreneurship Initiative (REI) website:  www.strongruralamerica.com.  The REI is a joint initiative of the American Farm Bureau Federation (AFBF) and the Global Social Enterprise Initiative and Startup Hoyas at Georgetown University’s McDonough School of Business. The Rural Entrepreneurship Initiative is directly tied to AFBF’s mission of building strong and prosperous agricultural communities.  The Center for Rural Entrepreneurship and EntreWorks Consulting are also supporting this effort.

The website is part of larger campaign to promote rural entrepreneurship and to provide a host of tools and support resources for rural entrepreneurs.   These plans include the Rural Entrepreneurship Challenge, a nationwide business competition for rural entrepreneurs, and a series of webinars on key topics of interest to rural business owners.   Scheduled webinar topics include:

• Introducing AFBF’s Rural Entrepreneurship Initiative on Tuesday, July 29 at 3:00 p.m. Eastern
• Finding and Using Business Information on Tuesday, Aug. 26 at 3:00 p.m. Eastern
• Telling Your Business Story on Tuesday, Sept. 23 at 3:00 p.m. Eastern
• Finding Money To Grow on Tuesday, Oct. 28 at 3:00 p.m. Eastern
• Finding and Keeping Talent on Tuesday, Dec. 2 at 3:00 p.m. Eastern

You can learn more and register for webinars here.   You can also track the REI’s progress at the Rural Community Building blog.

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A Plug for Factory Man

I’m in the midst of reading Factory Man, by Beth Macy—an excellent book that I would recommend to anyone with an interest in economic development or in what happened to the American Dream.   Factory Man profiles John Bassett III and his struggles to keep his company, Bassett Furniture, afloat in the midst of major pressures from globalization and technical change.   Bassett Furniture originally hails from the company town of Bassett, VA and operates its facilities in the border regions of Virginia and North Carolina.  This area faces major economic challenges and has been hard hit by the loss of manufacturing jobs in the textile and furniture industries.   Assessing these impacts can make for depressing reading, but the overall story of Factory Man is one of hope.   As the book’s subtitle, “How One Furniture Make Battled Offshoring, Stayed Local, and Helped Save an American Town,” Bassett has been able to survive and maintain its local operations in Martinsville, VA, Newton, NC, and elsewhere.  This story should offer inspiration to those of us who are hoping that the long-promised reshoring of American manufacturing is underway.   It is an excellent take on what’s required to make it as a manufacturer today, and how a company’s success (or mere survival) has important ripple effects across a community.

 

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