- July 1, 2011
- Posted by: matt
- Category: Archived Newsletters
Living and Working in the 1099 Economy
We used to call it “Free Agent Nation.” Now, it seems like the new term of art will be “The 1099 Economy.” While the names may change, they all point to a phenomenon of rising importance—the growing number of Americans who don’t have a “regular job” but instead work on individual contracts with employers or customers. These folks don’t get the traditional W-2 paystub at the end of the year; they report their taxes with the IRS’ form 1099.
The 1099er’s are a growing part of our economy. There are a number of ways to slice the data. If you look at US Census Bureau figures on the self-employed, we find 21.4 million self-employed Americans in 2008. Recent data from EMSI suggests that the figures might be even higher. Tracking workers who are not covered by unemployment insurance, the EMSI researchers suggest that more than 40 million Americans operate in the 1099 economy. This represents about 1/5 of the total US workforce.
As someone who has operated in the 1099 Economy for a decade, I can state that there are many benefits to this status: more flexibility, more opportunities for unique and creative work, and more control over one’s work circumstances. And, 1099 status can be profitable. Many fast growing ventures operate as sole proprietorships. For example, in 2008, the Inc. 500 list looked at the ownership structures of firms on this list of US’s fast growing companies. The largest sole proprietorship, Milwaukee’s Service Financial, had $11 million in revenue, but only one employee—its owner.
While the freedom of operating in Free Agent Nation can be tempting, there are downsides. The data suggests that, for many people, operating in the 1099 Economy may not be their first choice. The EMSI research cited above found that the number of non-covered jobs in the US grew by 4 million between 2005 and 2009. The fastest growth occurred in the mining, quarrying, and oil/gas extraction sectors where more than half of all workers are now non-covered. Other areas with high concentrations of 1099 workers are in real estate (74% of workers are non-covered) and agriculture/forestry (74%). This non-covered status creates a more flexible labor market, but it also creates potential challenges for these workers operating in notoriously unstable industries.
The 1099 Economy has emerged somewhat below the radar over the past decade. Few economic development organizations have devoted much thought or research to the needs of this segment of the economy. And, that’s not a good thing if 20% of the local workforce is invisible to community leaders. Based on my experience, I see several segments within the broad category of the 1099 economy: the reluctant 1099ers, the entrepreneurial 1099ers, and the “gig economy” work force.
The Reluctant 1099ers: This group includes those who operate in the 1099 economy because they have no choice. This group includes those sectors that have previously operated with traditional employment contracts, but have now shifted to the new structures. Examples include mining, utilities, finance and insurance, and some administrative fields. While individuals in these specific jobs may be happy with their circumstances, the workers, in a collective sense, face a more uncertain, and probably less profitable, work situation as 1099 contractors.
The Entrepreneurial 1099ers: Many budding entrepreneurs operate in the 1099 economy. Sole proprietorships and LLCs/LLPs may have numerous workers under contract, yet appear in government statistics as a self-employment venture. While most sole proprietorships are quite small and generate limited revenue, a sizable portion does generate significant incomes and may be poised for rapid revenue and job growth. These individuals and their firms are the invisible portion of many local entrepreneurial ecosystems.
The “Gig Economy” Workforce: Last but not least, the gig economy workforce refers to those who operate in industries that traditionally operate on a project or “gig” basis. Perhaps the best known example is film-making where crews come together for a film and then break up for other projects. Other examples include the arts, theatre, writing, web design, and construction. These sectors have a long history of operating via these structures. It is clear that more industries are moving in this direction as well. In response, a host of new kinds of support organizations, such as New York’s Freelancer’s Union, are emerging. If current trends continue, we can expect to see similar groups arising across the US.
Regardless of how one classifies these workers, they remain largely invisible to policy makers and to economic and workforce developers. That needs to change. In addition to recognizing the importance of this part of the workforce, we also need to develop a more nuanced understanding of their concerns and needs. At a minimum, providing a stronger safety net—as suggested by the Freelancer’s Union and others—makes sense. It also makes sense to develop work spaces that support the 1099ers. Here, the recent growth in co-work spaces is a positive trend. (NOTE: we covered this topic in a previous newsletter which can be accessed here). Finally, we need new kinds of support and services for the 1099ers. These might include traditional training in business development, but other supports, such as networking or peer-to-peer lending or on-line tools to find customers and partners should also be part of the mix. It’s time to recognize that the 1099 economy is here to stay and will be an important part of every community’s workforce for decades to come.
What’s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have analyzed the latest data on business dynamics, examined how small firms can build strong supply chain linkages, and assessed how to use social media to promote regional economic development initiatives.
Over the next few months, look for the EntreWorks team on new projects with Maryland Capital Enterprises on Maryland’s Eastern Shore, and in ongoing projects in Maine, Mississippi, North Carolina, and Virginia. We’ll also be out on the regular speaking circuit with upcoming speeches and training programs in Chapel Hill, Charlotte, Roanoke VA, and Portland, Oregon. Hope to see you on the road!