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America's Backdoor Layoffs


The latest Labor Dept. monthly job-loss report came out Friday, April 3, and it was predictably grim: the economy lost 663,000 jobs in March, bringing the U.S. unemployment rate to 8.5%. But these oft-cited statistics don't record the misery of people like Lauren Bender.

Bender is a 47-year-old Manhattan resident who has worked on and off developing investment tools for Charles Schwab (SCHW) over the past eight years. That job provided about 90% of Bender's income, which she says kept her "very well compensated." But starting last summer, Charles Schwab has pulled the plug on the three projects she was planning to complete, and her income from the company has dried up. Now, Bender is looking for other work to meet her monthly mortgage payments of about $3,400 for an apartment she bought two years ago.

As a self-employed contractor, Bender is not only ineligible for unemployment benefits; she doesn't even get counted in the government's unemployment statistics. "It's scary to think that I'm completely not tracked and have no access to benefits," says Bender. "And it's scary as hell to think that I'm at risk of falling through the cracks."

Because the methods to gather unemployment haven't kept pace with changes in the workforce, self-employed or freelance workers aren't counted as laid off even if they lose most of their income. Over the past decade or so, many companies staffed up using more such outside workers to cut their costs for health-care and retirement benefits and to give them more flexibility to expand or contract with business. That flexibility, of course, means that assignments or pay are now shrinking for many of those people.

Boom in "Involuntary" Part-Time Workers

It isn't just freelancers who fall beneath the radar of mainstream unemployment figures. Those referred to as "involuntary" part-time workers and "marginally attached" workers are also missing from the headlines. They are, however, included in a category known as the "U-6" in the BLS's monthly Employment Situation report. Include these workers in the count and the unemployment rate for March went to 15.6%, a big leap from February's 14.8%.

"Involuntary" part time workers are those who would like to work full time but are working fewer hours because their work has been cut back or because they have been unable to find full-time jobs. While these workers haven't been laid off per se, they are losing a big part of their pay. In March, the number of people classified as working part time for economic reasons rose by 423,000, to 9 million. The number of such workers has more than doubled in the past year. "Marginally attached" workers are those with no job and who aren't hunting for one, but who are interested in working. These individuals, who have looked for work during past 12 months, have left the workforce because the employment picture is so bleak that they've stopped trying. About 2.1 million people were "marginally attached" to the labor force in March, 754,000 more than a year earlier.

"The numbers are astounding," says Beth Schulman, an economic analyst with the Russell Sage Foundation. "These workers—often at the lower end of the pay scale— are losing hours, income, and benefits. That only worsens the recession."

The Government Accountability Office estimates that contingent workers—whether temporary, part-time or freelance—constitute about 30% of the U.S. workforce. Advocates are campaigning for all these workers to get counted in federal employment statistics—and to receive assistance when they lose work.

"The [Bureau of Labor Statistics] hasn't adapted to the realities of the modern workforce," says Sara Horowitz, founder of Freelancers Union, a 96,000-member organization of contract workers founded in 2003. "It's a disgrace that we don't have a true picture of what's going on in the workforce." Horowitz says the government should develop better measures of counting contract workers, perhaps by identifying the number of contractor tax filings with the IRS each year.

Bloomberg Backs New Unemployment Benefit

New York City is a hotbed of freelance activity, with thousands of workers doing jobs for financial, media, technology, arts, and other industries. On Mar. 23, New York City Mayor Michael Bloomberg announced that in partnership with Freelancers Union, he'll seek a new federal unemployment benefit for freelancers, who make up more than 15% of the city's workforce.

"Freelancers…lack any safety net to fall back on during hard times," Bloomberg said. "If a company lays you off, you can collect unemployment. But if you're a freelancer and you lose all your clients, good luck. That's not healthy for workers and their families—and it's not healthy for our economy."

The proposed "Unemployment Protection Fund" would require the federal or state government to match about $300 for every $1,000 a Freelancers Union member voluntarily paid into a fund that could be drawn upon during lean times when work is scarce.

Of course, the recession cuts both ways for part-timers and freelancers. While some companies trim freelancers and contractors first, others are looking to freelancers to fill in for full-time workers that have been laid off. Horowitz says the ranks of Freelancers Union members have grown 55% from the end of 2007 to the end of 2008, from 61,800 to 95,854. Among the biggest increases were members in retail and engineering, where participation nearly doubled or tripled in Freelancers Union from January 2008 to January 2009.

Freelance Incomes Are Falling

But incomes are falling: The percentage of Freelance Union members making less than $25,000 grew from 15% to 27% during that time.

Marc-Arthur Baralla, a Brooklyn-based videographer, had been making about $3,000 per month filming corporate conferences for New York-based Wall Street Media. In mid-December, the firm told him it could no longer use his freelance services. Baralla is now working at a restaurant waiting tables three days a week and looking to start his own videography company. He's currently pulling in about $1,500 per month, half what he made before. "I'm finding some video work, but clients don't want to pay as much—or not at all in some cases," says Baralla.

The IT sector—in which many employers have shifted to hiring freelancers in recent years—isn't much easier. Tom Williams of Westchester, N.Y., has been an independent contractor for 15 years, managing technology for the asset management divisions of large banks. He says his hourly rate has shrunk about 20% since the financial crisis hit last year, to $90 per hour. One client, a global bank, insisted on cutting his hourly rate by 10% two weeks after its contract with him had begun. Williams managed to negotiate the reduction down to 5%.

He says he fears for his job security—no surprise, given the state of things in finance these days. "I have enough savings for a few months," says Williams. He adds that he has large commitments, including two teenage daughters and an ex-wife, to whom he pays alimony. "I'm still keeping busy, but that could change at any time."

Herbst is a reporter for BusinessWeek in New York.

0115_moira_herbst_bio
Herbst is a reporter for BusinessWeek.

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