Bloomberg News

Freelancers Spur Gig Economy by Tapping Online Exchanges

October 15, 2013

Freelancers Spur Gig Economy by Tapping Internet Exchanges

Private studies have tried to quantify how many Americans are turning to freelancing for a career. An estimated 20 percent to 33 percent of the U.S. workforce consists of independent workers, according to a 2013 study by Accenture Plc, the world’ssecond-largest technology-consulting company. Photographer: Francesco Anselmi/Contrasto via Redux

Two years into his new career writing code for phone apps, Leo Landau works for companies as far away as Australia while never leaving his apartment in Eugene, Oregon. By year’s end he expects to earn $10,000 more than inspecting buildings for asbestos, a job he lost in 2008.

“I’m working from home, setting my own schedule and making decent money,” Landau said. He doesn’t plan on moving to California’s Silicon Valley even if he could land higher-paying work there. For now, the self-taught programmer, 31, says he enjoys cobbling together an income via Elance, a website where companies and short-term contractors pair up.

Digital freelancers such as Landau represent a growing portion of American workers. An Accenture Plc (ACN:US) study included estimates of 20 percent of the U.S. workforce while the Freelancers Union, a New York-based advocacy group, puts the number at 42 million.

Some of these independents are attracted to the flexible lifestyle, others because they can’t get a job locally that matches their skills. They are replacing traditional work -- being employed by a company -- with a mix of projects completed over the Internet.

The recession that ended in June 2009 helped boost freelancing as a way for the newly unemployed to support themselves, and the practice has gained traction since. Internet exchanges allow companies to reduce labor costs by enlisting freelancers, who give up a reliable salary for discretion over how they work.

Change Lens

“All major recessions change the lens on how we approach work,” said Andrew Liakopoulos, a principal in Chicago at Deloitte Consulting LLP and co-author of a report this year called “The Open Talent Economy.” People “don’t necessarily have to be fully employed, with a number and a badge.”

Behind this shift, Liakopoulos said, is the technological ability for companies to divide their needs into projects and farm them out to a talent pool regardless of geography. As companies move toward accessing labor, rather than acquiring it, they’ll be able to respond more nimbly to macroeconomic shocks, he said.

The freelancers often are highly skilled and choose that style of work because it offers them flexibility and variety, Liakopoulos said.

“People used to have a stable 40-hour workweek,” said Sara Horowitz, who founded the Freelancers Union. “What we’re seeing now is an economy where people are going from job to job, putting together a series of gigs and calling that a career.”

Not Counted

These workers may be excluded from official employment statistics as the measures haven’t adapted to cover new, more fluid arrangements, she said. “I think the unemployment numbers are wrong,” Horowitz said. “They’re just not reflecting the reality of how many Americans are working.”

The jobless rate was 7.3 percent in August, the lowest since December 2008, and labor-force participation was the lowest in 35 years, down to 63.2 percent.

Census Bureau workers ask in monthly surveys if people worked “for pay or profit” in the previous week. Freelancers might answer no if they were between gigs or weren’t paid during the survey period. They would be counted as having left the workforce if they respond that they’re not looking for a conventional job.

Steven Hipple, an economist with the Bureau of Labor Statistics, said the agency stopped tracking contingent workers in 2005 because of funding constraints.

People Missed

“They’re supposed to be classified as self-employed, but it’s possible that some of these people could be missed,” Hipple said in a Sept. 30 interview, the day before the government’s partial shutdown began. “It’s unfortunate that we don’t have more recent estimates.”

The separate monthly employment survey of businesses doesn’t include people who are in the “self-employed” category, according to Wade Petty, a BLS economist. “We wouldn’t be counting their jobs,” he said of freelancers who work for companies without being on the payroll.

Private studies have tried to quantify how many Americans are turning to freelancing for a career. An estimated 20 percent to 33 percent of the U.S. workforce consists of independent workers, according to a 2013 study by Accenture, the world’s second-largest technology-consulting company.

Emergent Research LLC, based in Lafayette, California, has conducted a national survey of independent workers in each of the last three years. A study that incorporates the results puts their numbers at 17.7 million this year compared with 16 million in 2011, and forecasts an increase to more than 24 million in 2018.

“This sector jumped out as growing rapidly,” said Steve King, a partner at Emergent Research. Companies want to be lean and are “less committed to commitment, avoiding fixed costs whenever they can.”

Seeking Gigs

Services such as Mountain View, California-based Elance Inc. are smoothing out the process of finding, monitoring and paying adjunct workers. Members seeking gigs have profiles that showcase their credentials, portfolios and feedback they’ve gotten; they typically compete for projects by submitting bids on the site.

Employers using the website “can manage and collaborate with their freelancers with the same ease as you connect with friends on a social network,” said Fabio Rosati, chief executive officer of Elance.

Job hunters on Elance range from graphic designers to lawyers. The company claims that more than $883 million has gone to contractors since the website began listing gigs in 2006. Elance takes a cut of transactions and holds the employers’ payments in escrow so that freelancers are assured of getting paid. In exchange -- and with the freelancers’ consent -- employers can receive screenshots chronicling the progress on their projects.

Knowledge-based Work

Other sites focusing on knowledge-based work include Huntington, New York-based Work Market and oDesk in Redwood City, California. The chief financial officer of Work Market, Jeff Wald, described it as a “platform” that handles the logistics of using freelancers, such as tax compliance.

MarketStar Corp., an Ogden, Utah-based sales and marketing outsourcing company, hires contractors on Work Market for one-time tasks like supervising a product sample or testing a wireless signal. “We don’t need a full-time person in Bangor, Maine, to set up a demo,” said Dave Treadway, the company’s president and chief executive officer. MarketStar has put together a directory of several thousand temps it can call upon in remote parts of the country, he said.

Balancing Projects

The struggle for Landau, the app coder, is balancing projects and knowing when to accept more. The risk, he said, is that he’ll overextend himself, displease an employer and harm his all-important rating on Elance.

‘I compete with people from India and Russia, all over the world,’’ he said. “They tend to have low prices.” He says he has a competitive advantage in that “a lot of U.S. contractors like to hire someone from the U.S., because I can communicate a lot better.”

Elance users are distributed worldwide, with more than 350,000 living in India, according to the company. About one-third of Elance’s almost 3 million freelancers are based in the U.S.

Business has been so robust for Jenifer Toussant, 32, a mother of three in Pittsburgh, that she has recruited subcontractors. She lost her finance job in late 2008 and created her own business preparing transcripts of depositions, conference calls and other recordings. Now Toussant manages a team of more than 20 fellow typists, all of them American women she hires through Elance.

Work Done

“They can go out shopping, take a nap and it’s not a big deal as long as the work gets done,” Toussant said, who pays her crew through Elance. “I don’t like when you work for companies and they think they own you.”

Toussant, who says she plans to give her core typists a raise next year, is busy changing office locations from her porch to the couch indoors.

“Materialistic people aren’t drawn to freelance work, because it takes all your time and you don’t make that much at the beginning,” she said. “But I’m adventurous, and I can drive my own ship.”

To contact the reporter on this story: Ben Schenkel in Washington at bschenkel@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net


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