A third of Americans contribute to the $1.3M freelance economy. Now what?

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Nearly 40% of Americans will be freelancing in 2022. That’s up from nearly 10% in 2021, with a third of them making freelancing their full-time job.

This is a remarkable increase from 2020 when the total was one in four.

Where these figures go next will say a lot about stubborn unanswered questions surrounding the US economy. Economic downturns have fueled the contract job boom for the past 30 years. One of the biggest questions at this stage in the life of the American pandemic is how the water ahead will actually be. Add freelance work to the long list of economic trends accelerated by the pandemic.

“This means that more and more people are finding their careers as freelancers today,” said Margaret Lilani, VP of Talent Solutions at Upwork, a publicly traded platform for connecting employers and independent contractors. According to the company’s recently released annual report, freelance work accounts for $1.3 trillion in the US economy.

Choosing a preferred schedule and workload marks a generational shift, the report argues. Upwork CEO Hayden Brown said that nearly half of Gen Z workers are already freelancers in one form or another. Brown predicts that a majority of the country’s workforce will be independent by 2027.

Contract work is a story of two lives – with varied themes

The highest salaries are in knowledge work – imagine the elite freelance graphic designer or influential professional earning that book talk gig on the side. These people are people who develop their skills on Upwork. But the fastest growing segment of contractors earn poverty wages, represented by shared economy projections or creative working.

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These are two vastly different narratives that nevertheless still contribute to the independent economy. In all these examples, women outnumber men in their reliance on flexible contract work.

“Together, these trends suggest that the long-term growth” of independent contractors, according to a July 2019 paper produced for the IRS, “may represent a structural shift in the labor market, particularly for women.”

It is worth settling on a small vocabulary for all these short-term, project-based workers. Freelancer, contractor and consultant are all subtly different terms that mean similar contributions are mixed. New generations spawn new themes. In 1985, labor economist Audrey Freedman called them “contingent workers.” The term “gig economy” was then coined in 2009 to describe the growing number of professionals who take advantage of online platforms to make full-time income on their own terms.

These terms all feel incomplete because, perhaps, the clearest way to differentiate the nearly 60 million Americans Upwork says freelancers in 2021 is their level of control. The web developer who chooses which project to undertake is an economic winner who designs work in his own image. The grandmother picking up seasonal work to combat a burst of inflation might take what she can get. Both are contractors, though all they might share in common is tax compliance: They’re both likely to receive “1099 income”—slang for the tax form for contract work, which is different from what’s called a W- 2 are full time. employees receive from their employers.

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Upwork’s Lilani, like no doubt many others, is keenly focused on people empowered by freelance work. Employers get to call on outside expertise while skilled professionals who want to risk inconsistent for greater flexibility get the control they want.

“These will be people who are experts in their field and have chosen, as a career, to go ahead and be independent and bring their skills to businesses of all sizes,” Lilani said. He added that the higher-paid end of the freelance spectrum has grown the fastest during the pandemic. But the sheer size of the freelance economy ensures it’s more complex — even in high-paying, high-demand fields like software and technology.

Hidden in plain sight?

Last year, a pressure group called The Tech Equity Collaborative released a report criticizing the “shadow tech workforce.” The advocacy group notes that tech industry contractors are underpaid and more likely to be people of color than their full-time counterparts.

“The tech industry is indeed diverse,” the group argued, “but that diversity is concentrated among the least empowered groups of workers.” Or, as the Aspen Institute’s follow-up report put it: “Temporary, contract and contingent workers in technology have largely shut out the industry’s prosperity.”

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That may be true. But the macroeconomic trend goes beyond technology jobs, it’s so pervasive that it’s hard to pin down a simple narrative.

Dependence on contractors has increased during the pandemic. While small companies once relied more and more on contractors, companies with more than 25 employees have started to catch up, according to data from HR platform Gusto. Upwork said most employers rely on contractors for core business functions. In addition, the Bay Area Council Economic Institute reported that the number of tax returns with 1099 forms has increased than those with W-2s.

Line graphics with turquoise and gray lines and text

1099 and W-2 returns from 1989 to 2014. (Image courtesy)

If the US economy actually falls into recession (which is not guaranteed), one might expect the reliance on contract labor to grow even more. The change has already been made. In the latter half of last year, according to LinkedIn, employers posted a quarter more contract positions than in the same period in 2021. But as with many economic trends during this COVID-19 era, compare a crazy year to a crazy one before. years does not ensure a rational prediction of what will come next.

Although contract workers appear in almost every industry and across the socioeconomic spectrum, there are similarities. McKinsey research indicates that freelancers are more optimistic about their future and the broader American economy than the average American worker. This point appears in the Upwork data as well.

“Something bigger is happening,” Lilani said. “That’s what we should pay attention to.”

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