Rise of the 'flex' economy

The American labor force is undergoing a fundamental shift as more people become freelancers, contract workers, and part-timers – bringing new flexibility but also new insecurities.

Cover Story

Laura Rojas simply couldn’t find the time anymore to help her daughter with her homework. And it wasn’t as if there was an overwhelming amount to do: Her daughter is in preschool. 

But by the time the Florida state public defender left work, picked her children up, and had fixed and finished dinner, it was bedtime for her kids. Nowhere in their conveyor-belt evenings was there a moment to go over the number-of-the-week and letter-writing exercises that her 5-year-old had been assigned. 

The final indignity was an orientation workshop for kindergarten. Ms. Rojas found out that next year, when her daughter enrolled in public school, she would face even more demands on her time. Something had to yield: Either she would have to put her daughter in after-school child care or stop working full time. 

In January, Rojas made a life-changing – and risky – decision: She quit her job to start her own practice with another lawyer. 

“I couldn’t keep this up,” says Rojas. “I would prefer to be the one picking her up, doing her homework with her, knowing what she’s doing OK in, knowing what she’s struggling with, taking her to her ballet and piano and all that stuff, and you can’t do that if you’re working full time.” 

Rojas symbolizes a fundamental shift in the American labor force – people becoming independent workers. From the high-tech halls of Silicon Valley to the bedsides of hospital patients, from Miami to Seattle, a growing number of people are forgoing full-time jobs in order to work independently – either by starting their own businesses, freelancing, or becoming contract, on-call, or temp workers. 

In some cases, they are being forced out on their own by businesses cutting costs or avoiding benefit payments. In other cases, the move is by choice – a desire to control their lives and shape their futures. 

The rise of the independent workforce is reshaping the life-work balance for thousands of Americans and altering the relationship many others have with their employers. Its emergence marks one more change in the often one-dimensional work model that existed for much of the postwar era, in which people toiled loyally for one firm for 40 years, then took a pension and retired to Tampa or Tucson.

In today’s work world, people shift jobs and careers at the click of a mouse. Now comes the independent economy, which takes the culture of flexibility one step further – with some people working on their own terms, others scrambling for whatever short-term gigs they can find, and virtually all missing out on traditional company-provided dental plans and 401(k)s.  

“We’re at a pivot point,” says Sara Sutton Fell, chief executive officer of FlexJobs, a website for people looking for alternative work arrangements. “Things are changing, and it’s not going to go back to the way it was.”

Numbers highlight the growing trend:

•The share of workers that had temporary, contract, or other nontraditional jobs rose from 11 percent in 2005 to 18 percent in 2013, according to a survey of large companies by Staffing Industry Analysts.

•A business survey conducted by Ardent Partners, a management research firm, found that about 30 percent of company workforces are now made up of non-full-time employees – up from an estimated 10 to 12 percent before the recession. 

•Since 2011, the overall number of independent workers has grown more than 15 percent, to 17.7 million, according to a survey from MBO Partners, a business services firm.

And experts for all three research companies expect the growth to continue. Staffing Industry Analysts projects that the number of temporary employees, a subset of independent workers, will grow 3.1 percent annually through 2022, compared with overall employment growth of 1 percent. Ardent Partners foresees 30 percent growth in the broader nontraditional workforce over the next three years, while MBO Partners estimates that the number of independent workers will rise 35 percent by 2018. 

Analysts cite a plethora of reasons for the rise in nontraditional jobs. Companies are looking for more flexible workforces. Millennials want more control over their time. Technology is allowing workers and businesses to find each other more efficiently than ever before. 

The shift was also accelerated by the Great Recession. 

“The perfect storm behind the growth [in independent workers] is a mixture of the downturn forcing companies to look to this type of labor ... and then realizing the benefits,” says Christopher Dwyer, research director at Ardent Partners. “The networks that we’re all connected to, all the kinds of new technologies, allow for companies to engage talent in a way they never could before.”

The effect on workers is mixed. Many people opt out of full-time jobs so they can choose the type of work they want and the venue in which to do it – on the back deck, for instance, with an espresso in their hand and an Irish setter at their feet. But the tailored schedule and canine companionship comes with a price – less predictable paychecks and no paid vacations. 

Who wins and loses in the flex economy?

• • •

In 2012, E. Dumond was working as a nurse in the obstetrics and gynecology ward of Jackson Memorial Hospital in Miami. The hospital is the flagship institution of Miami-Dade County’s Jackson Health System (JHS). 

The big health-care provider wasn’t doing well at the time. Coming out of the recession and facing stiff competition, JHS had lost hundreds of millions of dollars over the previous four years. So the company decided to lay off 900 full-time employees and hire 350 workers on a flexible schedule in a bid to make the troubled network more competitive. Ms. Dumond was one of the employees who received a notice: She could either come back to work as a part-timer or look for work elsewhere.

The native of Haiti took the part-time job, which was working as a nurse at a local county jail serviced by JHS. Over the past two years, she has logged about the same number of hours as she did when she was a full-time employee. She enjoys working at the correctional facility, has kept most of her benefits, and is paid about $4 per hour more, because jail wages are higher than those in the hospitals. 

Still, she wants to go back to being officially full time. Last December, when a family member died, she was told she would have to use vacation days to attend his funeral, rather than take a funeral leave, which is offered only to full-time employees. And while her hours have been consistent in the past, she has no guarantee that they won’t be cut in the future. 

Dumond’s predicament reflects a new reality behind the rise of the independent economy. Traditionally, temporary and other contingent workers have been the first fired, first rehired in times of economic distress. The recent downturn, in one way, was no exception. Companies quickly shed their payrolls of temporary employees early in the recession – their numbers declined by more than 30 percent from the beginning of the downturn to its lowest point. 

But this time, almost five years after the official end of the recession, many companies haven’t sought to rehire workers and return to prerecession employment levels. Instead, some have found that having a large nontraditional workforce makes them more competitive. 

“Companies are shifting the way they’re choosing to hire. They want more flexibility, more agility,” says Steve King, a partner at Emergent Research, the firm that produces MBO Partners’s annual “State of Independence in America” report. “In theory you can fire someone in a day, [but] the reality of how companies view employees is that it’s very hard to fire people.”

A more adaptable workforce can help companies more easily scale production up or down to meet demand. While industries across the board are embracing a less permanent workforce, the technology and health-care industries have been among the most aggressive in adopting it. 

“Companies are going to become less of a parent,” providing benefits and ushering their workers down predetermined career paths, says Gene Zaino, president and CEO of MBO Partners. Instead, he says, they “are going to have to do whatever they need to do to be agile and competitive.” 

That was certainly the professed rationale behind the JHS moves. The health-care system’s president and CEO, Carlos Migoya, argued at the time that he had no other choice. 

“I would not have made these decisions ... if there were any credible alternative,” he told county commissioners in March 2012, ahead of the pink slips being sent out. He added: “It’s genuinely about getting our workforce to the right size for the business we are doing today.”

In 2012, the hospital system turned a profit for the first time since 2007, which Mr. Migoya credited in part to the $97 million in savings from reduced personnel expenses. It’s set to see another surplus this year. JHS has hired back many of the workers it laid off, though the number of full-time staff is still not as high as it was before the peak, says Martha Baker, president of SEIU Local 1991, a union that represents 4,000 nurses, physicians, and other medical professionals at the health-care firm. Dumond is one of those still considered part time.

“Now it’s been almost two years, and I’m still working my full-time hours” without being considered a full-time employee, she says. “To be more secure, I would like my status to be changed.”

• • •

Not everyone is convinced that the sudden boom in independent employees represents a permanent shift in the economy. Some believe the trend won’t outlive a robust economic recovery. Their argument is that companies may want a flexible workforce, but in a stronger economy they will have to compete for talent and hire full-time workers.

“It’s an open question,” says Heidi Shierholz, an economist at the Washington-based Economic Policy Institute. “It’s hard to assess without better data, and [regardless], it’s difficult to assess right now, because we know the labor market is [still] really weak.”

But at least two factors suggest it may be the new normal: new technology and increased access of independent employees to benefits. The Internet has made it a lot easier for people to market their skills directly to clients. 

“[Professional networking site] LinkedIn has basically cemented the idea that it’s OK to put your profile up there in a professional context,” says Mr. Zaino. “Talent is more open. The fluidity of work being done on a peer-to-peer basis is a lot greater.”

And it’s not just LinkedIn. Writers, Web developers, lawyers, and other freelancers can access online employment marketplaces, such as Elance and oDesk, which recently merged, and FlexJobs. Artists can sell their works directly to consumers on Etsy. Cooks can market their knife skills and prosciutto-wrapped cod on Kitchensurfing, couriers their delivery services on Postmates, and people with other talents on an infinite number of websites linking entrepreneurs with customers. 

Indeed, two of the fastest-growing fields of independent workers are personal services, such as fitness training, dog walking, and wealth management, and creative arts, such as writers and musicians, which benefit from Internet marketing, says Emergent Research’s Mr. King. 

Companies looking to hire temporary workers are also aided by what can be done with the click of a mouse. Advanced scheduling software that lets businesses determine how many employees they need daily, or even hourly, has led retail outlets to increasingly hire on-call workers. 

Another factor driving the gig economy is that independent workers no longer have to be tied to a corporation to receive benefits. The passage of the Affordable Care Act, commonly known as “Obamacare,” has caused some companies to replace full-time workers with part-timers to avoid having to pay for coverage, but it has also made it easier, and in some cases cheaper, for independent workers to get health insurance. Private entities, such as MBO Partners and the Freelancers Union, are also offering entrepreneurs a variety of benefits, from health and life insurance to retirement plans. 

• • •

Nate Ginsburg isn’t worried about whether he has optical care at the moment as much as he is about being confined to a cubicle. He can’t imagine working in a traditional corporate job. Mr. Ginsburg is a “digital nomad.” 

He works as an Internet marketer while traveling the world. He got the idea from a freelancer he met, serendipitously, on a trip to Thailand. 

“It just totally blew my mind that this was a thing,” says the 20-something from Minnetonka, Minn., via a Skype video call, as he sits in a safari lodge on the outskirts of Kruger National Park in South Africa. Ginsburg picks up his computer and turns the camera toward a dark corner. “There’s a bat!” he says. 

The bat was hardly the most exciting encounter he’d had that day. In the morning, Ginsburg watched a panther stalk an impala. In the afternoon, on safari, he witnessed a pod of hippopotamuses flash their “fangs” at a watering hole. In between, he did some work – responding to e-mails about monthly Web traffic reports. Ginsburg will return in a few days to Ho Chi Minh City, Vietnam, where he has run his business – developing online marketing campaigns for companies – for six months out of a cafe. 

Ginsburg represents perhaps the extreme end of the independent worker movement. It would be easy to dismiss him as just another footloose youth traveling the world while he can – this generation’s equivalent of backpacking around Europe. 

Except in this case Ginsburg is actually working while he’s being itinerant, something that an interconnected world allows him to do. Like many other Millennials, he eschews the corporate world of wingtips and pumps. To be sure, that sense of freedom may not last as young people get older and confront their first mortgage payments and the cost of high-tech strollers. But for now, at least, they are adding to the rise of the independent class. 

Some 54 percent of Millennials 18 and older want to start a business, or have already started one, according to a 2011 survey by the Ewing Marion Kauffman Foundation, a Kansas City, Mo.-based group that promotes entrepreneurship and economic independence.

The iGeneration is more likely to quit a job to work for themselves: 57 percent of Millennial freelancers who formerly had traditional jobs say they left because they wanted to work on their own, compared with 42 percent of people from other generations, according to a survey published by oDesk in May 2013. The Great Recession also reinforced that a full-time job is not a guarantee of stability. 

“The younger generation is really pushing flexibility; they don’t have a geographic perception,” says FlexJob’s Ms. Sutton Fell. “When they get to a company that says you have to be sitting at this desk from 8 to 5 to be productive, that doesn’t resonate with them.”

Of course, you still have to make money, whether you’re working out of an Internet cafe in Bucharest or an industrial park in Buffalo. Independent workers generally don’t earn as much as full-time employees. The average yearly income of independent workers is $46,800, which is roughly the same as that of a traditional worker, but since they lose out on benefits, overall compensation is lower, says King. 

Ginsburg has his struggles but is surviving. He now earns $2,500 to $3,000 a month. He is working to grow his business – by developing marketing initiatives for a law firm and a credit-card processing company, through Google AdWords and Bing Ads; by publishing a class on marketing through Pinterest; and by generating ad revenue through a skin care and natural health website.

“I would do anything possible not to get a traditional job,” says Ginsburg, sitting in front of a metallic elephant head mounted on the wall at the lodge in the Manyeleti Game Reserve. “I really enjoy this lifestyle.”

Some actually find it more lucrative to work on their own. Web developer Daniel Cronin quit his job at a marketing firm when he started making more money in the 10 hours a week he freelanced than as a full-time programmer. Now, he regularly charges $100 to $200 an hour for his work. Because he deals directly with clients, he can tailor his talents and energies to what his customers want. He’s his own boss. He doesn’t have to wait around until a company decides if he deserves a raise. 

“I have my finger on the pulse of the consumer,” he says from his home office in Escondido, Calif. “If I had to go out into the traditional workforce, I would [earn much less] than what I make online.”

• • •

Mr. Cronin’s experience is hardly universal, though. Many independent workers don’t even get to choose their own projects, much less make a platinum living. 

As many as one-third of nontraditional workers are “task takers,” meaning they take whatever work a company that won’t hire them full time channels their way, says King. In the retail sector, more employees are getting pushed into on-call jobs, in which they often don’t know when they will work until moments before a shift begins.

In other cases, the problem isn’t uncertain hours as much as uncertain status. Critics accuse many companies of classifying people who are clearly employees as independent contractors, so they can block them from joining unions, negotiating pay increases, and being eligible for unemployment compensation and other benefits. 

“For truck drivers and many others in related blue-collar occupations, classification can mean the difference between a decent, family-supporting job, and working in poverty,” says economist Jared Bernstein, in the forward to a recent report by the National Employment Law Project, the Los Angeles Alliance for a New Economy, and the Change to Win Strategic Organizing Center. 

Certainly it’s been a struggle for Alex Paz. He gave up a job working full time for a trucking company in 2009, soon after his first daughter was born. He no longer wanted to spend so much time on the road. Instead, he signed up with Total Transportation Services Inc. (TTSI) as an “independent owner operator,” driving cargo locally. 

But, he says, he has little independence, drives a company truck instead of his own, and can’t negotiate his rates. Now a father of two, Mr. Paz says he receives no benefits. He’s filed a labor claim to get reclassified as an official employee with TTSI instead of an independent contractor.

“It’s degrading,” says Paz, speaking while pulled over from hauling a load to a Cosco facility in Long Beach, Calif., “because I work hard every day to provide for my family.” 

TTSI spokesman Alex Cherin says that the company wouldn’t comment beyond statements it made during trucker protests in April. At the time, the company told local media outlets that contract drivers could apply for “hundreds” of unfilled positions if they wanted to become employees and blamed “outside groups” for stirring up discontent.

• • •

Since starting her own law firm, Rojas has faced frustrations of her own. She doesn’t like looking for office furniture. She chafes at administrative duties.

But standing in her office’s half-furnished waiting room – it’s got the essentials, such as a coffee maker, a water cooler, two chairs pilfered from her law partner’s former dining room table – she’s happy she made the move. 

“I like it enough to make it work,” she says. 

More family time is the biggest benefit. She no longer worries about an interminable commute – her office is 10 minutes from her home – or having to spend so much time in court.

“I’m enjoying the flexibility quite a bit, I really am,” says Rojas, who had spent the previous night baking cookies – a marketing tool to introduce herself to other lawyers in her new office building with the aim of getting more client referrals. “I’m still working quite a bit, but I can get up early, work before the kids wake up, and that counts, whereas at the PD’s [public defender’s] office you still have to be there during working hours.”