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Summary:

No segment of the economy looks exactly buoyant right now, and small business hiring is no exception, but what does that have to do with the future of work? Plenty, suggest new reports showing that tepid hiring, is partially down to rise of freelancers.

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No segment of the economy looks exactly buoyant right now, and small business hiring is no exception. Hiring by small firms is very slowly creeping up but hasn’t neared 2007 levels, which sounds like just another gloomy data point in a depressing year of economic news, but what does that have to do with the future of work?

Plenty, argues a recent piece by Rieva Lesonsky on MSN’s Business on Main site, which argues that the tepid pace of small business hiring, while obviously impacted by the dreadful economic situation as a whole, is partially down to rise of freelancers and platforms, like oDesk and Elance that enable small firms to find them. She cites a study from the Kaufman Foundation from earlier this year as evidence:

The Kauffman Foundation suggests the job deficit is actually not recession-related. In fact, Kauffman’s study, “Starting Smaller; Staying Smaller: America’s Slow Leak in Job Creation,” shows that new employer businesses have declined 27 percent since 2006. However, when newly self-employed workers are added to the mix, the level of startups hasn’t declined, but instead has “held steady or even edged up since the recession.”

To put this in perspective, in the 1990s, new businesses opened their doors with about eight employees; today, that’s down to five. The culprit? The traditional business model doesn’t apply anymore, due to a number of factors, including technology and a globalized market.

Essentially we’ve created a contingent, freelance economy. There’s still money to be made, innovations to be marketed and ideas to be harvested. The difference is that many businesses today are choosing to hire on an as-needed basis, relying on a freelance workforce.

Numbers from office space provider Regus earlier this month tell a similar story. A survey of 12,000 companies worldwide by the firm found “47 percent say they plan to hire freelance staff and 44 percent plan to hire remote workers over the next two years.”

But this decline in small business hiring might not be entirely a bad thing, according to a recent piece by James Surowiecki in the New Yorker. In it, he notes that while small businesses are beloved by politicians, they are less productive than large firms and therefore do less to raise living standards. Countries with miserable recent growth like Greece and Portugal have some of the highest percentages of workers employed by small firms, he also points out.

Maybe the rise of the freelancer will make for a more dynamic economy even if it means less small business hiring. Does that sound plausible to you? 

Image courtesy of Flickr user billsoPHOTO.

  1. William Bierce Friday, October 28, 2011

    Freelancing is actually a small business. The freelancer is an entrepreneur competing with staff augmentation firms. The freelancer now has the tools to market directly, disintermediating the staffing firm. But the staffing firm can re-intermediate if it offers a managed service in a business function.

    The challenge for the freelancer is to syndicate into a community that creates a new web-based business of a virtual small business. As a small law firm with a global reach, we use this model to get talent when we need it. You should do an article on the tools and practical rules for such virtual business communities using networks of people, organizations and technology.

    William B. Bierce
    Bierce & Kenerson, P.C.
    New York

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  2. Nicole Miller Friday, October 28, 2011

    Because services like Elance and oDesk cater to a *global* workforce, we have to be extremely careful in suspecting work in the U.S. economy is shifting to U.S. freelancers. In more cases than not, it’s probably shifting offshore. We also have to be extremely careful about supposed ‘stats’ from those services, as they can be misleading. Elance, for example, boasts a growing number of job posts (job opportunities), but neglects to indicate whether (1) those opportunities are actually fulfilled, and (2) those opportunities are fulfilled by U.S. contractors.

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    1. Crystal Stannard Sunday, October 30, 2011

      As a U.S. freelancer working with oDesk I can confirm that a VERY large portion of jobs and projects are shifting to offshore freelancers. This is due to companies wanting to spend the smallest amount possible. I am competing with those who are charging less than $5 an hour and it’s simply not plausible.

      I think that freelancing is a great opportunity because it provides jobs to those who are unemployed, stay at home parents, and saves on the normal expenses (clothes, gas, etc.) that come with traditional work.

      My opinion is that when it comes to freelancing companies MUST look at skill not cost and at least provide U.S. with a fighting chance at the projects. I have had companies who asked me to build them a full scale website for 200 bucks!

      This is why I am hoping to make a difference with the blog i just started to guide companies to focus on quality versus cost savings. My blog is outsourceeffectively.com

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      1. Nicole Miller Sunday, October 30, 2011

        Great reply. I just tweeted it! :->

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  3. I agree with William freelancing is a business and for a lot of individuals it is a great start into the realm of the self employed.

    I think another factor in this increase is the access to technology to allow people to work from different locations. This technology has taken down some of the barriers to start as a freelancer as well.

    Virtual offices and Virtual teams are becoming a great way to build and grow a business without huge capital investment. (article for those interested on virtual teams http://damangmedia.com/virtual-teams/ )

    So yes, small business hiring has declined but people working I think overall is increasing, just not as track-able as the standard brick and mortar business. Thoughts?

    Thanks for sharing.

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  4. Freelancing is just outsourcing for small firms. If we were to take account of the wholesale outsourcing that has been happening in larger firms, from manufacturing of components to call centres in financial services and IT, and look at the transfer of employment to foreign markets (a natural effect of globalisation), the effect of small businesses using freelancers might seem negligible in comparison.

    With new ways of working such as telecommuting, outsourcing is a flexible way to control costs and employ services on a needs be basis. This helps small business to offer the prices that enable them to compete with larger businesses.

    For small firms there needs to be a jump in the ‘critical mass’ of sales revenue to cover the full cost of a new employee.

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