Are freelancers putting a crimp in small biz hiring?

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, (s msft) 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.