Obama: Is the job of the future a freelance one?
Figuring out why job growth is lagging in the U.S., while GDP and other economic indicators are improving, is the Gordian Knot the Department of Labor has been trying to untangle for months. It's no surprise that President Obama made this issue a centerpiece of his State of the Union address Tuesday, mentioning the "lowest unemployment rate in years." After all, Americans are eager for political action to help the nation's 10.4 million unemployed. The biggest question on everyone's mind: Why is the unemployment-rate number trending down when full-time work is so hard to find?
The hidden truth can be found by looking at the explosive growth in the freelance economy since the Great Recession. Here are some statistics often left behind the curtain: 1 in 3 Americans, or roughly 42 million people, are freelancers, according to the Freelancers Union that tracks this demographic. That's one-third of the U.S. workforce. The group counts individuals who work in nontraditional, impermanent jobs, including part-time employees and independent contractors, as part of the independent workforce.
According to Steve King, partner at Emergent Research, a firm that studies the independent workforce, "a perfect storm is driving this phenomenon." Among the confluence of trends:
—The rise of mobile communications technology that allows for virtual work-sharing.
—A boom in freelancer marketplaces for small- and medium-sized employers.
—Concerns that Obamacare will drive up health-care costs.
—A shift by corporations to develop contingent workforces so they can be more agile and scale up and down to meet market demand.
—Retired baby boomers looking for careers in retirement.
—More Gen Yers opting for entrepreneurship and self-employment.
"These forces should continue to swell the ranks of the independent workforce by about 6 percent annually over the next five years as the job market continues to shift," King predicted.
(Read more: Obamacare, tepid US growth fuel part-time hiring)
"These forces should continue to swell the ranks of the independent workforce by about 6 percent annually over the next five years as the job market continues to shift."
Considering the changes in workforce demographics, labor economists are hoping the Labor Department will start doing more analysis on the various nuances of the freelance economy beyond just looking at part-time workers. Many Americans worry about labor market trends in which full-time jobs with regular paychecks and benefits like health care are being replaced by part-time and contract gigs. The trend has left many Americans engaged in slow-moving and often futile searches for permanent jobs.
Nonetheless, for some workers there's a flip side to what's going on.
Entrepreneurially-minded freelancers like Nic Mayne, 20, have found opportunity in the growing reliance on contingent help. His three-year-old business, Mayne Marketing, which has outposts in Santa Clara, Calif., and Alberta, Canada, has gotten so busy that he frequently hires part-time contractors to help with the workload. Annual revenues after expenses are now about $75,000.
Law firms and big corporations often hire the freelance marketer to tackle jobs that were once handled in-house, from writing the company's blog to tackling advertising projects.
Sometimes these clients started out seeking a full-timer to do the work, using job boards and online marketplaces like craigslist to hunt for talent. When Mayne responds to those ads by suggesting that it's more efficient for the companies to hire a freelancer—whom they don't need to train and are required to pay only when there's work at hand—he said, "They opt to give it a try."
His experience demonstrates U.S. companies' growing reliance on "contingent" workers. It is a trend that picked up momentum during the recession and shows no signs of slowing down. The job site CareerBuilder found that in 2013, 31 percent of employers planned to hire contract or temporary workers the last six months of that year, up 10 percentage points from the prior year. Meanwhile, the percentage of those expecting to hire full-time permanent workers remained flat, at 44 percent.
Other research, by Economic Modeling Specialists, a company owned by Career Builder, found that 15 percent of all job growth nationally from 2009 to 2013 was in temp work. In cities—including Chicago, Philadelphia, Kansas City, Cincinnati and Milwaukee—more than 40 percent of new jobs in that period were temporary, according to the research.
(Read more: Working for yourself? Don't forget retirement)
In this new hiring climate, freelance marketplaces are rushing to serve big clients' needs. Work Market, a marketplace and platform to manage freelance and contractor labor that targets enterprise clients, found that as of August 2013, the average business of 50 employees or more was spending $52,000 a month on freelance services through the platform, with these firms using the same freelancer for an average of nine jobs per year.
Elance and oDesk, which recently announced a planned merger, both now offer programs to help enterprise clients streamline the hiring of large groups of freelancers. Their focus is on easing the paperwork—and legwork—that this can entail. oDesk, which serves big companies such as Unilever, Panasonic and D&B, for example, has taken on the role of recruiting and screening freelancers for some of its clients. There's money to be made, since they earn a percentage of the freelancers' wages.
"The enterprise business for us has been an increasingly important part of our business," said Matt Cooper, oDesk's vice president of business development and international. "Three to four years ago it was more or less zero. Today it's about 10 percent of our revenue. Companies want a more flexible, scalable way to engage a workforce."
(Read more: Technology grows freelance economy)
Big companies aren't just hiring freelancers for one-time creative or tech projects, as they tended to do in the past. They are increasingly turning to freelancers for "staff augmentation"—creating a team running alongside their internal employees—or for complex tasks, like gathering data for maps, something that might have once been done through traditional business-process outsourcing, Cooper said.
It's not just corporate employers that are driving the trend toward using more contingent help. Many freelancers like the idea of doing work for corporations without having to be corporate employees. "For them there's a lot more freedom, control and ownership of their careers, as opposed to showing up every day and working in an office," Cooper said.
Of course, freelancers must contend with occupational hazards like unsteady workflow, slow-paying clients and the often crushing burden of paying for health insurance on their own.
Nonetheless, some are faring pretty well, relative to other private-sector workers. The average hourly wage was $24.15 in November 2013, according to the U.S. Bureau of Labor Statistics. Hourly rates for oDesk generally fall into the range of $25 to $45 an hour for U.S. workers, Cooper said. At Elance, hourly rates in the U.S. averaged $25 in 2013, up 5 percent nationally from the year before. Many gigs for professionals with skills in areas like technology pay much more, and the site is pushing to add more of them.
"We believe that more and more top talent will come online for the higher-quality jobs, and that's where our focus is," said Rich Pearson, chief marketing officer at Elance.
Some corporations are now using freelance marketplaces to hire laypersons for work that is still done at some firms by in-house talent. Jennifer Rambler, a mother of three from Jacksonville, Fla., does usability testing for websites from her home through the freelance marketplace UserTesting.com, which serves clients such as Google, Facebook and Twitter. UserTesting.com's clients prefer to test their digital properties with average consumers rather than professional usability testers.
Rambler, who previously worked in the health-care industry, welcomes the chance to work from home. She earns $10 for each website usability test and $15 for each mobile site test, with tests taking her about 20 minutes. She loves the fact that she can do the testing when it is convenient for her. "It really works for my schedule," she said.
—By Elaine Pofeldt, Special to CNBC.com