The number of independent workers is being undercounted by governments in the U.S. and Europe—and that is contributing to glaring gaps in labor market policy, according to a large study released this morning by the McKinsey Global Institute.
The study found that 20-30% of the labor force in both the U.S. and the EU-15 is now made up of independent workers who are self-employed or do temporary work. The EU-15 is made up of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and the U.K.
McKinsey surveyed more than 8,000 respondents for the study. The respondents were based in six countries: The U.S., France, Germany, Spain, Sweden and the U.K.
How big are the gaps? While the percentage of independent workers in the U.S. is 27% by McKinsey's estimate, it was 22% according to government data and other published surveys the institute analyzed. McKinsey estimates that the total number of of independent workers in the U.S. is now 54-68 million. There were 159.9 million workers in the civilian labor force in September.
In Europe, the gulf between official data and McKinsey's was also large. For instance, in Spain, McKinseys's analysis of official data showed the percentage of independent earners to be 15% of the population, compared to 25% in McKinseys' survey. And in the U.K., where the percentage of independent workers is 14% according to official data, it was 26% according to McKinsey's survey.
McKinsey's findings are important because current labor laws, built on the Industrial Era assumption that most people have traditional jobs, do not take into account the financial situation of taxpayers who earn money in freelance businesses, whether these are full-time or done on the side. Many independent workers lack access to “income security protections,” such as unemployment insurance, workers compensation and disability insurance, that traditional workers have, the report notes.
“A lot of our labor market policies have been developed with the idea of a traditional 9-5 job in mind,” says Susan Lund, partner at the McKinsey Global Institute, the business and economics research arm of the consultancy McKinsey & Co. “That no longer applies. There is a lot of catch-up we need to do.”
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There is discussion in the U.S. -- where benefits such as retirement plans and health insurance have traditionally come from employers--of creating portable benefits through pools of independent workers who create their own marketplaces, the report notes. However, many such ideas are in the early stages, and discussions will have to address how someone qualifies for such benefits and who will pay for them, the authors point out.
McKinsey’s research is the latest large-scale study to underline the growing size of the freelance economy. Though recent estimates of the number of independent workers have varied with the methodology used, they generally peg the percentage of free agents in the U.S. workforce at 30% or more. Last week, for instance, the Freelancers Union and Upwork released research showing that 35% of the U.S. labor force now does freelance work, either part-time or full-time.
Differences in the estimates usually reflect the many ways independent workers are being defined. By McKinsey's definition, independent workers must have a high degree of autonomy. They get paid by task, assignment or sales. And if they have contracts, they have a short-term assignments with customers that last less than 12 months.
Unlike some other recent studies, McKinsey's definition excludes (1) "fissured workers," who work for subcontractors and vendors to which corporations outsource functions such as janitorial services and security, (2) self-employed people with many employees, and (3) "permatemps" on long-term or continuously renewed contracts, a trend in Europe.
McKinsey's research was part of a series conducted to help business and policy leaders understand the forces transforming the global economy and prepare for them.
One reason McKinsey did the study was how polarized opinions are on gig work, particularly in Europe, according to Lund.
“Some people say you get to be your own boss and don’t have to be a wage slave,” says Lund. “Others are saying it is terrible people are forced into this.”
The research offers interesting insight into who is freelancing and why:
- 30% are “free agents” who do independent work by choice. They tend to be the happiest. They make up as many as 162 million people in the U.S. and EU-15 combined.
- 40% are “casual earners” who voluntarily do freelance work to make extra money. They comprise 64 million people in the U.S. and EU-15.
- 16% are the “financially strapped,” who do supplemental independent work out of necessity. They account for 26 million people in the U.S. and EU-15.
- 14% are “reluctants” who are freelancing because they need to make a living but would prefer traditional jobs. They make up 23 million people in the U.S. and EU-15.
McKinsey's report suggests that that independent workforce will grow in the future. “The Industrial Revolution moved much of the workforce from self-employment to structured payroll jobs,” the report notes. “Now the digital revolution may be creating a shift in the opposite direction.”
The trend is not only driven by employers. Many workers--including some who currently have traditional jobs or are unemployed--wish they could do flexible, independent work. Among those in traditional jobs or not currently working who were surveyed, 14% said they are “somewhat likely” or “very likely” to pursue independent work in the future.
New technology is likely to contribute to the growth of independent work, the report found. About 15% of survey respondents reported using a digital platform to find gigs, a trend that is expected to expand. They included workers who use Uber, Etsy, Upwork and Thumbtack.
"What I can imagine in the future is not only that government policy is more realistic about different ways of working but there is a whole ecosystem of players catering to the needs of independent workers," says Lund.
But for now, in many industrialized nations, it looks like they are still largely on their own.
