What will the American workforce look like 30 years from now? Unless you’ve been living under a rock, you have heard the statistics that the population of people traditionally referred to as “minority” will outnumber the “majority.” You also might have heard about the shift towards a freelance economy. But what you may not know is how both of these trends are working together to impact the small business landscape.
Minority-owned businesses comprise 15% of the 28 million small businesses in the United States, growing at 46% in recent years. Women-owned businesses are growing at 1.5x the national average. Although minority and women business ownership will continue to rise, their biggest challenge is the challenge that all small business owners face: access to capital. Primarily because of the lack of access to capital, these small businesses are employing fewer full-time workers. The number of employees per small business has declined 38% since the early 1990s.
Instead of hiring full-time workers, more small businesses are turning to freelancers. According to this CNBC article, “contract labor costs accounted for 38% of total labor spending in 2013, up from 20% in 2003” which is a “clear indication small businesses are using more contractors and fewer traditional employees.” This is not necessarily a bad thing. More and more people want the freedom and flexibility to work on their own time in a place that makes them comfortable. The challenge is pay. Uber likes to say their drivers make $25/hour but after paying for car payments, insurance, tolls, etc. it’s much less. That’s not good for the economy. When a full-time Uber driver, on-demand house-cleaner, task rabbit or any other lower-paying job can’t afford health insurance, that’s not good for the economy.
What is better for the economy is replacing the traditional “employee” model with higher-paying freelance jobs typically reserved for “consultants.” The work of today’s consultant or contractor can look and feel very similar to the traditional employee except for two important differences: 1. Consultants work on a project basis eliminating the wasted hours spent in between projects and 2. They have the flexibility to work when and where they want. And if there is a steady flow of higher-paying contract work, consultants can afford to pay for their own health insurance which is the biggest impediment to a successful freelance lifestyle.
What would this shift mean? It means that capital-constrained diverse small businesses can grow by hiring highly skilled contract labor. It means that women and minorities who historically have a harder time landing corporate jobs or rising up the ranks, will have an alternative means of higher-paid employment. It also means everyone needs to adopt the mindset that even when you work for someone else, you work for yourself. Instead of calling it the freelance economy, perhaps we should call it the entrepreneur’s economy. Would that be a bad thing?