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August 10, 2015

The Freelance Economy – Part I

Working at the convergence of precarious employment and the digital revolution

 

As a member of the Millennial generation, a recent article by Philip Cross in the Globe and Mail regarding part-time and self-employment following the 08-09 recession set off a fire-storm across my social media spaces and personal conversations. While this article primarily focused on workers over the age of 55 (who show a growing preference for freelance work), discussion regarding this trend’s impact on young people, who are at the outset of establishing themselves, was barely touched. For myself and many of my peers, the current employment landscape creates strong opinions and high emotions. Among the discussion were those that had permanent and full-time employment, part-time and contract employment, and no employment at all. To each side, the grass on the other side appears greener. For all of us, however, the need to have income in order to pay off our student loans and start planning for the future is of paramount concern. How we accomplish those things will be different for each of us. Youth unemployment and underemployment are issues with serious implications that must be understood by the whole of society. There are certainly opportunities for innovation and freedom that this new landscape offers, but there are also significant challenges that must be navigated in order to protect hard-won workers’ rights, welfare structures, and national economic growth strategies.

For many young Canadians, there is a new normal: employment is increasingly short-term and part-time, without any of the traditional perks such as benefits, vacation days, or pensions. This is not what we expected. The rise of the contract employee is, in part, a product of the 2007-2008 Financial Crisis, and subsequent recession, when employers quickly shed employees in order to remain solvent. The impact of the crisis, combined with a more generalized trend towards the reduction in the number of permanent, full-time employees, created a strong preference for a more flexible and project specific work force. Toronto-Dominion Bank (TD) defines precarious work as “having an outsized level of uncertainty, whether in terms of pay, ongoing employment, scheduling, or other dimensions.” In Ontario, approximately 22% of all jobs could be characterized as precarious work and in Toronto, it is estimated that 44% of the adult employed are temporary, freelance, and/or contract workers.

In the media, this shift has been called the “demise of the job”. In Canada, the CIBC Economics Employment Quality Index has found that job quality has fallen to a 20 year low: part-time positions are growing faster than full-time positions; self-employment (which is considered more precarious) is on a steep incline; and low-paying jobs are growing faster than mid-paying jobs (which are growing faster than high-paying jobs). A non-permanent and low wage increases an individual’s uncertainty about the future, limiting the amount people spend, save, and invest. The trend towards contingent employment also seems to disproportionately affect female and minority workers, to which informal employment has no built-in counter-bias.

For many of today’s workers, this employment landscape has left them discouraged and disillusioned, without the ability to make long-term plans, save for retirement, or build career momentum. In turn, these consequences have significant implications for the economy, making the larger system more vulnerable and slower to recover from shocks. A report by TD explains:

Precarious employment is negative for the Canadian economy. Without the assurance of the income security that comes along with stable employment and hours, and the matching wages and benefits, consumers lack the confidence to spend. Consequently, profits remain below were they could be, reducing the confidence of investors to invest. Further, tax revenues are lower and government expenditures are higher to support those that find themselves frequently without employment or the ability to make ends meet.[i]

Furthermore, precarious employment is being driven by young adults: 30% of employed youth are working temporary jobs (compared to about 10% for all other age groups) meaning that there will be greater instances of non-employment across a career for many young people. Unemployment, underemployment, and limited earning at a young age results in economic ‘scarring’ and is associated with persistently lower wages throughout that individual’s career.[ii] In 2013, TD estimated that the wages lost due to youth unemployment in Canada from 2013-2031 will be worth $10.7 billion and cause a further $12.4 billion in loss due to scarring.

For many of us, however, it’s not all doom and gloom. For some, there are certain undeniable pros to being an independent contractor and/or self-employed. For young-families, the freedom that independent employment offers can provide a level of work-life balance that isn’t possible at the entry-level in traditional employment structures. For others, independent employment enables them to work more and/or less hours as they choose, take greater agency over what specifically they work on, and design their own careers from the ground up. In some cases, these pros outweigh the very serious concern about uncertainty and its effects. More on this side of the discussion regarding the freelance economy will be discussed in Part II of this post, next week.

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[i] Brian DePratto and Randall Bartlett, “Precarious Employment in Canada: Does the Evidence Square with the Anecdotes?” TD Economics, March 26, 2015, p 10.

[ii] Martin Schwerdtfeger, “Assessing the Long Term Cost of Youth Unemployment”, TD Economics, January 29, 2013.

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