With 36 percent of the US workforce engaging in self-employment, a number only expected to grow in the coming years, it’s important to shed light on the motivations and needs of this unique sector.

On the 18th of January, the California Association for Micro Enterprise Opportunity (CAMEO) hosted a symposium entitled Self-Employed Entrepreneurs: The New Era Workforce.  The event was devoted to sharing data and presenting evidence that helps paint a clearer picture of self-employment, particularly an emerging sector of this economy, which is both on-demand and technology-enabled. The on-demand economy matches individuals offering services with consumers – like car rides, graphic designs, legal services, cleaning services, etc. – through a platform that can be easily accessed via smartphones or laptops.  Today’s on-demand platforms have been able to match providers and consumers with an efficiency not previously seen in most historical marketplaces.

The Board of Governors of the Federal Reserve System presented a number of findings from their recently competed Survey of Enterprising and Informal Work Activities (EIWA). One of their top takeaways is that “…25% of respondents indicate that informal work activities have been “very much” and “somewhat” a regular source of monthly income.”[i]

Slide Source: Exploring Online and Offline Informal Work: Findings from the Enterprising and Informal Work Activities (EIWA) Survey; Bárbara J. Robles, Consumer and Community Development Research and Marysol McGee, Community Development; Board of Governors of the Federal Reserve System; Published October 2016; https://www.federalreserve.gov/econresdata/feds/2016/files/2016089pap.pdf and https://www.federalreserve.gov/communitydev/files/eiwa_chartbook_2016.pdf

 

The symposium’s panels presented some of the reasons why people choose self-employment, as well as the reasons why working for oneself can be challenging. On one hand, self-employment is being shaped by an economy where technology platforms create frictionless economic opportunities, or low barriers-to-entry that help people to become their own bosses, choose their own hours, and use preexisting resources or skills to earn a living.  While on the other hand, self-employment is also being shaped by traditional businesses looking to create greater efficiencies when it comes to various services.  Regardless of the underlying reasons someone enters the self-employed on-demand economy, the data and anecdotal evidence points to the need to fill infrastructure and education gaps. Some of the gaps point to the need for greater business education, retirement savings options, transparent access to capital – both to address operating revenue challenges and to scale-up current operations – as well as affordable access to health and disability insurance.

Slide Source: Dispatches From The New Economy: The On-Demand Economy And The Future Of Work; published January 28, 2016; http://www.slideshare.net/IntuitInc/dispatches-from-the-new-economy-the-ondemand-workforce-57613212

 

Later in the day a panel of four self-employed/micro-entrepreneurs shared their experiences.  The entrepreneurs represented a variety of small businesses that offered legal services, clothing/fashion items, vintage style items, and gourmet popcorn.  Each of these small businesses expressed myriad challenges, which mirror larger economic trends and longstanding nascent business difficulties.  The larger trends include little or no cash on hand (savings), expenses that are greater than revenues (housing, rent, health insurance, student loan debt, etc.), competitive pricing pressure from lower cost locations, and inconsistent revenue cycles.

Each of these small businesses manages challenges in their own way.  One individual utilizes the Lyft platform to make additional money when retail sales are slow, while taking advantage of the health insurance he has from his last full-time employer.  Another entrepreneur continues to defer his student loan payments while enjoying the flexibility of working from home, which he referred to as a “no job that requires pants” rule.  This entertaining take on working remotely both highlighted the benefits of self-employment and illuminated causes of concern.  The constant is that there are no standard solutions and few of the solutions employed by the panel were permanent.

Slide Source: https://www.federalreserve.gov/communitydev/files/eiwa_chartbook_2016.pdf

 

The growth of the 1099 tax forms coupled with the reduction in the number of W-2, highlights the importance of gathering data about the self-employed economy.

The top takeaways from the symposium:

  • We need more data to better understand self-employment trends
  • The self-employment sector is growing without an expectation of slowing down
  • As this sector grows, there are a number of traditional supports that are unavailable to the self-employed, for example capital and insurance
  • Traditional businesses, like the insurance industry, that have built their models servicing larger organizations may serve themselves and this growing sector by reexamining their offerings
  • Policymakers also should reexamine the existing regulatory environment with an eye to self-employed small business growth

[i] Exploring Online and Offline Informal Work: Findings from the Enterprising and Informal Work Activities (EIWA) Survey; Bárbara J. Robles, Consumer and Community Development Research and Marysol McGee, Community Development; Board of Governors of the Federal Reserve System; Published October 2016; https://www.federalreserve.gov/econresdata/feds/2016/files/2016089pap.pdf

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