Freelance Nation: Why Permanent Jobs May Not Come Back

The U.S. may acquire a new nickname this decade: Freelance Nation. Not only are many of the jobs that have been lost unlikely to come back, but those that do are increasingly likely to be freelance, temporary or contract positions rather than permanent jobs with benefits.Though it is tempting to hope for a quick rebound in jobs in 2010, recent history suggests job recovery is getting increasingly slower and less robust with each passing decade. The reason: The U.S. economy is undergoing deeply structural changes.

Since the early 1990s recession, every recovery in hiring has been slower than in previous decades. Three million jobs were lost in the deep recession, which began in July 1981 and ended in November 1982. But by the end of 1983, the number of jobs in the economy had risen above its old peak. In the 1970s and 1980s, job layoffs were in effect temporary.

Slack In The Labor Market

Not so the current era. After the 2001 downturn ended, employment continued to decline for nearly two years and did not return to previous levels until 2005, in the midst of a once-in-a-lifetime real estate boom.

The slack in the labor market is readily visible. There are more than six people per job opening, compared with less than two in 2007. What's more, 40% of the jobless have been out of work for six months or more.

There are several structural reasons why jobs won't return to previous levels. For starters, there is competition from low-cost countries like China. Off-shoring of manufacturing is now being followed by off-shoring of software design and other technology services. Over 70% of IBM's employees, for instance, are based overseas; the company slashed its U.S. workforce by about 10,000 in 2009.

This trend has plenty of room to run, as Princeton University economist Alan S. Blinder estimates that up to 29% of all U.S. jobs could be offshored in the coming decades. This so-called "global wage arbitrage" is largely the result of competitive pressures: If a company doesn't seek out lower labor costs globally, its competitors will.

Technology Has Killed Jobs


Another reason for the lack of job bounce back: Digital technologies are replacing old industries. For example, with digital downloads replacing CD sales, there are fewer record stores and thus fewer employees in record stores.

Automation and productivity-enhancing technologies such as paperless record-keeping and voice recognition have slashed jobs permanently. Offices which once required a dozen file clerks, for instance, now need fewer workers to input digital records. Regardless of how much sales rise, the positions for workers filing paper will not come back

As evidence of this trend, the number of workers performing administrative tasks has fallen 10% since the current recession began.

That suggests that future jobs will bifurcate into two categories: Low-skill ones that require little training and higher-skill ones that require continual upgrading of skill sets to compete on a global level.

Bubble Jobs Disappeared


The era in which a new skill might guarantee a job for decades may be past as well. For instance, now that the cost of computer hardware has fallen so low that repair is rarely a cost-effective alternative, the people who were trained to repair once-costly computers have less work.

In addition to these structural trends, there is another reason some jobs won't be coming back: They were the product of the bubble in credit and housing.

Fueled by super-low interest rates, exotic mortgages and risky derivatives, growth from the 2001 recession greatly expanded the number of jobs in the financial and construction industries. The housing bust and the global financial meltdown mean the number of jobs in those fields will be much lower than in the boom years. That expansion was a once-in-a-generation speculative frenzy that virtually no one expects to reflate to its 2006 levels.

Even the two reliable sectors of job growth, government and health care, are under pressure. As the private economy sheds businesses and jobs, government revenues are plummeting. If jobs don't come back, neither will tax receipts, which dropped 7% in the fourth quarter of 2009, supposedly a period of renewed GDP growth.

The Flexible Labor Trend

For example, more than 26,590 California teachers and other school staff were laid off in 2009 as that state's budget crisis worsened. With the state facing another $20 billion deficit, further layoffs in government are likely.

Faced with a global business environment with few if any guarantees of predictable growth, businesses large and small are seeking flexible labor with few overhead costs: Part-time, freelance, contract and temp workers.

A nonpartisan think tank, The Iowa Policy Project, recently estimated that 26% of the 2005 U.S. workforce were independent contractors, temps, part-timers and freelancers.

Faced with the prospect of higher taxes and higher health-care costs, small enterprises are reluctant to offer full-time permanent jobs. A review of the National Federation of Independent Business (NFIB) report, Small Business Economic Trends, reveals a sector skittish about adding workers when costs are rising and optimism about business conditions is low.

Wages Remain Under Pressure

Simple supply and demand -- more people seeking jobs than there are openings -- means wages are under pressure, too. Indeed, for the 80% of the private workforce which is non-professional and non-supervisory, wages are 9% lower than they were in 1973, once the numbers are adjusted for inflation.

To some observers, temporary positions simply transfer the risks from the employer to the employees. From the point of view of companies facing intense global competition, however, temp and freelance jobs are simply reflections of the new reality: All business is contingent and nothing is guaranteed to last.

While it is tempting to yearn for "the good old days," it seems that the global economy leaves us little choice but an insecure work environment which favors flexibility and continuous upgrading of skills.

Increase your money and finance knowledge from home

What is Inflation?

Why do prices go up?

View Course »

Introduction to Economic Indicators

Measure the performance of the economy.

View Course »