The Independent Contractor Marketplace
Independent contractors are increasingly becoming a staple in modern workplaces
The Modern Independent Contractor Marketplace
Work arrangements in the United States are shifting swiftly away from what we think of as the traditional model of work—a full-time, permanent position with a single employer. An alternative model of independent contracting (IC) is on the rise, driven by economic reasons and lifestyle preferences that demand greater flexibility.
In recent decades, we see more and more workers opting to work independently, on a project-by-project basis. Today’s professionals place a high enough premium on autonomy that they are willing to strike out on their own, even as the United States tax system, health care system, and other infrastructure are slow to catch up. And even though it means forfeiting certain fundamental employer-provided benefits, such as healthcare, retirement packages, and built-in professional development.
The recent rise in independent contracting has been accompanied by a rising demand for interim talent. More and more employers are integrating contingent workers into their operational strategy.
Technological advances and intermediary platforms have been instrumental in allowing companies to tap into specialized skills and know-how on an as-needed basis. This flexibility in talent management is shown to cut costs and drive innovation by allowing companies to take more risks; being able to test a new business idea with a $500,000 “get it going fast and let’s see” model, rather than a fully drawn $5 million business plan with commitments to permanent staff, would ultimately enable them to find more promising opportunities.
The demands of a globalized economy, greater connectivity through technology, and the shift towards more flexibility for employer and employee alike are all factors altering work arrangements in the United States.
The History of the Independent Contractor Marketplace
If we look at the history of the American workforce, we see that independent contracting is far from a recent phenomenon. In fact, it predates our traditional model of full-time permanent employment.
In pre-industrial society, Americans worked for themselves as artisans, farmers, and small shopkeepers. During the late-nineteenth-century manufacturing era, big companies still outsourced their labor, and turnover was high (300 percent). Then increasingly complex industrial machinery led to a more stable, trained workforce. As workers became concentrated in cities and industrial hubs, workers’ unions formed to demand higher pay and better conditions. During World War II, wage and price controls forced employers to begin offering benefits and pension plans in order to reward and retain their workers. This is when our modern model of full-time permanent employment came into full swing.
Independent contracting came back on the scene when companies were forced to downsize during the 1970s and 1980s recession; then came globalization and technological advances, making it easier to offshore production and knowledge work overseas. Finally, the 2007 recession brought about a full resurgence of the independent professional. Digital technology has made it possible to develop a spot market for high-end talent and drive transaction costs down.
In light of the recent resurgence, companies are beginning to re-envision which skills and resources belong inside versus outside the organization. The relationship between employer and employee is undergoing yet another transformation.
The Future of the Independent Contractor Marketplace
Today’s independent contracting market is not expected to slow down, and employers are expected to get more creative with their operational decisions. Studies increasingly confirm the benefits of flexible work arrangements. A 2013 Columbia University study shows a strong correlation in today’s economy between high-performing companies and flexible talent management:
[C]ompanies that successfully carried out process or production innovations displayed higher levels of non-traditional employment models—including contracting, part-time, freelance and temporary workers.
As health coverage becomes more portable and legislation catches up, independent contracting will go from being an appealing work arrangement to an increasingly realistic arrangement for more and more Americans. It is expected that workers will only continue to desire autonomy and a better work-life balance in their lives.
As baby-boomers retire, the demand for talent will rise. Companies will find resources on the open market to be increasingly reliable and accessible, especially as their internal operations adjust to better accommodate them.
A 2016 presentation by NERA Economic Consulting outlines a company’s economic reasons for choosing alternative work arrangements. The independent contractor marketplace allows employers to achieve:
- Increased efficiency through a project-based workflow
- Greater agility in responding to fluctuating demand
- Better performance through output-based compensation
- Lower costs through employee-owned assets
According to the Harvard Business Review, today’s professionals—including executives, consultants, lawyers and other high-end talent—are without a doubt moving towards alternative work arrangements:
[O]ur experience suggests that if talented people knew they could leave their permanent posts and get both a reliable flow of interesting, challenging, well-paid projects and group health coverage, traditional firms would see a mass exodus. Chances are good that those two aspirations will be widely achievable in the United States within a decade.
It is certain that state and federal legislatures need to update tax laws and more clearly define the differences between independent contractors and employees. But as the benefits of the independent contractor marketplace—for employers, employees and the economy as a whole—become more and more evident, policy is bound to catch up.