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Are unemployment numbers missing the big story - the freelance economy?

Posting in Design

The official government monthly unemployment numbers released in the United States continue to document a great mystery that no one yet have satisfactorily explained -- despite population growth, the size of the overall workforce has been stagnant. At the same time, unemployment figures have edged downward in recent months, much of it attributable to people "dropping out" of the workforce versus actual gains in employment.

Photo credit: US Census Bureau Public Information Office

In its most recent report, the U.S. Bureau of Labor Statistics (BLS) estimates that the civilian labor force participation rate edged down to 63.2 percent in August 2013. The size of the total U.S. workforce was estimated at about 155 million, essentially the same as a year ago.

The question is: what are all these people who have "dropped out" of the workforce doing for a livelihood? How are they surviving? In some cases, they may have either retired or are collecting some form of disability.  But this is only part of the story.

Some observers say that BLS -- which compiles the "official" stats to which everyone looks to gauge the health of the economy -- is missing the big picture regarding the shift in today's workforce. That is, there is tremendous growth in freelance and independent contracting work that flies under the radar of what is considered a part- or full-time job.

Sara Horowitz, for one, questions the validity of BLS numbers in the face of a rising freelance economy. In a recent post, the commentator and founder/executive director of the Freelancers Union, said these numbers aren't keeping up with the realities of today's marketplace:

"The problem is that the unemployment numbers are wrong. They just aren't keeping up with the changes we're seeing in the new workforce. The Bureau of Labor Statistics' employment surveys were designed (back in the 1940s) to keep track of who has a full-time job, who doesn't, and who's looking. But the way we work has changed dramatically since then. People are abandoning the 40-hour workweek -- some by choice, some by circumstance -- and becoming freelancers, working gig to gig, project to project. At last count, in 2006, more than 42 million people were considered independent workers. That's nearly one-third of the workforce."

The BLS bases it's household employment survey around the attainment of standard full-time or part-time employment, Horowitz says. "They don't capture this type of independent, variable employment because they're not asking the right questions. The baseline question in the household survey is, 'Last week, did you do any work for either pay or profit?' However a freelancer between gigs or projects would not answer positively to this narrow question. At the same time, they may fall of the count as being part of the workforce.

For it's part, the BLS states that it does attempt to capture the self-employed -- both incorporated and formal -- in it's numbers. A report issued by Steven Hipple explains the process:

"Since January 1994, employed respondents in the monthly CPS have been asked the question 'Last week, were you employed by government, by a private company, a nonprofit organization, or were you self-employed?' Respondents who say that they were employed by government, a private company, or a nonprofit organization are classified as wage and salary workers. Individuals who say that that they are self-employed are asked, 'Is this business incorporated?' Respondents who say yes are the incorporated self-employed and are classified as wage and salary workers; respondents who say no are classified as unincorporated self-employed, the measure that typically appears in BLS publications. Since 1989, unpublished tabulations of the incorporated self-employed have been produced by the Bureau on a regular basis."

The BLS puts the number of self-employed individuals at about 14.9 million, of which 5.3 million are incorporated and 9.6 million are unincorporated. Interestingly, this is down slightly from 15.3 million as of 2009. This flies in the face of many observations that freelance arrangements have been on the rise. Is the BLS missing out on a large segment?

Freelance.com says there has been demand for contractors with expertise in 3D printing, digital design, app  design and development, social media marketing, telemarketing and email marketing, accounting and report writing and presentations. BLS says freelance and contract jobs aren't just limited to tech-oriented professions, however. As Hipple put it: "The incidence of unincorporated self-employment was highest for individuals with less than a high school diploma; by contrast, the incorporated self-employment rate was highest for those with an advanced degree. Both the unincorporated and incorporated self-employed were most likely to work in agriculture, construction, and services. "

— By on September 8, 2013, 2:56 AM PST

Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure