In this edition of the Globe and Mail, MLI’s Linda Nazareth discusses the ups and downs of self-employment and what it means for the economy.
‘Gig economy’ of self-employment can be good for economy
Linda Nazareth Special to The Globe and Mail, April 8th, 2013
Many Canadians are striking out on their own, and their ranks are likely to rise even more.
The March jobs report released Friday by Statistics Canada leaves a lot to be desired. Employment fell by 54,500 during the month, and the unemployment rate climbed 0.2 percentage points to 7.2 per cent.
But among the numbers was something of a bright spot: Self-employment rose by 39,000. Over the past year, in fact, self-employment has grown by 2.1 per cent, or twice the growth rate for all employees.
Not punching the same clock, day after day, presumably works for some people, as does being able to take holidays set by the employee, not the office manager.
The downside, of course, is that many are “self-employed” because they cannot get anyone else to give them a job. Under another system, they might actually be deemed “unemployed,” but sometimes it is easier to grab a clipboard and say you are a consultant rather than admit you are desperate for a cubicle to call your own.
By some measures, the self-employed also earn less than paid employees. According to one analysis by Statistics Canada, as of 2010 the self-employed had a median income that was 19 per cent below that of their paid counterparts – and no benefits, either.
The negatives about self-employment likely explain why it has actually not grown that much over the past decade.
As a percentage of all Canadian employment, self-employment was 15.2 per cent in 2012, exactly the same as it was a decade earlier.
Still, we have seen fluctuations. During the dot.com boom of the late 1990s, the self-employed accounted for more than 17 per cent of Canadian employment.
That went down to just over 15 per cent by the latter part of the last decade, although it did pop up to 16 per cent in 2009, when the recession forced many people to go out on their own.
Some may be choosing to be on their own, but for others a good economy clearly makes them choose being part of the corporate team.
As stable as the trend in self-employment has been, there are reasons to believe that it is soon going to rise – and in an economic sense this will arguably be a good thing.
The self-employed typically work on a contract basis, swooping in to fill an economic need exactly. Full-time employees, in contrast, are a bit more “bulky”: They are employed more or less forever to fill what is presumed to be ongoing work. If the work dries up they may eventually be let go, but not without difficulty.
Paid employees are also more expensive in absolute terms, given that they typically require office space, dental plans, and a pension at the end of it all.
That might be worth it to some employers: Having everyone as part of a committed team is not going to go away anytime soon.
Still, in these days of on-going cost cutting, employing on a contract or part-time basis is likely to make sense to a lot of companies.
All things being equal, that labour market flexibility is a positive for the economy as a whole.
So is the end result going to be a nation of workers without security and unhappy with their compensation?
Not necessarily. In Canada, we already have nationalized health care, which means that the self-employed are not entirely on their own in terms of medical needs.
Increasingly, we will see group benefit plans that the self-employed can access. We are also seeing some, although limited, ways that those outside of companies can save for their own retirements. More is likely to come, and hopefully more people will take advantage of what is offered.
In the U.S. there is also another trend to note;: A union of the self-employed.
That might be a bit of an oxymoron, but in fact The Freelancers Union now numbers over 200,000 people is one of the fastest growing unions in the United States.
And it makes sense: Once, union growth was in manufacturing, then in government, then nowhere. The so called “gig economy” may the next place where people band together to make sure that their needs are taken care of in a changing world.
Linda Nazareth is the principal of Relentless Economics Inc. and a senior fellow at the Macdonald Laurier Institute