The Washington PostDemocracy Dies in Darkness

New tech companies say freelancing is the future of work. But there’s a downside for workers.

More companies are switching their workforce to freelance. Policy needs to catch up.

Work wherever you want to, just maybe not for as much pay as you used to get. (Maximkostenko/iStock)
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Now that he works for himself as a network technician, Robert Wooldridge is sometimes able to bring his 8-year-old daughter to work with him, as he hops to job sites all around the Washington area. She particularly enjoyed playing in a nearby mall, drawing pictures as he hooked up the monitors for an e-cigarette kiosk.

She’s pretty impressed with her dad, who gets to be his own boss rather than working 9 to 5 in some corporate machine. “She keeps saying stuff like, she imagines that I’m going to grow this huge business, have a private jet,” Wooldridge says. “I’m falling a little short of that.”

Since losing his $102,000-a-year job at a large health-care association last summer, Wooldridge has been a one-man computer service band, running cable and troubleshooting problems for a handful of clients. Freelancing is now a lot easier than it used to be: Rather than pounding the pavement for business, Wooldridge made a profile for himself on a handful of skills-for-hire Web sites. He applied for a few assignments that companies had posted and found a gig on his first day of looking.

Soon, Wooldridge could be more the norm than the exception. More and more, companies are shifting portions of their work to independent contractors, managing large pools of people available as needed for anything from tech support to landscaping. This relieves them of having to pay employees a fixed amount every month — not to mention health insurance, Social Security taxes or workers’ compensation.

It’s difficult to know how many companies are going in this direction, or how quickly. The number of self-employed people as a percentage of the workforce has remained fairly constant for decades, at about 10 percent; much of the contracting out that has occurred is to firms that have employees, rather than sole proprietors.

Regardless, a lot of money is going into start-ups that are competing to ease the transition — and profit from it. Take Work Market, a platform where Wooldridge finds most of his jobs. It just raised $20 million more from leading investors, including Union Square Ventures principal Fred Wilson, who thinks it has the potential to “transform the way enterprises leverage the on-demand labor economy.” Translation: Businesses can save money by using freelancers, and Work Market takes a cut of that savings.

Of course, if businesses are saving money on labor, it probably means workers are making less of it. Wooldridge likes running his own show, but hasn’t been able to make the six figures he used to. On an annual basis, he figures that what he has made since starting freelancing in July is about $75,000, before taxes.

But there are more trade-offs: Health-care coverage is more expensive, for example, going from about $350 in monthly premiums in his old job to $600 per month on his own. He also is working many more hours — 60, sometimes 80 — now that he has to drive between job sites. Sometimes a site isn’t well prepared or doesn’t have the tools for him to do his work.

“That’s one of the biggest challenges is planning. Quite often, you can’t do as much as you think you can,” Wooldridge says. “For a while, I really felt like I was failing somehow.”

Wooldridge figures he’ll be able to get the hang of things eventually. But in the meantime, as more of the workforce joins him, someone’s going to have to answer the question: If the nation’s way of regulating work revolves around a relationship between an employee and employer, what happens when that relationship no longer exists?

The shift toward an “on-demand economy,” as venture capitalists call it, is happening on both the high and the low ends of the wage scale — and there are a couple of ways to think about it.

The first is that employers are taking advantage of comparatively low-wage workers such as housekeepers and construction workers by illegally misclassifying them as independent contractors, leaving workers without the protections and benefits that come with being an employee. The Labor Department has been cracking down on this tactic, which also cheats the government out of payroll taxes. Some companies, such as the car-hailing app Uber and the cleaning “platform” Handy, are being sued by their own service providers for allegedly inappropriately classifying them as contractors when they don’t have anywhere near the amount of freedom that that’s supposed to entail.

The other way of thinking about the “on-demand economy” is that it liberates professionals to design their own schedules and set their own rates, enabling them to take on more clients and make more money. Take Thumbtack, which connects consumers with contractors who provide more premium services, such as a kitchen remodel, a wedding photo shoot or a personal training regimen. Its service providers were legitimately independent anyway — without Thumbtack, they would have spent more money and time finding business through Google ads or business cards on a bulletin board at the local food co-op.

And then there’s the vast middle ground: Traditional employees who could be legally transitioned into independent contractor status, with the help of a system to manage them all. That’s potentially the tectonic shift, as companies seek to pay workers only when they have the work, rather than keeping them on staff all year long.

“Whether you’re a small dress shop or Wal-Mart, you’re going to want to move from fixed cost to variable cost where ever you can,” says Work Market chief executive Stephen DeWitt. “Now you’ve got the opportunity to do that.”

Work Market has a few different ways to make money. Businesses can post occasional jobs, and Work Market takes 10 percent of the value of the transaction. If they manage a more substantial part of their business on the platform, businesses can pay a flat monthly fee. And if they want to use Work Market as a back end for their whole freelance workforce — as Yahoo! has been doing for its contract bloggers, for example — the company will design a custom system that takes care of scheduling, taxes and performance reviews.

For historical perspective, DeWitt points to offshoring, which he worked on as an executive at Hewlett-Packard. When manufacturers and tech companies first started sourcing goods and services in Shenzhen and Bangalore, someone had to develop a suite of tools to make it easier, which then greased the wheels so more of it can happen.

Now, DeWitt says, that’s what’s happening with domestic contracting too: Work Market is smoothing the shift to an employment model that’s becoming increasingly popular as companies look to squeeze the inefficiencies out of labor procurement. In the future, he says, we’ll all just be “personas” that attract work from different sources based on the laws of supply and demand.

“The world that we see is that everyone is part of a ‘work market.’ An egg has a market around it. A plant has a market around it,” DeWitt says. “Everybody has a persona. So that persona needs to be visible by an enterprise that wants that persona.”

So if this shift can’t be stopped — because it’s perfectly legal, and strategically advantageous for businesses — then what needs to happen to take better care of the burgeoning “precariat,” as this class of contingent workers is sometimes known? The concept, pioneered by University of London sociologist Guy Standing, describes people who’ve lost their attachments to employment-based institutions, and must cobble together various income streams to make a living.

Sara Horowitz heads up the Freelancers Union, which is one of the groups that’s arisen in recent years to play the role that traditional unions — which can only organize employees — used to fill. She doesn’t think the on-demand economy is all doom and gloom for workers, and points out that holding down a job is no cakewalk either, with the gradual erosion of wages and benefits that employers offer.

“Full-time employment has gotten worse,” she says. “It’s not like there’s some Shangri-la where there are people with defined benefit plans. They’re converging.”

Platforms like Work Market, Horowitz thinks, are part of the solution. They generate leads at no cost to the contractor, and also help a little with the perennial freelancer frustration of getting paid, since Work Market will boot a business from the site if it racks up too many complaints. “I think we’re seeing the necessary infrastructure for freelance work to become more regular,” she says.

But here’s where Work Market and its ilk fall short, Horowitz says: They don’t change the underlying economics of the  relationship between capital and labor. It’s much more difficult for freelancers to take collective action to raise wages than it is for employees, for example. And contingent workers still have no promise of a steady paycheck next week or the week after.

That’s why Horowitz and others are looking for some public policy intervention to help bolster what she describes as a new middle class, composed of independent workers rather than salary men and women.

For example, she proposes, freelancers could be allowed to set up pre-tax accounts for their earnings that would go tax-free if they fell below a certain level, to keep them out of poverty during dry spells. In England, government officials have experimented with a “central database of available hours” as a public option for freelance work scheduling.

As a general philosophy, social welfare benefits might need to shift towards how they work in Europe, where entitlements are attached to the individual, rather than their relationship with an employer. Some academics have described a new “dependent contractor” status that would cover workers who serve mostly one client. These workers, the argument goes, should have more protections — unemployment insurance, for example, or workers compensation — than those who pick and choose their assignments from a number of different sources.

Robert Wooldridge can see the advantage of a more robust support system for freelance work. He thinks about a different kind of person who could benefit: Platforms like Work Market can provide a way back into the workforce for people with criminal records, which can bar them from traditional employment. He dreams about creating a business that employs ex-offenders, sourcing its leads through one of the online portals that might ask for a background check, but doesn’t require it.

In the meantime, though, he’s still looking for a steady job — at the moment, it seems like the only way back to the standard of living he used to enjoy.

“I have child support and all that stuff,” Wooldridge says (meaning rent and a mortgage on the house he bought with his ex-wife, too). “Those kinds of things won’t wait.”