A Cord of Many Strands
As We Emerge From a Pandemic, the Gig Economy Looks Healthier Than Ever
Full disclosure: I actually wrote the first draft for this article back in 2019 – yes, before the COVID-19 pandemic. Here’s the first paragraph from that draft:
It’s no surprise to anyone who follows me that I am a huge supporter of the Gig Economy and an active cheerleader for vibrant freelance communities. Independent contractors are the lifeblood of our agency, MojoMediaPros. And as such, we are always interested in meeting and working with talented freelancers. In fact, our motto is, “Befriend the best and work with friends”.
The strong opinions I expressed then have only been validated and further refined in the COVID-19 crucible. Sometimes the more things change, the more they stay the same. But let’s take at what has changed over the past few years.
- According to the March/April 2018 issue of the Harvard Business Review, approximately 150 million workers in North America and Western Europe have left the relatively stable confines of organizational life — sometimes by choice, sometimes not — to work as independent contractors.
- About 1.1 billion on-demand gig workers exist worldwide, and 2 million new gig workers emerged in the U.S. in 2020 alone. Statista estimates that by 2027, about half of the U.S. population will have engaged in gig work. (“Will The Gig Economy Become The New Working-Class Norm?” Forbes)
- In his forward to the book, Thriving in a Gig Economy by Marion McGovern, George Gendron, former editor-in-chief of Inc. Magazine points out that 80% of individuals who make the transition from traditional employment to independent contractor and survive for 12 months report they can’t imagine ever returning to a traditional job. This includes “involuntary” soloists who went out on their own because they lost a job.
- 41% of the American workforce freelanced in the year 2020, up 13% since 2013. During that same period, people with traditional W2 jobs only grew by 2%. 1
- 31% of freelance workers are earning more than $75,000 a year According to a 2020 survey.2
- 65 percent of freelancers in the United States earn more than when they worked for an employer.3
- The number of those in the US workforce who are self-employed has increased. In 2016, it was 9.6 million, and in 2020, it was 15.8 million. In 2019, 10.4% of workers were self-employed, which rose to 10.9% in 2020.4
The trend is now more clear than ever. So for those who still cling to the idea that full-time employment is somehow more secure than freelancing, I suggest it’s time to look at the world through fresh eyes. Just ask anyone who’s been blindsided by a layoff, downsizing or full-on corporate implosion.
In the Bible, King Solomon, famous as the wisest man who ever lived, said “A cord of many strands is not easily broken.” If you think of your income stream as a cord, the idea of many strands suggests multiple income sources. Another way to say this – don’t put all your eggs in one basket.
How is it that we all understand this principle when it comes to financial investments, yet so few rely on this approach when it comes to earning a living?
For starters, to some degree, we’re all afraid of failure. Fear is a very real motivator. Fearing failure as a freelancer may be based in part on a basic fear of the unknown. But there’s also the very real fear of financial insecurity born out by point number two:
According to data from the Federal Reserve as reported by Business Insider, "...in 2018, Americans under 35 have about $1,580 saved, while those making $70,000 to $114,999 have about $5,400 saved." In this day and age, this amount of savings won’t carry anyone very far.
Consider these facts:
Mortgage Payment Then & Now
- The median monthly mortgage payment for U.S. homeowners is $1,030 according to the latest American Housing Survey from the U.S. Census Bureau.
- The median monthly cost of homeownership in the US is $1,609 per month, according to the most recent data from the Census Bureau's 2019 American Community Survey.5
And for renters, on average it is slightly worse.
Monthly Rent Payments Then & Now
- According to the September 2019 National Apartment List Rent Report, the median monthly gross residential rent in the United States is $1,191, up 1.5% year over year.
- Over the past 12 months, rent prices spiked by an unprecedented 17.8 percent nationally… In fact, the national median rent ($1,312) is now $120 greater than projected for 2022 based on pre-pandemic growth rates. For comparison, year-over-year rent growth averaged just 2.3 percent for the three years preceding the pandemic.6 These facts may explain the fear factor, but they certainly do not support any notion of real security that many people ascribe to the proverbial full-time J.O.B.
Displaced Workers Then & Now
Consider an individual making $70,000 a year who is unexpectedly laid off:
- According to Investopedia.com, typical severance packages offer one to two weeks of paid salary for every year worked.
- According to an Economic News Release from the Bureau of Labor Statistics, the median number of years that W2 workers have worked for their current employer is currently 4.6 years and that drops to 3.2 years for workers age 25 to 34.
- This equates to an average severance of 6-8 weeks' salary.
- Factoring in their weekly wage of 1,350, 6–8 weeks = ~$8,000–$10,000 — don’t forget taxes @15% = $6,800–$8,500.
- Adding in the $5,400 median savings mentioned above, our young professional is looking at $12,000–$13,900 cash on hand.
- A home’s sale price should not exceed 2.5 times your annual salary.
- After the pandemic caused housing prices to spike, homes now cost 5.4 times more, on average, than a typical buyer’s gross income.7
- To afford a home in 2021, Americans need an average income of $144,192 — far more than the median household income of $69,178. In other words, the cost of housing represents a much larger percentage of income today.8
- Assuming housing represents 30% of our displaced worker’s monthly income, their cost of living is $4,000/month. That means their cash reserve may last them 3-4 months.
- Assuming housing now represents 40–50% of our displaced worker’s monthly income, their cost of living is more like $4,400–$4800/month, meaning their cash reserve will now only last 2-3 months!
Keep in mind, the average job search in 2022, according to Top Resume, lasts 5–6 months. That’s up from the 5-month figure reported by TheLadders.com in 2019. And remember, that’s just the average. For many, the search can take much longer.
This means that many displaced workers are very likely to exhaust their savings and run the risk of losing their homes long before they find new employment.
When we factor in the growing popularity of job-hopping among Millennials, it’s certainly possible that a worker under 35, with little or no savings cushion, will receive little or no severance based on such a short time on the job. I don’t know about you, but this doesn’t exactly sound like security to me.
Will you take the Freelance leap?
Don’t misunderstand me – I’m not suggesting full-time employment is inherently wrong. For some, it can be absolutely the right choice. But let’s no longer pretend that it’s somehow less risky or more secure.
This misplaced sense of security reminds me of the Hyman Minsky quote, which I first heard referenced by David C. Baker: “Stability leads to instability. The more stable things become and the longer things are stable, the more unstable they will be when the crisis hits.”
Apply this quote to the displaced W2 worker, and you quickly see why losing a full-time job can be so destabilizing to the person who craves stability.
More stable, more lucrative, more interesting, and flexible.
Contrast the bleeding cash scenario above to a thoughtfully considered freelance career. Sure, it may start off with spotty income, possibly burning through your savings, though presumably at a much slower rate. But in my experience, if you are talented and willing to hustle, you can and will be able to support yourself, while building a portfolio of clients (and income sources) one project at a time.
The data seems to support a growing trend in this direction. In 2020, 36% of US freelancers were diversified workers. That means having multiple sources of income flowing from a mix of traditional and freelance work. This is where I believe the trend will continue to move.
Once you achieve your cord of many strands, losing a single client is not nearly as disruptive or catastrophic. And when you factor in the freedom to set your own rates, the greater variety of projects, plus the flexibility to decide how and when you work? From my perspective, transitioning to the freelance lifestyle becomes an absolute no-brainer.
- DDIY, "Freelance Statistics”
- DDIY, "Freelance Statistics”
- Statista, "Share of freelance workers in the United States who earn more or less than when working for an employer in 2020"
- Tech Republic, “You’re your own boss: The state of the self-employed”
- Business Insider, ”The average monthly mortgage payment by state, city, and year”
- Apartment List National Rent Report
- CNBC, Home prices are now rising much faster than incomes
- CNBC, Home prices are now rising much faster than incomes
- Statista, “Freelance workforce distribution in the United States as of 2020”