The reason our labor force and new business creation are both shrinking is that more and more workers are opting for self-employment. That’s not as good as it sounds.
The great dichotomy of the post-recession recovery is that America’s labor-force participation rate has declined to a multi-decade low, even while the unemployment rate has dropped from 10% to 5%.
The explanation, of course, is that millions of American’s have dropped out of the workforce. But it now appears that many, if not most, have reemerged as self-employed or independent workers – a growing trend that’s expected to continue for years to come.
While that may sound like a positive movement, a closer look at the data reveals some troubling implications, both for those individuals and the U.S. economy as a whole.
According to a report by MBO Partners – which provides software tools for self-employed professionals – there are now about 30 million full-time or part-time independent American workers. That’s 12% more than five years ago and the number is expected to rise to 37.9 million by 2020.
The dramatic increase in self-employment also explains why the massively hyped entrepreneurial craze has failed to produce more startups and small businesses. According to U.S. Census Bureau data, new business creation has been rapidly declining for decades. It now appears that millions have opted to be solopreneurs, instead.
While it’s comforting to finally make sense of data that, until now, didn’t seem to add up, and it would seem that American workers are at least attempting to control their own destiny, this massive flight to entrepreneurship is not all it’s cracked up to be.
Millennials Go Solo
The MBO report says that 30% of all full-time independent workers are Millennials. That would explain why unemployment and underemployment rates among Millennials are nearly twice that of the general population. It also explains why the so-called entrepreneurial generation has failed to live up to its hype, creating just 22% of all new businesses in 2013 – even fewer than their baby boomer parents.
Clearly, the growing trend of fewer new businesses and a smaller labor pool is bad for the economy. And while I appreciate that the newest generation to join the workforce is opting for the perceived freedom, flexibility and control of self-employment in droves, that doesn’t mean it's a good career move, as we’ll see in a minute.
The “Gig Economy” is just Cheap Labor 2.0
The “on-demand” or “sharing economy” may be all the rage, but I seriously doubt if driving an Uber cab, renting out your room on Airbnb, working for an online content mill, or buying and selling used stuff on eBay (NASDAQ:EBAY) is a smart long-term career choice. Even if you’re combining multiple gigs, you’re never going to get ahead that way.