Riding the tidal wave of self-employment

A breakdown of America’s fast growing self-employed sector shows the broad cultural shifts it will increasingly force politicians to recognise. It’s an irreversable transition Australian policy makers must heed.

There’s a cultural and economic shift that’s been underway for a while, but is now feeding into local and global political positioning. The impact on business strategy is not far away.

The considerable presence of self-employment in developed economies (around 20 per cent of workforces) is finally feeding into government policy. In this year's State of the Union address, US President Obama emphasised the importance of small business in a jobs-led recovery.

What’s happening alongside this is also the slow realisation that it’s self-employed individuals who are the owners and operators of small businesses. Small business is not some conceptual deconstruct of big business but real, live individual people being and making decisions as businesses of one.

To understand and respond to small business, it’s essential to profile the makeup and character of the people who are self-employed. Though not dissimilar to studying consumers, this is something that's so far been largely ignored, but fortunately is now starting to happen.

A new study shows the number of "independent workers" (people who are self-employed and don’t employ anyone else) rose in the United States by 1 million in 2011-12 to 17 million. That’s 11 per cent of the total US civilian workforce of 154 million, and fractionally higher than the figure in Australia, which lies at around 10 per cent. That 1 million rise demonstrates a shift in the makeup of the US workforce towards people working for themselves.

To this must be added the almost equal number of people who are self-employed employers. With those numbers included, the total number of self-employed Australians comes to 19 per cent, and in the US, well over 20 per cent.

The US study also predicts that (non-employing) independent workers will grow to 23 million within five years. At that rate, total self-employment will exceed a quarter of the workforce.

Technological advancements will further accelerate this growth trend. In my last Business Spectator article I predicted that 3D printing would enable people to become solo-manufacturing businesses (The solo sector's coming 3D attraction, March 22).

This emerging worker profile is starting to become very big. And it's a demographic that doesn’t think or behave like traditional employees.

For example, the US survey shows that 86 per cent of self-employed workers are satisfied with their work. This is much higher than work satisfaction figures for those employed by others. Most self-employed workers understand and accept the challenges they face regarding uncertain income, job security and planning for retirement.

The bigger majority of self-employed workers want to continue working independently. While most data shows that they are an older demographic, this survey shows 21 per cent are below 32 years of age. What’s also emerging is that today’s self-employed are represented strongly in high skill sectors, debunking myths about the downtrodden, low-skilled worker being forced into self-employment.

Of particular interest is that only 12 per cent of independent workers want to grow their business to become an employer. This has got to cause a shift in policy approaches to small business. Yes, small business growth will generate new jobs. But the largest percentage of small business growth will be seen in businesses of one, without employees.

There's also a surprise in the gender mix. Independent (non-employing) workers are split almost 50/50 male/female. Most data to date has shown a heavy male dominance. But it transpires that the male dominance is with self-employed people who employ. Only one third of self-employed employers are female.

As with all surveys of the self-employed, the US report shows that the overwhelming motivation among workers is to be their own boss. It’s this cultural shift more than anything that’s changing the workforce profile. And it's something that governments can’t and shouldn’t try to stop. It’s a rising tide that needs to be accommodated!

In Australia, the political repositioning is underway. The evidence is that Labor Party policy is attempting to stop the change. But the Abbott opposition has grasped the shift with considerable depth of understanding. It’s a key dividing difference between Labor and the Coalition.

The Coalition's evidence is in Abbott’s "fair contracts for small business" policy.  This will provide self-employed small business people with the same contract protections currently available to consumers. The policy will fundamentally alter the contractual relationship between big business and small business, providing a levelling of the contractual power relationships.

Large businesses already find they can’t function entirely with employees. The skills they need frequently reside with self-employed people. Just as governments must adapt, so too will business strategies need to respond.

Ken Phillips is executive director of Independent Contractors Australia and author of Independence and the Death of Employment.