American workers are increasingly embracing the freelancing lifestyle at a time when increased competition around the world threatens to depress wages in the U.S.
Americans are drawn to freelancing — being an independent contractor and other types of non-full-time-with-benefits employment — and the idea of being their own boss and having more control over their work. But it is a progressively more cutthroat field where the competition lives thousands of miles away and gets paid cents on the dollar.
An estimated 57.3 million Americans freelance, according to a recent study from freelancing platform Upwork and the Freelancers Union. That figure represents more than a third of the country’s workforce — and an increase from 53 million people from just three years ago. And this number is expected to rise. By 2027, 86.5 million Americans will freelance, representing more than half of the country’s workforce.
American freelancers do better than their overseas peers
The average income for someone who worked independently full-time in the U.S. was $65,300 in 2016, according to a June report from MBO Partners, a business services company based in Virginia. Comparatively, the estimated median household income as of 2016 was roughly $59,000, according to Census data.
But this could change if global trends related to freelancing begin to affect workers in the U.S. Globally, freelancers work for $19 an hour on average, according to a recent survey of more than 21,000 freelancers from payment services provider Payoneer, down from $21 an hour just three years ago.
The average hourly wage for all American workers — $26.55 in September, according to the Bureau of Labor Statistics — far exceeds the average for freelancers around the world. And the difference is even starker across industries: Freelancers working in IT and computer programming globally charge an average hourly rate of $21, which is just over half the average hourly wage of U.S. workers in this field ($38.90).
Why some freelancers could soon see lower wages
To illustrate the challenges freelancers in the U.S. could soon face, Payoneer CEO Scott Galit told the story of a man he heard speak at a freelancing event Payoneer sponsored in Dhaka, Bangladesh a couple years ago.
“This guy who was well-regarded in the freelancer community there got up and talked about how his breakthrough year was the year he made 100,000 taka (roughly $1,200) as a freelancer — that was the first time he started to believe he was successful,” Galit said. One taka, Bangladesh’s currency, is equal to roughly 1.2 cents in the U.S.
Today, nearly three-quarters of freelancers around the world find their work through online marketplaces. This has created economic opportunity for people in South Asia and Eastern Europe who might otherwise immigrate to another country for work. Workers in Asia, Africa, Latin America and the Middle East represented just over 60% of Payoneer’s survey respondents — only 4.1% of the freelancers who participated heralded from North America.
“It opens up white-collar professions to globalized competition in a way they didn’t face before,” said Josh Wright, chief economist at HR recruiting software provider iCIMS.
The significant growth in the freelance workforce globally contributed to the decline in average wages Payoneer uncovered, Galit said. But not all freelancers have faced the same degree of competition thus far.
Highly-skilled versus low-skilled freelancers
Freelancers work in a split market, said Gene Zaino, president and CEO of MBO Partners. On one side, there are those who perform undifferentiated, commodity-type work for lower wages such as translating a document or creating a simple graphic, he said. The other half is composed of people with more advanced skills such as a senior computer programmer.
Freelancers who do lower-skilled tasks who would see more competition from people abroad and, presumably, lower wages. “In that world it’s a race to the bottom in terms of competitiveness,” said Zaino. “There’s a very large pool of talent willing to work like that.”
“Factory workers have learned they can’t just work with their hands if they want to make a comfortable living — they have to work with technology,” Wright said.
Building trust with clients could help, Galit said. If a freelancer has a proven track record, a client could be more inclined to return to them rather than take a chance on someone new, he added.
Why freelancers may not need to worry
But the growth in the number of global freelancers is not necessarily a bad thing. Some fare better than others. Jobs in science, technology, engineering and mathematics (STEM) grew at three times the rate of other jobs between 2000 and 2010, according to the Smithsonian Science Education Center, but there weren’t enough workers to fill them all. By 2018, it is estimated that there will be 2.4 million unfilled STEM jobs.
In a recent survey from Upwork, 41% of IT managers said hiring has gotten more difficult in the past year, three times more than the number who said it got easier.
To fill the gap, employers are turning to freelance workers. Upwork reported more than half (53%) of IT managers have hired a freelancer.
Higher demand doesn’t just mean that a freelancer has a greater chance of getting hired, it also means they spend less time looking for work. A third of freelancers in the legal field spend more than 7 hours a week finding new jobs, compared with just 17% of those working in IT and programming, according to Payoneer.
Thus, a freelancer’s livelihood will remain positive so long as their skills are in need. “There’s such a scarcity of talent,” Galit said. “If anything, there will be aggressive wage inflation if you’re highly educated.”
Originally posted on https://www.marketwatch.com/