Is Freelance Going Mainstream? A Look at the IRS Data

irs freelance data
Posted Aug 8th, 2018 15:45 UTC in Future of Work by Emily Slayton

From part-time freelancers to full-time entrepreneurs, many folks have struck out on their own at some point in their lives. But now, according to a report by Fiverr, the independent path is becoming even more heavily traveled.

Fiverr, an online freelance services marketplace, teamed up with market research firm Rockbridge Associates to take a closer look at the growth of the independent services marketplace. The resulting report, Understanding the Impact of the Freelance Economy, reveals which markets are growing the fastest and what’s spurring the shift.

Using the number of 1099-MISC and W-2 forms filed with the IRS to gauge the size of the independent workforce, the report reveals that from 2000-2014, the IRS saw approximately:

  • 22 percent more 1099-MISC filings
  • 3.5 percent fewer W-2 filings

Though not an entirely infallible benchmark, the filings suggest a dramatic increase in freelance work, while traditional employment has remained fairly flat. Some of this increase can be attributed to burgeoning labor platforms such as Uber, Lyft, and Instacart, which have drawn a new population into the workforce. But it’s clear that demand for independent professionals with specialized knowledge is also a major driver.

Fiverr cites three macro trends as contributing to the growth of both the specialized freelance market and its workforce:

  1. Fast, reliable internet: It’s easier than ever for independent workers to work from anywhere and connect more easily with potential clients.
  2. Greater earning potential: Skills gaps created by technological advancements can be lucrative niches for independent professionals with the right skill sets.
  3. Shifting economies: As service-based economies grow and tech jobs are increasingly offshored, skilled workers are left with few attractive full-time options.

We’d add that reduced overhead and increased flexibility also help make independent contract arrangements more attractive to employers. Rather than hiring full-time jacks- or jills-of-all-trades, businesses can assemble an on-demand team with project-specific skill sets and disband it once the project is complete.

But the real impact of the freelance marketplace’s growth becomes apparent upon examining individual markets in the U.S. In looking at the specialized independent workforce in 15 metropolitan areas, Fiverr found that:

  • The top three markets for specialized independent professionals are New York, Los Angeles and Chicago, with independents in LA making up 6% of the area’s total workforce.
  • Total revenues across all markets add up to more than $110 billion—representing roughly 1 to 2 percent of the GDP in each market.
  • Earnings potential is greater in markets with a higher cost of living, the highest being San Francisco and the lowest being Minneapolis.
  • The workforce is growing at a rate of 7 percent, while revenue is growing at a rate of 11 percent, indicating strong business growth for independent professionals themselves.
  • Professional services account for approximately half of the specialized independent workforce, while technical services make up a third and creative arts fill in the rest.

These numbers indicate a growing, thriving independent market, but one that’s not quite mainstream—yet. Before it can be, Fiverr concludes that there are still several barriers to overcome, the most critical being the lack of adequate legal protection for freelancers. In 2017, New York City took the lead on this issue and enacted freelance-specific protections via the “Freelance Isn’t Free” Act. Now it’s up to other metropolitan areas to follow suit.

The second barrier is a bit more surprising: the need for “faster, more reliable internet.” With WiFi seemingly everywhere, it’s hard to believe we’re not already riding technology’s razor edge. Yet Fiverr reports that the U.S. ranks only 10th in the world for average connection speed.

The final barrier is one that might not prevent a professional from entering the freelance economy, but will eventually limit their success: the need for freelance-specific business education. Specialized workers have specialized knowledge, but unless business management is their specialty, they can struggle to grow.

Identifying these barriers is a big step in the right direction for freelancers—as each is addressed, we get closer to making freelance truly mainstream.

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Emily Slayton

Emily Slayton

Emily is an award-winning writer who specializes in B2B marketing. She has been helping global brands reach targeted audiences to drive sales and awareness for more than 15 years. As a small business owner herself, she understands what it's like to source a team that can scale with sudden growth.

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