How Will Self-Employment Fare in a Wilting Economy?

The self-employed may not need to worry about being laid off, but that doesn’t mean they’re safe. In an economy ravaged by COVID-19, everyone is likely to feel the pinch. 

In the long-term, however, freelancers ought to be optimistic. Because employers can save about 30% by working with an independent contractor instead of a full-time employee, they may be in for a faster recovery.

What’s ahead for the gig economy, and how will self-employed workers fare? Let’s take a look:

  • New Opportunities Will Arise

Some of the most successful companies were born in a recession. The reason is that recessions encourage innovation: When resources are in short supply, entrepreneurs prioritize finding new, more efficient ways of getting the job done. 

One of those ways is by outsourcing work to contractors. Jobs that were done by full-time employees are likely to be put on freelancers’ plates for the first time. It’s usual to leave writing and editing jobs online, same as data entry and IT. Few roles that were done by contractors will be brought in-house while uncertainty dominates the economy. 

To be clear, the growth in gigs won’t happen overnight. Everyone will experience a fallow period, followed by an expansion of work for the self-employed and, eventually, a rebound in traditional employment. 

  • B2C Gigs Will Remain Scarce

While freelancers who serve businesses may find new opportunities in the short- to mid-term, those who work with consumers may be in for a longer break. Typically, consumer demand remains weak in a recession until the wider economy recovers. 

Global brands with huge marketing budgets can spin a recession into a campaign. Consumers, however, have few tools available to them other than saving money. Expect to see more Uber drivers struggling for gigs than web designers or freelance writers. 

  • Federal Aid Will Be Too-Little-Too-Late

Although the federal government technically included self-employed individuals in the Pandemic Unemployment Assistance Program, benefits are still unavailable in many states

Historically, unemployment assistance has only been for traditionally employed individuals who are temporarily out of work. Some state governments have been slow to update their programs, in many cases due to obsolete computer systems. 

Until they do, self-employed people who can’t find work will have to be patient. Some will scavenge work, while others will rely on their savings to get through tough times. 

  • State and Local Governments May Step In

The pandemic is forcing employers, governments, and self-employed individuals to reconsider what’s truly essential work. If the supply of contracted workers falls too low in those areas, state and local governments may offer subsidies. 

Say a relatively rural state imposes a stay-at-home order. If there aren’t enough delivery drivers willing to travel an hour between a consumer’s home and their nearest grocery story — or consumers able to pay the price — governments may have to pay part of the tab. 

This isn’t likely to happen nationwide, to be clear. But it’s not hard to imagine scenarios in which governments have to help out certain markets dominated by the self-employed. 

  • Hours Will Hit Extremes

Especially if self-employment markets struggle, these workers may see their hours tend to one extreme or the other. Whether there’s too much or too little work available for the number of workers will depend on the specific product or service in question. 

Etsy sellers may be lucky to sell a single craft in a two-week span. Delivery drivers may be so busy they have to start turning down orders. It all depends on the trajectory of the pandemic, consumer demand, and the pool of workers available. 

  • Gig Workers May Get Benefits

During World War II, employer-sponsored healthcare became common. The combination of labor shortages and wage freezes forced employers to find new ways to attract talent.

Today’s economic situation isn’t quite the same, but it is similar: Employers — including those that play in the gig economy — can’t afford to give raises right now. And because of the virus, many people aren’t comfortable or able to return to work right now

The result could be a similar blossoming of benefits for the self-employed. Paid health insurance, in particular, is a desirable perk at a time like this. 

  • More Work Will Move Online

Not that long ago, self-employment looked like a mom-and-pop shop on Main Street. These days, a lot of it happens digitally.

The virus and current economic conditions are only accelerating that shift. Not only does internet-based work minimize transmission opportunities, but it is generally less expensive to operate digitally. Cost pressures will push more and more self-employed workers to a do-it-all-online model. 

Contractors who do it all online don’t need a physical storefront. They don’t need to travel as much, which saves money as well as time. And generally speaking, it’s cheaper to reach people online than it is with traditional media. 

  • Bartering May Become Common

When times get tough, businesses tend to trade services more frequently. Expect the self-employment market to work the same way. 

Obviously, gig workers would prefer to be paid cash for their work. In a recession, however, trading goods and services becomes more appealing.

This can take a lot of forms: An Uber driver may need a new toilet installed, so he gives a few free rides to a local plumber. Or perhaps a freelance writer tackles a couple of blog posts in exchange for a free radio ad in hopes of finding some paying work. 

The bottom line is, self-employment is a better position to be in during a recession than a lot of people think. Self-employed workers aren’t immune to changing economic conditions, but they do typically have more control over their personal financial situation than many traditional employees. 

With that said, the self-employed will have to hustle. Fortunately, they’re used to it. 

Author: Brandon Park