Labor Markets Briefs

The future of nontraditional work arrangements

March 27, 2018

At The Conference Board we are often asked about nontraditional workers in businesses, also referred to as independent workers, workers in alternative work arrangements, contingent workers, gig workers, free agents, freelancers, etc. Nontraditional workers mostly include:

1)      Independent contractors

2)      Workers in the temporary help industry

3)      Workers on premise employed by outsourcing companies

4)      Workers employed through labor market platforms.

There is a strong perception in the business community that the share of nontraditional workers is growing and will continue to significantly grow in the future. From our C-Suite Challenge survey, almost 80 percent of chief human resource officers see a greater use of contingent nontraditional employees as one solution to future worker and skill shortages. Our members want to know if that is indeed the case, or mostly a hype.  And in what occupations and industries different models of nontraditional work will become most prevalent.

One limitation to predicting the future of nontraditional workers in the workforce is the lack of information about historical trends. The most recent government report on the size of the non-traditional worker population was published in 2005. In May 2017 the Bureau of Labor Statistics fielded a new survey and the results are expected to be published soon.

The Conference Board is currently researching nontraditional workers and will publish a report later in the year. In this blog I am describing some of the trends and recent developments that may impact the prevalence of nontraditional workers in the future. Most trends point to a growing share of nontraditional workers, but some developments are likely to have a negative impact. Even when the direction of the impact is clear, there is a lot of uncertainty about the magnitude of the impact.

Perhaps the biggest unknown is the future impact of the ongoing trend of removal from payroll of non-core functions. This business trend, only partly driven by cost-cutting, has been in the works for several decades. To what degree it will continue to have an impact in the future remains unclear.

Below I list some of the factors and trends that are likely to impact the future size of the nontraditional worker segment of the US labor market.

Technological and demographic trends

Emergence of online labor market platforms (Uber, Upwork). This is one the main topics people are excited about when talking about the future of work. There is an assumption that jobs will be separated into tasks that can be conducted in part by non-traditional workers employed through labor market platforms. It is unclear how many employers are already engaged in differentiating tasks and allocating some to nontraditional workers. The emergence of labor market platforms will increase the number of nontraditional workers, but there uncertainty about the magnitude of the increase.

Shift towards teleworking and remote working. During the past decade, the share of employees working primarily from home has almost doubled, and the fast growth has been especially strong in highly skilled occupations. If a job has already been removed from an office, it may increase the likelihood that the job will be done by a non-employee. Teleworking and remote work make it easier for returning mothers, retirees and multiple job holders to take part-time positions, and this may increase the number of nontraditional workers.

Greater willingness of Millennials to be nontraditional workers. There is a perception that the younger generations are more willing than older generations to work in nontraditional work arrangements. If that is indeed the case, the share of nontraditional workers will grow as older workers continue to retire. But, in general, it is still unclear how many workers will be willing to have jobs in which income is more volatile and less secure than in traditional jobs.

Labor market tightness

The US labor market is already tight and with massive retirement of baby boomers expected in the next decade or more, tight labor markets and higher compensation will be the new norm. In such an environment, employers will try to shift more jobs to nontraditional work arrangements to cut labor costs.

However, we suspect that many of the current nontraditional workers, especially in low-skilled occupations, did not join this club by choice, but because of difficulties in landing a regular job in the years following the financial crisis. As labor markets tighten, employers may try to expand the usage of nontraditional workers, but they may find that the supply of such workers has diminished, and their cost has increased. As a result, the labor cost savings of removing workers from payroll may not be as large as it used to be.  

On the other hand, the opposite effect may visible in some highly skilled occupations, where a sufficient amount of work is all but guaranteed in a time of a tight labor market. This would encourage workers to seek the flexibility that comes with being an independent contractor.

Policy and business practices

Some policy developments are likely to increase the share of nontraditional independent workers. Obamacare makes it easier for self-employed workers to have access to health insurance. That is likely to increase the willingness of workers to become independent contractors. At the same time, employers are more likely to hire part-timers to avoid providing health insurance to full-time workers as required by the law. The recent tax reform could incentivize some current employees to become self-employed. In addition, several new labor laws initiatives that are currently being discussed may lead to future legislation, which could make it more beneficial to work in a nontraditional work arrangement.

On the other hand, public backlash against labor conditions of nontraditional workers, especially low- skilled ones, may lead to stronger government regulations and enforcement that will reduce employment of nontraditional workers. In addition, due to stronger enforcement, the drop in undocumented immigrant workers, who more often must rely on nontraditional work arrangements, will reduce the supply of low-skilled independent workers.

One question is whether within independent workers we are likely to see shifts across groups such as independent contractors, workers in the temporary help industry, workers on premise employed by outsourcing companies, and workers hired through labor market platforms.  In particular, will the emergence of labor market platforms reduce the share of the other sub-groups? 

In sum many factors will impact growth in the share of nontraditional workers employed by businesses. In 2018, The Conference Board will study this topic and release a report later in the year. Are we identifying the right trends? Do you have any thoughts on the questions we posed?

Please write to us or leave a comment on this blog.