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Data Spotlight: Independent Contractors On the Rise

April 29, 2011 by Joshua Wright

In a recent cover story Newsweek provided a detailed portrayal of middle-aged men who once made healthy salaries as CEOs and salesmen and are now scavenging for work — in some cases, any kind of work.

The article hits on several interesting topics related to the middle-aged male — the far-reaching damage of getting laid off, the relative ineffectiveness of retraining for men of this ilk, age-discrimination laws, etc. And it also delves briefly into an issue we’ve brought up before: the shift in the workforce toward independent contractors, those who don’t draw the benefits of a full-time employee but work on a contract basis and file a 1099-MISC with the IRS.

Many of the newly jobless rebrand themselves as consultants. The number of so-called independent contractors is up by more than 1 million since 2005, according to Jeffrey Eisenach, an economist at George Mason University. More than one in five of them work in management, business, or finance.

George Mason University provided one estimate of independent contractors. And with our complete employment dataset, we can dig even more into this often-hidden part of the workforce.

EMSI uses data from the U.S. Bureau of Economic Analysis and the Census Bureau to incorporate so-called “noncovered” workers — proprietors, farm workers, railroad and military employees, et al. — that represent roughly one-fifth of the workforce and are not included in typical labor market data.

Why are they not included? Because the Bureau of Labor Statistics only tracks workers covered by state or federal unemployment insurance/compensation. Independent contractors, among others, are not eligible for worker’s comp and unemployment insurance, so they go missing in federal and state data.

>>For a complete discussion on covered vs. noncovered workers, see this article.

We produced the following chart to illustrate the steady increase of workers not covered by unemployment insurance among 10 of the broadest-level industry sectors using national county-level data. The ratio of noncovered workers to the rest of the workforce is derived by comparing EMSI’s covered dataset (which closely resembles state LMI data, but with suppressions removed) with our complete dataset. The time frame is from 2005 to 2010.

  • Mining, quarrying, and oil and gas extraction has seen the biggest jump of workers not covered by unemployment insurance (33% in 2005 to 53% in 2010).
  • Finance and insurance has also experienced a major increase (from 28% to 40%), and among 2-digit industries it has seen by far the most growth in noncovered jobs since 2005 among 2-digit industries (nearly 1.5 million; see the table below). We took a lengthy look at financial jobs in this regard last year.
  • The largest proportion of noncovered workers belongs to real estate (74%, up from 70% in 2005).
  • The smallest proportion of noncovered workers, government excluded, belongs to manufacturing (4%).
  • As the table below shows, an estimated 23% of the workforce (just over 40 million) is not covered by unemployment insurance, up from 21% (just over 36 million) in 2005. That’s an increase of 4 million noncovered jobs in five years.
Description2005 Jobs - EMSI Complete2010 Jobs - EMSI CompleteChange% of Noncovered Workers, '05% of Noncovered Workers, '10'05-10 Change in Noncovered Workers
Mining, Quarrying, and Oil and Gas Extraction 837,0401,434,968597,92833%53% 487,120
Finance and Insurance8,186,4099,276,7071,090,29828%40% 1,489,237
Administrative & Support and Waste Mgmt. & Remediation Services10,470,78210,198,441-272,34122%27% 454,110
Arts, Entertainment, and Recreation 3,417,8723,781,864363,99245%49% 323,098
Real Estate and Rental and Leasing7,128,5557,362,000233,44570%74% 445,282
Construction11,004,8028,881,034-2,123,76834%38% -378,198
Utilities571,301594,34123,0403%7% 19,026
Information3,563,7053,250,248-313,45714%16% 22,237
Agriculture, Forestry, Fishing and Hunting 3,470,3533,455,327-15,02666%68% 48,481
Professional, Scientific, and Technical Services 10,880,16111,719,318839,15735%37% 479,890
Transportation and Warehousing6,316,9986,077,810-239,18819%20% 21,022
Manufacturing14,708,10412,123,072-2,585,0323%4% 38,143
Accommodation and Food Services11,562,69511,905,888343,1936%7% 113,086
Health Care and Social Assistance16,711,85319,036,4862,324,63314%15% 450,760
Management of Companies and Enterprises1,836,7811,938,122101,3415%6% 17,392
Other Services (except Public Administration)8,701,2408,888,829187,58950%51% 145,057
Wholesale Trade6,318,0086,081,476-236,5328%9% 4,742
Educational Services3,608,5684,096,998488,43040%40% 168,089
Retail Trade18,516,24017,380,901-1,135,33917%17% -334,035
Total170,875,277171,347,317472,04021%23% 4,014,540

Illustration by Mark Beauchamp

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