Data Spotlight: Independent Contractors On the Rise

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.

Illustration by Mark Beauchamp