Rising wages in 2015? Only when seen through rose-tinted glasses, economists say
With the positive labor news from June through December, 2014 closed with what many workforce analysts heralded as very encouraging employment data. The United States added more jobs than expected in November, consumer confidence rose to consecutive monthly highs, and LinkedIn received “bullish analyst attention,” according to NASDAQ. Optimism among small business owners also jumped in December to its highest level in more than eight years, underscoring what some are touting as proof of the economy’s recovery and ongoing gains.
The National Federation of Independent Business said its Small Business Optimism Index increased 2.3 points to 100.4 last month, the highest reading since October 2006. Even more encouraging, small businesses included in the survey said they planned to raise wages for their workers, with over 25 percent reporting higher compensation. The findings, however, remain at odds with the noted decrease in average hourly earnings, which were also highlighted in December’s employment figures.
Despite some rosy outlooks and anecdotal evidence, economists don’t expect wages to rise in 2015. Jobs have definitely made a comeback. We are witnessing a glut of openings across industry sectors. And yet median wages are still lower than they were before the Great Recession. Last month, average pay actually fell. Noted economist and former Secretary of Labor Robert Reich believes the link between lower unemployment and rising wages has been severed.
So should America’s workers abandon all hope? Not at all. These statistics, in large part, reflect movements that affect full-time employees. On the flipside, it’s the perfect time to consider freelance work. There’s enough reason to believe that more opportunities are available to freelance, contingent talent than ever before — with the additional perks of enhanced work-life balance and financial independence.
The devil’s in the details
As Alan Tonelson of MarketWatch points out, the upbeat attention being given to the Job Openings and Labor Turnover Survey (JOLTS) data “tell a happier story than the details. In fact, industry-by-industry JOLTS figures add to the evidence that too many of the jobs and job opportunities being created during the current still-disappointing recovery are in sectors where wages can barely support individual workers, much less working families.”
Reich discusses other complicating factors that could sustain the continued stagnation, or even plummeting, of wages. “For one thing,” he explains, “it’s easier than ever for American employers to get the workers they need at low cost by outsourcing jobs abroad rather than hiking wages at home.”
A recent Staffing Industry Analysts report revealed an increase in labor arbitrage moving offshore, particularly in growing Eastern European nations such as Lithuania, where workers come cheap.
- AsiaPacific is expected to expand by eight percent in 2014, and another 13 percent by 2018.
- Eastern Europe should expand by a total of 16 percent by 2018, and by 16 percent in Western Europe.
- When current-year spending is included fully, 93 percent of programs will be investing in Western and Eastern Europe, while the total in AsiaPacific will be 56 percent.
And the talent in these developing countries, which cost considerably less than U.S. workers, now have access to education and advanced technologies that allow them to be as productive as their American counterparts. Because of lingering financial difficulties, long-term unemployment and insecurity, Reich believes talent in the United States won’t be asking for raises, anyway:
“To make things worse, a majority of Americans have no savings to draw upon if they lose their job. Two-thirds of all workers are living paycheck to paycheck. They won’t risk losing a job by asking for higher pay. Insecurity is now baked into every aspect of the employment relationship. Workers can be fired for any reason, or no reason. And benefits are disappearing. The portion of workers with any pension connected to their job has fallen from over half in 1979 to under 35 percent in today.”
He also believes these changes have been intentional: “The growing use of outsourcing abroad and of labor-replacing technologies, the large reserve of hidden unemployed, the mounting economic insecurities, and the demise of labor unions have been actively pursued by corporations and encouraged by Wall Street.”
Since 1979, the nation’s productivity has increased dramatically — by 65 percent. And yet median compensation has risen only eight percent. Nearly all the gains have gone to the top. “Low unemployment,” Reich concludes, “won’t lead to higher pay for most Americans because the key strategy of the nation’s large corporations and financial sector has been to prevent wages from rising.”
It’s really not a winning corporate strategy in the long run. Higher profits ultimately depend on more sales, which means lower and middle-class workers need to have enough purchasing power to buy what’s being produced.
With retention being a big focus for businesses in 2015, the issue of wage increases could also cause further problems. In Glassdoor’s Employment Confidence Survey (Q4 2014), the company learned that “more than one in three (35%) employees report that they will look for a new job if they do not receive a pay raise in the next 12 months.”
The non-employee workforce is coming into focus this year, with ease and security
As more businesses augment their existing labor pools with flexible contingent talent and contractors, an entire industry is rallying to support the needs of this new workforce. AS MBO Partners learned during the company’s four-year research project to forecast future employment trends, “Innovative technologies, online work marketplaces, back office support platforms and portable healthcare benefits are making the leap to self-employment a more compelling proposition for many. Four years of data analysis from the MBO Partners State of Independence in America report found that more self-employed service providers felt more security in their ‘portfolio income’ approach vs. the traditional ‘single employer’ approach to work. The study also found 26 million American workers who are 21 years and older and not currently working as an independent are now considering a shift to independence in the next 2-3 years.”
The growth of this non-employee workforce is now 30-million Americans strong. Of that group, 17.9 million work on a freelance or contract basis as their primary means of employment. The remaining 12.1 million are using contingent assignments to bolster their other income sources. And with this additional focus, staffing professionals are stepping up to put their systems, processes and expertise in place to educate and support this talent.
“Companies are beginning to institute formal programs to better manage, engage and catalog the capabilities of their freelancers and self-employed service providers, and doing it in a more direct, cost efficient and compliant manner,” the MBO Partners report continues. “As larger enterprises directly engage with their extended workforce on a peer-to-peer basis — and learn that it is easier than the hiring process of traditional employees — they will begin to deal with these two types of workers almost interchangeably.”
We’ve known all along that contingent work has presented huge benefits to employers. Now it’s becoming a sustainable, profitable, safe and preferable working model for top talent.
CareerBuilder’s annual job survey, released on New Year’s Day, supported these arguments. The company discovered that 46 percent of organizations surveyed expressed plans to bring on more contract and temporary talent in 2015, with 56 percent anticipating that they will transition the workers into full-time roles.
People are choosing contingent work to be happy
Across the pond in Britain and New Zealand, university researchers working on a joint study found a strong link between job dissatisfaction and the transition into freelance or temporary work. Talent who, when interviewed, suffered high levels of anxiety and displeasure from their current positions were 76 percent more likely to choose a freelance lifestyle. And 81 percent of those who did said they were satisfied or very satisfied with their new jobs.
“So poor mental health is not a consequence of becoming a temporary worker, but a good predictor of workers who will move to temporary employment in the future,” wrote Dr. Gail Pacheo, AUT University. “We also found that lying behind this poor mental health was dissatisfaction with their existing permanent job.”
A better life awaits
Though wages may not see any noteworthy hikes this year for the full-time population, that doesn’t necessarily hold true for skilled freelancers like supertemps, who are quickly becoming a new norm. Contractors actually have the ability to earn more money because their rates are negotiated (by themselves or a staffing curator facilitating the placement process) and they’re paid hourly, which accounts for overtime. IT contractors in the health industry, for example, can make double their typical direct-hire rates. And there’s more.
- Temporary professionals enjoy flexibility, while their employers benefit from an agile complementary workforce; they remain in control of their schedules, assignments and companies they choose, which also means more leverage in negotiating their rates.
- Health benefits are no longer a stumbling block — a security issue that Robert Reich illustrated, which sometimes prevents workers from asking for more. Today’s contingent talent have access to benefits through their staffing agencies or Affordable Care Act exchanges.
- Contractors can have other client assignments; while they’re providing part-time support to one organization, many are also serving others. For them, the work is consistent and full-time, providing the security most job seekers are preoccupied with.
- Contract projects and contingent assignments allow independent talent to network, try out prospective employers, choose more rewarding and lucrative fields, pick an industry and experiment with different career paths before deciding on permanent opportunities. And again, these experiences often translate to higher compensation.
- While working for various organizations and industries, contingent professionals constantly learn new skills, making them more valuable and qualified as time goes on; they don’t stagnate.
Across the nation, U.S. employers are under greater pressure to raise pay, particularly for talent with in-demand, specialized skills. Many of these organizations are looking to millennial talent, a group of today’s most technologically literate and proficient candidates. Yet, one of the hallmarks of Generations Y and Z is a firm attachment to independence, entrepreneurship and a fairly justified attitude that government and corporate America won’t see to their interests. This talent has become the impetus driving the unprecedented presence of freelancers, supertemps and contractors across all market segments. And now they’re being taken seriously and cared for by staffing curators who’ve struck the proper balance between nurturing candidates and making their business clients more competitive, profitable and productive.
This article was syndicated from Business 2 Community: More Jobs and Lower Wages: 2015 is the Year to Freelance
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