President Trump’s New Economy Challenge (Part 7 of 20). The Department of Labor Bureau of Labor Statistics (BLS) defines the contingent workforce as the portion of the labor force that has “nonstandard work arrangements” or those without “permanent jobs with a traditional employer-employee relationship.” The ever growing non-standard contingent workforce will consist of over 50% of the U.S. labor force overcoming today’s standard full-time workforce during the next decade. From a Jobenomics perspective, the contingent workforce issue should be the second highest priority (second only to mitigating the exodus of voluntary workforce departures) for the incoming Secretary of Labor, Alexander Acosta and his Department of Labor, which (by the Department’s own admission) knows little about this mega-trend. President Trump should be an expert on the contingent workforce due to his former position as a construction industry CEO that oversees projects that overwhelmingly employ non-standard, non-employee contingency workers.
A total of five Contingent Workforce Supplement (CWS) studies were conducted by the Department of Labor’s Bureau of Labor Statistics (BLS) in 1995, 1997, 1999, 2001 and 2005. Since the 2005 CWS, the BLS repeatedly requested that the CWS be reinstated. After a 10-year hiatus, the BLS will finally resume the CWS. In the FY2016 Budget (pages BLS-1 and BLS-11), out of a total BLS budget of $637.4 million, the BLS was granted a mere $1.6 million and 3 full-time equivalent personnel to conduct a CWS every other year. Considering the magnitude of the contingent workforce challenge, hopefully these three new BLS employees will be really good at their job.
The contingent workforce is comprised of two categories: “Core” and “Non-core” Contingency.
Core contingency workers include part-time workers, agency temps, direct-hire temps, on-call workers and laborers and contract company workers. Core contingency workers are often low wage earners that have nonstandard work arrangements out of necessity (involuntary workers) and are often subject to exploitation. Government generally views core contingent workers as a fiscal liability since these workers often receive lower wages compared to “standard workers” and are not entitled to traditional employer-provided retirement and health benefits. Consequently, core contingent workers rely on government retirement, health benefits and other means-adjusted assistance programs to a much greater degree than the standard workforce. Low wage earning core contingency workers are the group most likely to become discouraged, quit looking for work and voluntarily depart the labor force.
Non-core contingency workers include independent contractors, self-employed workers and standard part-time workers who work fewer than 35 hours per week. Non-core contingency workers generally seek nonstandard work agreements as a matter of choice (voluntary workers). Jobenomics views the non-core workforce as a positive and growing economic force. Most next-generation workforce entrants (Generation Z’s digital natives) are not seeking traditional employer-employee relationships and prefer self-employment in the so-called “digital” economy.
The following chart was derived from the 2015 Government Accountability Office (GAO) report, entitled the “Contingent Workforce: Size, Characteristics, Earnings, and Benefits”, that compared historical surveys (Contingent Workforce Supplement, CWS; and the General Social Survey, GSS).
Contingent Workforce Size Estimates 1998 to 2030
Using composite data from multiple sources, the BLS and Government Accounting Office (GAO) estimates contingent workers to be 30% to 40% of the “Employed” U.S. labor force. As of 1 January 2017, the total number of U.S. employed was 159,968,000 million people according to BLS data. Using the 40% figure, a total of over 60 million Americans would be considered contingent workers. As addressed in the previous posting, by 2030, Jobenomics estimates that 50% of all employed workers in the United States will be contingency workers for a total of 90 million, with the other half being standard full-time workers.
Jobenomics 2016 estimate of 40% for core and non-core contingency workers is roughly equivalent to the GAO 2015 CWS report‘s high water mark of 40.4% of the U.S. labor force in 2010 and Bloomberg’s contingency workforce estimate of 40% for 2020. Jobenomics 2016 estimate is also similar to estimates from other developed economies. For example, in Japan, contingent workers (non-regular workers) accounted for 40% of the total Japanese labor force in 2014, up from 10% in 1990.
According to the GAO April 2015 study, the size, character, earnings and benefits of today’s contingent workers are largely unknown to the Department of Labor and U.S. policy-makers. Quoting the GAO, “there is a lack of consensus on how to define contingent work, in part because researchers focus on different aspects of the labor market. Some definitions focus on job tenure or the precariousness of work, while some focus on employer-employee relationships. Available data thus produces varying estimates of the size of this workforce, depending on definition. Available data also does not fully enable analysis of trends in the size of the contingent workforce or the effects of economic cycles, such as the recent recession.” As a result, there is no government consensus on the magnitude of the contingent workforce.
Generally speaking, policy-makers wrongheadedly view the contingent workforce as a relatively insignificant portion of the U.S. labor force. They also view contingent workers more as a governmental liability than a public asset. The prevailing view of policy-makers is that most contingent workers receive lower wages and fewer employer-provided retirement and health benefits compared to standard workers. As a result, these workers are compelled to turn to government welfare and other means-adjusted programs for assistance. While this is true for the low-end of the contingency workforce, it is not necessarily the case for top-end contingency workers who chose nonstandard work as a matter of choice.
A growing number of non-core contingent workers do not want standard work, full-time jobs or traditional careers. 90% of independent contractors and self-employed workers reported in the last BLS CWS survey that they would not prefer a different type of employment from the one they have. Uber drivers, apps developers, fracking industry wildcatters and knowledge workers are just some of many examples of the growing ranks of the non-core contingent workforce in occupations that did not even exist a decade ago.
Contingent Work Force Size and Disposition in 2017
Within the contingent workforce, the non-core group represents 32% of the workers and core group 8%. Standard part-time workers are the largest single disposition, at 16%, of all employed workers, followed by independent contractors at 13%, core workers at 8%, and self-employed workers at 3%. It appears that only the 5.8 million incorporated self-employed workers were included, excluding the 9.6 million unincorporated self-employed workers, which is consistent with the Jobenomics premise that government surveys are focused on incorporated businesses in existing nonfarm industries as opposed to all businesses. If the unincorporated self-employed workers were included in the calculation the contingent workforce would be closer to the 50% mark.
It is important to note that the number of incorporated self-employed businesses has grown by 35% since year 2000, giving credence to the notion that non-core contingent businesses are an important faction of the U.S. labor force and overall economy—a faction that is neither well reported nor understood.
From a social science perspective, the major difference between core and non-core work involves social compact, an implicit contract for remuneration and protection in exchange for surrendering personal liberties. Relational employer-employee social compacts that evolved over the 20th Century are now less enforceable in today’s transactional society. Relational social compacts emphasize mutual-interests, whereas transactional social compacts promote self-interests. Relational compacts better accommodate low-skilled, risk-adverse, vulnerable core contingent workers who are dependent on near-term wages and benefits. Transactional compacts favor skilled non-core contingent workers who tend to be more self-directed, entrepreneurial and self-supporting.
Consequently, Jobenomics believes that America needs a dual contingent workforce strategy to (1) minimize low-end core contingent workers and (2) maximize top-end non-core contingent workers with emphasis on individuals and occupations with the highest need and potential.
According to many labor force experts, new workforce entrants (e.g., Generation Z “Screenagers” and Generation Y “Millennials”) prefer contingency work over standard work for a number of reasons including self-direction, variety, flexibility and skill development. In addition, Screenagers and Millennials exhibit a general disillusionment with traditional corporate social compacts and promises that have proven to be short-lived with older generations. Screenagers and Millennials also understand that traditional workforce growth is highly dependent on a robust economy, whereas contingent workforce growth is more resistant to economic fluctuations. In other words, in financial downturns more traditional work is outsourced to contingency workers.
The rise of the contingent workforce is not unique to the United States. Furthermore, contingent work is being embraced by foreign policy-makers to a greater extent than in America. In 2015, Japanese Prime Minister Shinzo Abe announced policies to make it easier for companies to dismiss standard workers in favor of contingency workers in order to make Japanese companies more competitive. An aging Japanese population will also fuel contingent work growth in Japan as retired workers and older women are seeking part-time work to supplement income in a struggling national economy. Europe is also struggling with the rapid rise in the contingent workforce as a result of widespread immigration both legal and illegal. Policy-makers in the United Kingdom site the massive influx of contingent workers from mainland Europe (as part of the open border policy) as one of the primary reasons for Britain’s exit from the European Union, Brexit. Policy-makers in China are actively preparing for the possibility of contingent work becoming the dominant element of their national labor force. China’s 13th Five-Year Plan, a roadmap for the nation’s development from 2016 to 2020, emphasizes the need to create a policy environment that can foster homegrown contingent workforce development and investment with emphasis on micro and self-employed businesses engaged in the emerging digital economy (e-business, e-commerce and e-retailing).
324 Million Total U.S. Population
Today, 37% of all Americans financially support the rest of the country. Out of a total population of 324 million Americans, 120 million private sector workers support: 32 million government workers and government contractors, 95 million people who can work but chose not to work, 63 million who cannot work (caregivers, children, retired and institutionalized citizens), and 15 million unemployed, underemployed and marginalized citizens.
Unfortunately, America is focused on standard workforce solutions that will not have a significant impact on revitalizing the U.S. labor force. The standard workforce is in a state of decline in comparison to the burgeoning contingent workforce. Soon the contingent workforce will replace the standard full-time workforce as the dominant force of labor in the United States—a trend that has to be one of the highest priority issues for the Trump Administration in order to achieve economic prosperity. In order to “Make America Great Again”, President Trump has to pay more attention to maximizing the potential of the non-core component of the contingent workforce while caring for the needs of low-wage earners in the core component.
Stay tuned for the next installment in the President Trump’s New Economy Challenge series entitled, “President Trump’s Old Economy Emphasis” scheduled for release on 2 March 2017.
About Jobenomics: Jobenomics deals with economics of business and job creation. The non-partisan Jobenomics National Grassroots Movement’s goal is to facilitate an environment that will create 20 million net new middle-class U.S. jobs within a decade. The Movement has a following of an estimated 20 million people. The Jobenomics website contains numerous books and material on how to mass-produce small business and jobs. Monthly website traffic exceeds one-half million hits, which is indicative of the high level of public interest regarding economic, business, labor force and workfare solutions. For more information, see Jobenomics Overview and the Author’s Biography.