Social Innovation for the Freelance Economy

November 2, 2016

Technology is driving enormous change in the way Americans work – but it doesn’t have to drive inequality. Social innovators are developing new ways to help American workers thrive.

This post was produced in partnership with News Deeply.

In the decades after World War II, the United States saw prosperity rise across the board: as productivity and GDP grew, so did job creation and household income. But over the past 15 years, this defining characteristic of American life has changed, in what Andrew McAfee, co-director of the MIT Initiative on the Digital Economy, calls the great decoupling. Growth at the national level continues to rise, but job creation is not keeping pace. Nearly all – 90 percent – of net employment growth in the U.S. from 2005 to 2015 occurred in alternative work arrangements like freelancing, independent contracting, and temporary or on-call positions. The last few years of recovery since the Great Recession have been marked by unequal income growth; the average middle-income household now earns less than it did in 1998.

“This notion that if you go get skills and you offer your labor to the workforce, you will get a good middle class living in exchange – that was accurate not too many years ago,” said McAfee. “I see a lot of evidence that that bargain is changing and getting chillier for many.”

The Mastercard Center for Inclusive Growth, in partnership with the Beeck Center for Social Impact and Innovation at Georgetown University, brought together leading experts to discuss how policymakers, business leaders and civil society can create an economy that includes the excluded in growth. Held in New York on October 17, it was the first of five events this fall during the Center’s multi-city U.S. listening tour, On the Frontlines of Inclusive Growth.

“Technology and globalization are important drivers of inequality,” Felicia Wong, president and chief executive of the Roosevelt Institute, said on a panel during the event. “But they needn’t be determinants of our outcome.”

Social innovators are pioneering strategies and tools to serve a growing independent workforce and ensure the digital economy creates shared prosperity.

Thirty-five percent of the U.S. workforce earns part of all of its household income in ways other than traditional employment. The Freelancers Union, a non-profit membership organization that provides benefits and advocacy for independent workers, released its latest Freelancing in America: 2016 survey report last month in collaboration with Upwork and Edelman Intelligence. It illustrates the diverse ways in which workers combine income sources.

freelancers-35-percent-us-workforceOf the 55 million Americans who earn income independently, 19.1 million are traditional full-time freelancers. A further 28.7 million do gig work or projects on the side, on top of regular employment – extra income that more people need as real wages stagnate for the shrinking middle class.

In some ways, the gig economy has itself become workers’ safety net.

When the Freelancers Union asked independent workers what they depended on most, they said, “‘Sites where I can literally just get work,’” founder and executive director Sara Horowitz said. Many told her that they feel their best chance for security is a portfolio of work, she said. “‘Because I’m not eligible for unemployment insurance, if I don’t have a bunch of different jobs, I’m really going to be screwed.’”

Income volatility is a serious problem for millions of Americans regardless of job type. One-third of households have income that spikes and dips throughout the year, and 50 percent could not come up with $400 to cover an emergency expense, according to the Federal Reserve.

Americans need a new safety net that fits the changing nature of working and earning.

Etsy, the online marketplace with 1.7 million independent shopkeepers, is driving forward a movement to design portable benefits that workers can establish, maintain and retain regardless of employment relationships or business status.

“Economic security is a huge challenge for [our sellers],” said Althea Erickson, Etsy global policy director. The majority of the platform’s sellers, 86 percent of whom are women, are self-employed; thirty percent depend on their Etsy sales for their entire income.

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Althea Erickson, Felicia Wong and other panelists discuss the future of the US workforce in the digital economy. (Photo credit: Beeck Center)

The company’s recent white paper, Economic Security for the Gig Economy, details several new tools that could help, such as a MyFlex account that would enable individuals to build tax-advantaged savings to fund benefits like paid leave. The paper adds innovative ideas to the growing momentum behind a move towards portable benefits. Last year, 40 policymakers and executives published an open letter calling for the development of a flexible safety net for all workers. This July, the U.S. Department of Labor announced grants worth $100,000 to fund research into portable retirement accounts for low-income workers.

Building ways for more workers to connect to opportunities that lift them out of low-wage work is also an essential part of the safety net Americans need.

On-demand gig work such as making deliveries or driving passengers has a high profile; former U.S. labor secretary Robert Reich recently called it a “downward escalator”. But new social entrepreneurs are promoting inclusive growth by harnessing excluded Americans’ real skills and talents. “We’re seeing more and more next generation talent proposing ways of connecting non-traditional candidates to the workforce,” said Cheryl Dorsey, president of Echoing Green, one of the world’s largest early-stage funders of social entrepreneurs.

Maria Vertkin, a 2013 Echoing Green fellow, launched Found In Translation to connect women living in poverty with a well-paid industry that needed their valuable foreign language skills.

“She recognized that medical translation services is one of the fastest-growing areas in the healthcare field,” Dorsey said. “You can find low-income, immigrant women who bring a wealth of skills through their native language abilities, and you can move them from low-skilled wages very quickly to $20 or $25 per hour gigs.”

Similarly, LaborX, another company Echoing Green supports, connects tech workers who lack college degrees with employers who would otherwise overlook them.

“These are software and technology-enabled businesses that put social purpose and social impact first,” Dorsey said. “Prove these models at scale, and I think that’s a really positive disruptive force.”

Interested in taking a deeper dive into the issue? Sign up for updates from On the Frontlines of Inclusive Growth and check out these reads:

Rewriting the Rules of the American Economy

Inequality is a choice, writes Nobel laureate Joseph Stiglitz and senior leaders at the Roosevelt Institute. This report examines how policymakers can craft a future that expands the middle class and creates long-term business growth.

MIT Initiative on the Digital Economy (IDE) Inclusive Innovation Competition

This competition recently announced the winners and finalists of a massive global competition for organizations  “that are inventing a more inclusive, productive, and sustainable future for all.” Check out the field of candidates, including grand prize winner Year Up, which trains low-income young adults in U.S. cities in the skills they need to access professional careers.

Featured Photo Credit: Getty Images

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