Do Independent Workers Trump Traditional Models?

Policy makers and employers in the U.S. and Europe are facing a host of new challenges as they struggle to keep pace with a shift in the labor market away from traditional employment models. 

The ranks of independent workers are expanding, but government figures don’t accurately reflect the extent of this emerging labor market phenomenon, according to a report by the McKinsey Global Institute. 

The study found that 20-30 percent of the labor force in both the U.S. and the EU-15 is now made up of independent workers who are self-employed or do temporary work. At the high end of the range, that could be as many as 162 million individuals. 

The EU-15 is made up of Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the U.K. 

One issue flagged by the report is that governments are undercounting the number of independent workers because their data collection tools are "insufficient, outdated, and too narrow to capture the full range of economic activity that is taking place." 

Government labor policies also need revision as they were developed for the Industrial Age and do not apply to the current era of nontraditional work. "It may be time to modernize the safety net and worker protections to better reflect the realities of today’s labor market," the report said. 

A common myth debunked by the study is that independent work is dominated by millennials and low-income earners, when in fact independent workers span a wide range of ages, skill levels and incomes. The study also found a high degree of similarity in the prevalence and profiles of independent earners across the U.S. and Europe. 

For employers, cost savings tend to be the main driver behind their desire to use freelancers, as hiring workers on a project basis is usually cheaper than bringing them on board on a yearly salary. The struggle for talent is another key factor as some workers with specialized skills may be more amenable to working remotely and temporarily rather than moving to a company’s headquarters. 

But adopting more of the flexibility and varied work offered by alternative employment models is not without downsides. At the recent Worldwide ERC Global Workforce Symposium in Washington, D.C., HR experts spoke about how common it is for companies to have so many contractors working across the globe that they can find it challenging to determine who, where and what their workforce is. Others spoke about how a company’s bottom line is increasingly tied to how well it utilizes and leverages independent workers to complement its existing workforce. 

"It’s not just an HR issue, but it’s a business issue too," said Julie Tschida-Brown, Senior Vice President of Total Rewards and HR Transformation at IHS Markit in Englewood, Colo. "How do we address this problem in the new business environment where you have all these employees who want to come in and do a project for six months and then hop off for two or three months and then maybe do a different project for a year?" 

As the issues surrounding the independent workforce become more complex, it’s important for HR professionals to keep apprised of this rapidly changing landscape. And if traditional employment models go the way of the dodo, many long-held traditions of employee management are likely to become obsolete along with them.

Bloomberg BNA’s International HR Decision Support Network  provides resources, including labor and employment law primers on more than 70 countries, to help you stay compliant and develop policies for your international operations. Start your free trial  today.