Freelance jobs: Half of all new jobs in recovery?

Freelance jobs are up 52 percent at Elance. The number of entrepreneurs are at a 15-year high. But the growth in freelance jobs mean less security for the workforce.

Oskar Garcia/AP/File
In this photo taken April 1, 2010, Mark Sepeda removes a transmission pan while working on a car in Las Vegas. Sepeda has been working as a freelance auto mechanic since he was laid off as an iron worker in January 2009. Freelance jobs are one of the fastest-growing parts of the employment recovery.

As America's jobs recovery begins to take hold, one sector is growing faster than ever: freelancing.

There's reason to celebrate. Many Americans are bypassing the corporate ladder to strike out on their own – doing everything from graphic design to iPhone programming. But there's also reason to worry. Others are becoming entrepreneurs by necessity, forced to take freelance jobs because they cannot find regular jobs.

Desperation, rather than inspiration, seems to be the major force behind the trend. And the surge isn't over.

"Freelancers are just doing work outside the corporate structure rather than inside," says Jeff Cornwall, director of the Center for Entrepreneurship at Belmont University in Nashville, Tenn. "That's not the kind of entrepreneurship that is going to pull us through this recession."

Even before the Great Recession, nearly a third of the US workforce was freelancing – or "contingently employed," as a 2005 Government Accountability Office (GAO) report put it. That number has surged. More Americans became entrepreneurs during the Great Recession than at any time in the past 15 years, the Kauffman Foundation estimates.

The future promises to bring more of the same. Freelance positions are expected to make up half of all new jobs added during the economic recovery, according to a 2009 report based on research from the Massachusetts Institute of Technology in Cambridge.

Online technology has encouraged the transition. Job postings at Elance – a hiring website for freelancers – are up 52 percent so far this year. "Collaborative technology is allowing work to move online," says chief executive officer Fabio Rosati. "Physical proximity is becoming less important. It's a revolution in the world of work."

Structural changes in the economy are also a factor. Companies started shrinking the size of their permanent staffs before the recession, relying on contingent workers to an increasing degree. These efforts intensified once the economy soured.

The rise of freelancers will lead to "a future in which more people can assert their independence and guide their economic and personal destiny," writes Daniel Pink, author of the book "Free Agent Nation."

That's a boon for successful free-lancers. "Freelancing allows you to pick the clients, the projects, and the people you work with," says Ed Gandia, a freelance copywriter and coauthor of "The Wealthy Freelancer." "That kind of freedom and flexibility is what people want."

But without a steady paycheck, it's also less secure. On average, contingent workers are twice as likely as full-time em-ployees to have an annual income of $15,000 or less, according to the GAO. A 2010 report from the University of California, Santa Cruz found that the higher an area's entrepreneurship rate, the higher its local unemployment rate tended to be.

"Job insecurity is a major stressor … and most people wouldn't choose that," says Frances McKee-Ryan, a labor economist at the University of Nevada, Reno. "Those who accept it usually do so in reaction to the economy."

As the economy expands, many of these workers could find permanent full-time jobs. But that will be less likely if firms – large and small – adopt a freelance business model.

When Casey McCon­nell opened his mobile-phone marketing firm Qittle in Colorado in 2008, he planned to hire at least 10 full-time employees. But he could not afford to give salaries and benefits to that many people during the recession, so he hired the majority of his workers as free-lancers. Since then, Qittle's permanent staff has stayed small – only four people – and Mr. McConnell says he intends to keep it that way, even if the economy booms. "We're all very limited in time, resources, and energy," he says. "Freelancers allow you to dabble in projects instead of putting your whole business at risk."

Most freelancers will need help, says Sara Horowitz, founder of Freelancers Union, a nonprofit organization. Some of the steps are self-help, such as buying health insurance and retirement plans at group rates. (The union offers these.) Independent workers also need labor protections that traditional employees enjoy, such as workers' compensation and legal redress for discriminatory hiring practices, Ms. Horowitz says. Because such workers are often ineligible for unemployment insurance, they don't have much of a buffer when out of work.

"There are concerns because this new workforce doesn't have a safety net, so let's build a new safety net," Horowitz says. "But we shouldn't talk about going backwards.... Independent work is the new reality, and you don't do anybody any favors by pretending that it is something different."

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