Employee or Contractor?

In June, I blogged about the theory that the employer-employee relationship is being replaced by a relationship in which workers are hired guns. I argued that the “Hollywood model,” much hyped in the 1990s, still has not caught on and is unlikely to because workers value the security and the continued health insurance they get from regular employment and employers value the creative workers they have identified and cultivated.



On the other hand, there is a definite trend toward the pretense of this arrangement--that is, a relationship in which the employee acts like a salaried worker but contractually is a hired gun. The workers behave exactly like salaried employees, putting in the same 40-hour weeks, working at the same site, answerable to the same supervisors, maybe even wearing a uniform with the company logo, but on paper they are independent contractors. As I acknowledged in the earlier blog, this arrangement helps employers avoid carrying the overhead of a large staff of salaried employees. The company also can prevent its workers from unionizing by arguing that most are independent contractors who have no right to collective bargaining. This actually happened last summer at an Ohio company, Baker Communications.



The Government Accountability Office reported in 2007 that 10 million workers were classified as independent contractors, an increase of more than 2 million in just six years, and certainly many of these new contracts were phony. The Bureau of Labor Statistics has estimated that the number of workers misclassified as independent contractors is as high as 30 percent in some states. One reason the government is concerned about this trend is that it cheats the tax collector of funds that normally would go to the accounts of Social Security, Medicare, and unemployment insurance.



Therefore, the IRS is scrutinizing the tax returns of people who file as independent contractors to make sure that the employment relationship is legitimate. If you are an independent contractor, you need to be sure that your work relationship meets the legal requirements. For example, you can’t be working for the same employer and doing the same work you did on payroll or doing the same work under the same conditions as people who are on payroll.



Ironically, one industry has recently begun to attempt the opposite pretense: that independent contractors were actually regular employees. There’s an obscure provision in United States copyright law, effective this year, that allows musicians to regain control of their work 35 years later, provided they have applied for such control at least two years in advance. You may or may not remember the music of 1978, but it was a very fruitful year for American musicians such as Bruce Springsteen and Billy Joel, and the record companies stand to lose a lot of revenue if they lose the rights to the masters of these performers’ songs.



Therefore, the record companies are arguing that the musicians who recorded for them were not independent contractors and that the recordings were “work for hire,” like the books that I write for JIST as a salaried employee. I don’t know whether there are any other industries that face a similar hazard from using independent contractors. It’s likely that most of them write contracts with explicit work-for-hire terms, as I have sometimes signed in my days as a contractor, so this situation is probably uncommon.



On the other hand, even when contractors are unable to carry away the output of their labors, employers need to consider that the contractors may take their talents and work experience to a competitor. Some employers of contractors attempt to prevent this by inserting noncompetition clauses into contracts, but a contractor with very valuable skills may be able to have such clauses removed. (I was able to do so with a former employer, something that I was unable to do while still a salaried employee of the same company.) Furthermore, noncompetition clauses sometimes don’t hold up in court, or the employer sometimes is reluctant to attempt enforcement, because such a clause undermines the pretense that the employee is a hired gun.

Senior Citizens at Work

Everybody knows someone who is still out of work because of the Great Recession. But you may not know many senior citizens who are. A blog entry by the economist Casey B. Milligan on The New York Times website points out that per capita employment of people ages 65 to 74 actually rose between 2007 and 2010, whereas in the population as a whole it fell by 7 percent. On the blog, you can see a nice chart illustrating this contrast, with one line for people ages 65 to 69, one line for people ages 70 to 74--both of these zigging and zagging a little, but ending up at a higher place--and another line for all ages, showing a steady downward slide. Mulligan notes that for those age 75+, the increase is even higher, but this is such a small group of workers that it is left off the chart.

I found this news fascinating because I recently finished working on the manuscript of 150 Best Jobs for a Secure Future, in which I look at career fields and occupations that have more security than most. I also look at the factors that contribute to job security and give suggestions for how you can make your job more secure.

One of the studies (PDF) that Mulligan cites to help explain this phenomenon, by economists at Boston College, looks at unemployment figures for young men and senior men over six past recessions and finds that older men used to have greater job security during slumps but this difference has been eroding. This makes it all the more noteworthy that older workers are bouncing back from unemployment so well. On the other hand, I want to point out that older workers still remain a little more secure, and this seems consistent with my finding, in the research for my book, that the more secure occupations tend to have greater-than-average concentrations of older workers. My own theory, which I have no way of proving, is that over the course of a career, workers in insecure jobs tend to lose them, whereas workers in secure jobs tend to be able to hold on, resulting in a gradual sifting of older workers out of insecure jobs and into secure jobs.

Another factor that may be in play, which was noted by some people who commented on the blog, was that older workers are likely to have better networks for finding jobs.

Mulligan explains the relatively high employment of elderly people by saying that they’re more willing to work. The Boston College study notes that older workers are less discouraged by the physical demands of work than previously because the economy now offers fewer physically demanding jobs. Now that more women are in the workforce, older men may be postponing retirement until their wives (who are, on average, three years younger) reach retirement age. Finally, those workers too young to get Medicare may be motivated to work because of the lack of post-retirement health-care benefits, which used to be a common benefit of employers but has diminished greatly over the past two decades, even as health-care costs have risen dramatically. Several of the people who commented on Mulligan’s article took up this argument, such as the elderly person who wrote, “I would not say that the elderly are ‘willing’ to work so much as they are forced to work.”

Others who left comments noted that the figures don’t indicate which workers are full-time and which are part-time. Many of these employed senior citizens may be holding part-time jobs to supplement retirement income. One wrote, “My spouse and I are senior citizens and we both work part time at two jobs. Employers would rather hire part-timers because they are less expensive. Young people have to find full-time work; empty nesters like us have fewer expenses and can just about make it on two (four all together) part-time jobs. We realize we are being exploited, but what can we do? We must supplement Social Security.”

Here’s the lesson I take away from this: The politicians who would cut back unemployment benefits and slash funding for workforce development want to believe that unemployed young people simply are not trying hard enough to find jobs. But I believe that’s a mistake. Unemployed young people tend to lack job-finding resources and, at the same time, they need jobs that they can build a life on. Their need for work is very different from the need for work experienced by senior citizens.

The Hollywood Model of Employment

In 2011 Career Plan and many other books, I write mostly about careers that people pursue by going to work for someone else. To be sure, freelance or self-employed work is not uncommon in some occupations I describe. When I write about job-hunting, however, I generally write in terms of getting hired. However, some people who write about the future of work suggest that this kind of work arrangement is soon going to fade away. It’s an intriguing theory, but I don’t buy it.

The argument is that the “Hollywood model” will become the new norm. In the days of black-and-white movies, Hollywood studios kept writers, directors, cinematographers, editors, set designers, and other workers--even actors--under contract as full-time employees. But nowadays a movie producer brings together a team of workers with no commitments beyond the project at hand.

Some futurists argue that this will become the model for other industries--all the more likely as we see decreases in noncreative work, such as mass manufacturing, and increases in more creative work, such as research and development. Teams of creative workers will come together for a project and disband when it’s completed.

This new work arrangement is supposed to make the creative industries more competitive. It gives the project manager (in Hollywood, that would be the producer) the ability to put together the most appropriate team for the particular project and gives the talented workers the freedom to choose which projects to work in. This is supposed to increase the creativity of the output, because flexibility in the makeup of the team should avoid a cookie-cutter approach to the creative process. Moreover, this arrangement is supposed to save money, because the organization (in Hollywood, that would be the studio or production company) is not carrying the overhead of a large staff of salaried employees.

This alleged trend toward ad-hoc work arrangements should be encouraged by modern telecommunications technology. Nowadays you don’t even have to be on the same continent as your teammates to collaborate on many types of projects. In addition, traditional notions of loyalty to one’s employer have long since crumbled and no longer present a barrier to a more tentative employment relationship.

In the late 1990s, I had been reading several books that argued that this was the emerging model for work. At the time, I was convinced by this reasoning, and I even drafted an article arguing in favor of this prediction.

But I no longer believe that this change will happen anytime soon. One reason for my skepticism is the passage of time: Almost all of these factors have been present for the past 15 years, yet no paradigm shift has occurred so far.

You, too, may become a skeptic after visiting your local multiplex. Has the Hollywood model really contained movie production costs? And after the umpteenth movie in which an odd couple hits the road, an irresponsible schlubby guy woos a hot gal, or a superhero battles the forces of evil, do you really think Hollywood is more creative now than in the heyday of Louis B. Mayer and the Warner Brothers?

In the current model for the film industry, word of mouth quickly kills off every movie except a few blockbusters. Seeking a blockbuster, then, producers spend megabucks to inject larger-than-life stars or larger-than-life special effects into a predictable concept that has been pre-sold to the public, such as a formulaic plot, a sequel, or a 30-year-old television show. I wonder whether other creative industries can achieve any better results by following the Hollywood model. Software publishing may be the dominant industry of this kind, and almost all the applications on my desktop are only cosmetically improved over what I was running a decade ago. Most of the advances in software have resulted from breakthroughs in hardware platforms.

Here are some important factors that I believe will continue to discourage project-based work arrangements in the near future:

• Health insurance costs continue to climb, and we’re seeing only slow movement at best away from a system that is employer-based and that can deny you coverage easily when you’re not a full-time worker.


• Job security has become a much greater concern since the onset of the Great Recession. (This is why the book I’m working on right now is called 150 Best Jobs for a Secure Future.) People realize that we are a long way from recovery of the jobs lost and that few safeguards have been put in place to prevent a repeat of the financial collapse. Because job loss means loss of health insurance, couples increasingly want at least one partner to have steady employment.


• The trend toward creative work means that an increasing number of companies are engaged constantly in creative projects and do not need to dismiss their workers after one project is finished. Creative workers are needed now more than ever, and so the companies that have identified and used their talents are reluctant to let them scatter to the four winds.


• Companies that only occasionally need creative workers can sometimes fill these needs by finding full-time employees who work elsewhere but are willing to moonlight. Moonlight income is very welcome these days of stagnant salaries in most industries.


• The project-based work arrangement requires creative workers to spend part of their work time lining up the next project. Many creative workers find this a drag on their ability to focus on the project at hand.

I am living proof of what I’m describing. After I was downsized in the late 1990s by a company that had only intermittent need of creative workers (at least in my area of expertise), I worked as a consultant for some years, doing project-based assignments. One such assignment, from JIST Publishing, turned into a series of assignments, then a half-time job, and finally a full-time job when JIST discovered that my skills were a good fit for the company’s needs and would be in constant demand. The same modern communications media that allowed me to work for JIST from home on a project-by-project basis enable me to work for JIST from home now as a regular employee.

The Great Recession has made me even more convinced than before that the traditional work arrangement remains preferable to a project-based scheme. I believe that my view is not idiosyncratic but is shared by most workers who theoretically should be able to work in a project-based arrangement.

A Graphic Look at Secure and Insecure Industries

Right now I’m working on a book called 150 Best Jobs for a Secure Future, which is intended to take the place of 150 Best Recession-Proof Jobs. I received a lot of media coverage, including face time on several TV networks, when Recession-Proof came out, thanks to the efforts of JIST’s crackerjack publicist, Selena Dehne, and also because the book came out just as the recession was taking its heaviest toll and the subject of the book thus had newsworthiness.

Now that I’m working on a similar concept, I’m trying to benefit from hindsight. Did all 150 occupations included in the book weather the recession with no layoffs? Of course not. In fact, almost every occupation you can think of has a certain number of layoffs and dismissals, even in good times. Think of layoffs as like body temperature: There’s a certain rate, like our normal 98.6 degrees, that can be considered healthy. A better question to ask is whether some of the occupations in the earlier book experienced a considerable uptick in layoffs, a feverish recessionary level. Sadly, some did, but that’s not surprising. The Great Recession was ever so much worse than any we have experienced since the 1930s, and some occupations that are barely affected by normal recessions did experience a higher level of job loss.

One lesson that I learned from the previous book is that in considerations of job security, it is helpful to think not only in terms of occupations but also in terms of industries. Some industries are much less sensitive to the ups and downs of the economy than others. That’s something I stated in the earlier book, but this time I’m constructing the lists of best jobs based on industry-specific data for occupations. So, for example, a given occupation may appear as tenth on the list of best jobs in educational services but as twenty-second (or maybe not at all) on the list of best jobs in government.

I’ve used several lines of research for selecting the most secure industries, but perhaps the most dramatic is the graphic that appears below. (This ties in nicely with my blog of two weeks ago, in which I discussed the importance of graphicacy--skill with using and understanding visual representations.)

Layoff and Discharge Rates (Percent) in Selected Industries

Source: JOLTS database, BLS

I created this graph from data I downloaded from the Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS). It shows the average annual percentage rate of layoffs and discharges in several major industries over the previous decade. The first thing you should notice is the bold black line, which represents all private-sector industries. You’ll note that over the course of the last decade, it starts out flat (at around 1.7%), coasts down along a very slight mid-decade dip, trends upward beginning in 2007, hits a peak in 2009, and then slopes downward, reaching about the lowest point of the previous decade. The impact of the Great Recession is obvious, and this is the line against which you should compare the other lines in the chart.

Now let’s focus on the lowest and flattest lines on the chart. The star performer here is the bold robin’s-egg blue line that represents education and health care, which maintains a steady rate of between 8.0% and 9.0% over the course of the decade. You can barely see the recessionary uptick that appears along almost all the other lines. You can be sure I’m going to include this industry (actually, the two smaller industries it subsumes) in the book I’m working on now.

Government, the pink line, is another interesting industry to observe. It begins the decade with the lowest rate of all, 0.5%, and maintains the lowest rate until the very end of the decade. Note that it actually slopes downwards slightly from 2007 to 2008, when almost every other industry is beginning to see increased layoffs. It parallels the other industries in sloping upward after 2008, but it is unique in that it continues this upward slope even after the private-sector industries start seeing diminished layoffs. It’s not hard to understand why you’re seeing increasing government layoffs here: reduced tax revenues and politicians who have experienced an overnight conversion to deficit hawkishness. Nevertheless, I’m going to include government as one of the industries in the new book, because there are several kinds of government workers (such as in law enforcement) that are essential and will not be dismissed unless we are prepared to model our country after Somalia.

Note also the green line that partially overlaps with the robins’-egg blue education and health care line. This is finance and insurance. You’ll observe that it’s a little more volatile than education and health care, but it still shows fewer perturbations than most of the other industries and overall maintains one of the lowest rates of layoffs and discharges.

The most sensitive industry on this chart, with the widest swings and a very high layoff rate to begin with, is construction, the red line. But the one that particularly fascinates me is the yellow line for arts, entertainment, and recreation, which keeps changing places with construction as the industry with the highest layoff rate. This industry is the most countercyclical of all those shown here, actually doing better as the recession sets in. I’m not going to include either of these two industries in the book.