The Impact of Freelancing on Entrepreneurship in the Gig and Project- B ased Economies

1. The Impact of Freelancing on Entrepreneurship in the Gig and Project-Based Economies • Professor Andrew Burke • May 2019

2. Freelancers have been either ignored or misunderstood in research • They are rarely analysed as a point of interest in their own right – the problem stemming from their overlap with other economic agents – employees and entrepreneurs • Usually make cameo appearances in research focusing on: • Entrepreneurship– self-employed with no employees freelancers are depicted as ‘lowest perfomingentrepreneurs’ • Industrial Relations – freelancers with little job security they are often depicted as ‘exploited workers’

3. Easy to forget that employment contracts only became the norm in the second half of the 20th Century • The prevailing orthodoxy is that freelancers are largely disenfranchised employees and that freelancing should be discouraged as it erodes workers’ employment rights.

4. Topics of discussion • The context of this demand-driven research trajectory on the role of freelancing in the entrepreneurial economy • Understanding the diversity of the freelance workforce • Identifying how freelancer’s add value to businesses • & why firms use freelancers? • Comparing the importance of the freelance gig and project-based economies • Conclusion: lessons for research and policy

5. The story starts with an attempt to try to understand freelancing in the industry

6. Specialisation of Labour in the Construction Industry

7. Specialisation of labour & resulting downtime => Freelance workers

8. A freelance specialisation of labour model can: • Higher labour productivity: • Adam Smith’s specialised labour productivity effect • Reduced downtime per worker • Enhanced firm capability through access to talent beyond the confines of the employee base: • More diversity of: skills, experience, motivation, inter personal skills, social networks/capital etc.

9. The journey and core content: • Burke, A.E. (2019, June): The Freelance Project and Gig Economies of the 21st Century, London: CRSE Report • Burke, A.E. and Cowling, M. (2019/20, forthcoming), Freelance Workforce Intensity and Business Performance, Small Business Economics. • Burke, A.E., Zawwar, I & Hussels, S. (2019/20, forthcoming), The Impact of Freelancers on Entrepreneurial Activity, Small Business Economics. • Burke, A.E. & Vigne, S. (2018), The Economic Role of Freelance Workers in the Construction Industry (3rd Edition), 3rd Edition, London. • Burke, A.E (2015), The Handbook of Research on Freelancing and Self-Employment, London: CRSE & Dublin: Senate Hall • Burke, A.E. (2012), The Role of Freelancers in the 21st Century British Economy, London, PCG/IPSE. • Burke, A.E. (2011), The Entrepreneurship Role of Freelancers - Theory with Evidence from the Construction Industry, International Review of Entrepreneurship, 9, (3): 131 – 158 • IPSE Freelance Confidence Index Reports

10. The rise of small business and the innovation-driven economy is recent • Storey (1994) • & reversing the dominance of big business

11. The changing face of entrepreneurship • From the 1960s’ “capitalist who exploits workers” To the modern day hero & celebrity To the less visible new freelance entrepreneurs

12. There is diversity in freelancing so: A ‘one size fits all’ view creates a false debate and bad policies/law! • Freelancers in the Labour Market: •  A low earning shadow workforce that competes with employees • Or •  A workforce which are higher earning and complementary to employee labour ? • Freelancers as Entrepreneurship: •  The lowest performing self-employed who don’t hire any employees • Or •  Providers & enablers of innovation, entrepreneurship and growth in SMEs & large firms/corporations ?

13. Centre for Research on Self-Employment (CRSE) • 84% of the self-employed are solo self-employed • 53% have high levels of security and independence (satisfied and secure earnings) – mainly high skilled • 21% in insecure work • 15% have unclear status: no autonomy – mainly low skilled

14. Focusing on: Self-employed freelancers not employees

15. Focusing on high skilled freelancers: - SOCs 1,2 & 3 = 48% of the self-employed workforce& highly paid

16. Lifestyle matters too!

17. How freelancers create value for businesses Major Global Bank Global IT Corporation 36 case studies and econometric analysis of 1039 firms

18. Case Study: The creation of Argos Direct • Idea: from an employed executive • Created a freelance product development team • Post launch freelance team drives Argos Direct: £100m turnover by year 2 • Integration phase: freelancers gradually replaced by employees

19. Case Study: How a start-up beat a billion dollar cash rich incumbent • Innovation: • Use SME entrepreneurs to do early stage innovation – develop and test market: 3 employees & 5 Freelancers • If successful scale up to hundreds of employees • Going International: • from 1 freelancer to hundreds of employees in China • now the market leader • Bought by Softbank for £23.4 billion • 2012 Britain’s Top Employer Award

20. Case Study: PTs Consulting: freelancers de-risking growth • Initially used to be an employee-only business • Had to turn down contracts when they were not certain that they could guarantee follow on work for employees • Not a sustainable business model - moved to incorporate freelancers to grow the business

21. Freelancers reducing risk & creating employment Burke (2012, 2013), Freelancers in the 21st Century UK Economy

22. The means through which a freelance workforce model generates economic value added

23. The Project-Based Freelance Economy

24. How freelancers are affecting the entrepreneurial economy • Firms with more than 11% of their workforce comprised of freelancers (Burke & Cowling): • Grow faster • Create more employee jobs (freelancers creating net job creation) • Entrepreneurial activity is positively related to the availability of freelancers in the labour force (Burke, Zawwar & Hussels) • So freelancing drives both an increase in the quantity and qualityof entrepreneurship • Forthcoming special issue of SBE on the Role of freelancers for entrepreneurship & small business

25. Freelancers causes net employment creation: requires exceeding an 11% threshold freelance workforce model Burke and Cowling (2015), working paper

26. Separating the Project-based and gig high skilled freelance economies • “My work is about successfully completing well-defined (often unique) projects for clients usually running over weeks/months rather than completing specific (often routine) daily gigs/tasks” • 6 point scale: • 1 strongly agree, 2 agree, 3 neither agree nor disagree, 4 disagree, 5 strongly disagree and 6 don’t know.

27. Project-based freelancers dominate the self-employed labour market

28. Relative earnings of project-based and gig high skilled freelancers

29. The project-based high skilled freelance economy is over 5 times larger than the equivalent gig economy

30. The UK Freelance Project & Gig Economies of the 21st Century • Project-based economy 73% of the freelance market = £106 billion • Gig economy accounts for 14% of the same= £20 billion

31. Conclusions • The high skilled freelance project-based economy is a major driver of growth, innovation, entrepreneurship and job creation in the economy • Among high skilled freelancers: the project-based economy is over 5 times larger than the gig economy • High skilled project-based freelancers earn more than peer employees • Government fiscal and enterprise policies need to distinguish, recognise and nurture this segment of the self-employed workforce • The law and media need to catch up with this new form of work: moving beyond ‘one size fits all’ approaches • As researchers we need a better understanding of this driver of both the quality and quantity of entrepreneurship

32. Q & A

33. Project-Based Freelancers: meeting criteria for legitimate* self-employment • *A person who is self-employed: • Owns their own business; • Is exposed to financial risk; • Can subcontract the work; • Has no ‘mutuality of obligation’ and is not obliged to take on specific work; • Supplies the necessary equipment for the job; • Costs and agrees a price for the job; • Is not entitled to paid leave; • Provides their own insurance cover; • Controls their own hours in fulfilling a job; • Is registered for Self-Assessment tax and is required to file their own tax returns. • *Dept of Employment Affairs and Social Protection

34. Project-Based Freelancers being (mis)classified* as employed • *A person who is employed: • Is under the control of another person (employer); • Receives fixed hourly/weekly/monthly wages; • Supplies labour only; • Cannot subcontract the work; • Has ‘mutuality of obligation’, that is where the employer is obliged to offer work and the employee is obliged to perform work; • Does not supply equipment/materials for the job; • Is entitled to sick pay/holiday pay; • Is provided with insurance cover by their employer; • Works a set number of hours per week; • Has their tax deducted from their wages under PAYE. *Dept of Employment Affairs and Social Protection

35. Colbre Projects: Specialisation of Construction Industry Labour

36. Taylor Wimpey: Specialisation of Labour

38. But freelancers have been either ignored or misunderstood • They are rarely analysed as a point of interest in their own right – the problem stemming from their overlap with other economic agents – employees and entrepreneurs • Usually make cameo appearances in research focusing on: • Successful Entrepreneurs – with no employees freelancers are depicted as ‘failed entrepreneurs’ • Industrial Relations – with little job security they are often depicted as ‘exploited workers’