By Professor Andrew Burke, Dean of Trinity Business School
The World of work is changing. The fastest growing segment of the workforce over the last 15 years have not been employees or new business owners. Instead, the biggest growth has been by people who are choosing to work on a freelance basis. These freelancers – who include contractors, solopreneurs and independent professionals – work on a project by project basis. They are usually paid for their output – the completion of a project – rather than their input – number of hours worked. They have been hired by firms in the modern dynamic economy who use freelancers to: innovate, managing risk, manage change, introduce new technology and provide unique skills not available in-house. Through all of these activities they enable businesses to become far more entrepreneurial and agile than they ever could be through the use of an employee-only workforce. Highly skilled freelancers have been able to share in the value that they generate in these businesses and they typically earn more than double the earnings of equivalent employees in managerial, professional and technology roles. So it should not be surprising that some countries like the UK refer to freelancers as their ‘economic secret weapon’.
If businesses like to locate in countries with low corporation tax, freelancers like to base themselves in countries with low income tax. Low income tax not only enables freelancers to have greater net earnings but also to be more competitive in the international market for freelance work. Notably, many businesses based in ‘high income tax’ Ireland are citing a shortage of freelance workers as a constraint on the level innovation and growth activities they carry out in the country. So Irish enterprise taxation policy has just become harder as enabling low corporation tax revenue by having higher income tax has countervailing effects on entrepreneurial activity.
The opportunities from freelancing are not just economic and much research has highlighted how freelancers have much higher job satisfaction when compared to equivalent employees as they work on more fulfilling projects and have greater flexibility in their personal lives. However, challenges exist as there are also significant segments of freelance workers – particularly among the lower skilled – who earn less then employees and who have a very precariat income stream. Many of these vulnerable workers are clearly worse off than equivalent employees. Likewise, there are some employers who reclassify employees as self-employed in order to avoid paying employer’s national insurance. By consequence, they create false freelancers who not only cost the government in terms of lost taxation but also cause a problem for legitimate freelancers by falsely tarnishing them as potential tax dodgers.
So as we move into the 21st Century where we want to enable workers to have the ability to choose the flexible freelance option if that is their wish and businesses to tap into the value added enabled by freelancers, we need to avoid a ‘one size fits all’ government policy approach to freelancing which either enables productive freelancing but ignores false self-employment and vulnerable workers or vice versa. Put differently, we need to avoid public policy that either ‘leaves the baby in dirty bathwater’ or worse still ‘throws the baby out with the bathwater’. Instead, we need to recognise the heterogeneity in the freelance labour market and attempt to divide it into advantaged, disadvantaged and false segments. We need a targeted and differentiated policy approach which legitimises and supports the advantaged segments, protects freelancers in the vulnerable segments and clearly defines the difference between false and legitimate self-employment so that the former can be prevented. Through this approach each economy can define and support a workforce fit for the 21st Century that serves both society and business.
You can hear more on this discussion our youtube channel at https://www.youtube.com/watch?v=CUGDISdyY94
On May 26th I will be joined on a panel by Simon McVickers from The Association of Independent Professionals and the Self-Employed (IPSE), David Jackson, Chairman and Founder of Hudson Contract, Derek Butler, CEO of Grid Finance, and Lan O’Connor, Director of Capgemini.
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