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Sunday, February 01, 2004 - Page updated at 12:00 A.M.

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Freelancers, self-employed changing the work force on their own

By Nell Henderson and Kirstin Downey
The Washington Post

SARAH L. VOISIN / THE WASHINGTON POST
Electrical engineer Dale DiBernardo, 43, of Oviedo, Fla., says job security is illusory and freelancing at least offers control over career decisions. This may be an era in which creation of traditional full-time jobs will be limited by the global availability of independent contractors.
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Ken Gaebler can help explain how the U.S. economy can be growing so briskly without adding significant numbers of new jobs.

When Gaebler's 3-year-old marketing firm needs a computer programmer, a speechwriter, a Web designer or just about any other work done, Gaebler doesn't take out a help-wanted ad. He puts the project out to bid on the Internet.

He recently hired a man in Ukraine to design a computer system to monitor sales results. Gaebler paid him $118, much less than the $1,000 he figures he would have paid a freelance American programmer.

Gaebler paid by credit card and earned frequent-flier miles on the transaction.

Gaebler's Chicago firm has grown to nearly $1 million in sales with only three full-time, traditional employees.

"So many talented people that I worked with in the past are available for freelance work," Gaebler said. "These are people who used to make $150,000 per year and now they are freelancing and pulling in $60,000 to $70,000 while they wait for the economy to turn around."

Work for hire

It may be that the economy has already turned around and that Gaebler's personnel policies are among those that will help define this expansion: an era when the creation of traditional full-time jobs will be tamped down by the global availability of work-for-hire independent contractors.

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More than two years into the recovery from the last recession, coming off a quarter with sizzling 8.2 percent growth in the gross domestic product, the U.S. economy has created only 278,000 new jobs in recent months — leaving the nation's total number of payroll jobs 776,000 lower than when the recovery began.

"It's a new kind of work force," said Paul Villella, chief executive of HireStrategy, a Reston, Va.-based recruiting firm. About 64 percent of the people his firm found work for last year accepted jobs as independent contractors, up from 28 percent in 2000. Most of the job seekers were accountants and software engineers.

While economists agree there is more self-employment, they disagree about whether this is a temporary adjustment that will soon give way to more robust growth in traditional jobs, or a lasting change in the nature of work and the relationship between employer and worker.

The answer to that question matters greatly to presidential candidates vying for office during a "jobless recovery," as well as to Federal Reserve officials who must decide how long to leave interest rates at a 45-year low.

If and when the job market strengthens, Fed officials will have to decide how to start raising rates to prevent inflation from rising to undesirable levels.

Making these decisions is tricky, particularly in a changing economy.

"Assessing the amount of slack in the labor market is very difficult and ultimately a matter of judgment," Fed Governor Ben Bernanke, one of the 19 members of the central bank's policy-making committee, said in a recent speech.

Many economists believe the government's official job statistics are having difficulty measuring changes in the employment picture with precision. For example, jobs being created by small businesses can take longer to be recognized in the official tallies compiled from the Labor Department's survey of about 400,000 employers.

That survey also does not capture the increase since the recession in self-employment, contract labor and off-the-books labor, including work by illegal immigrants, according to a recent study of federal and local employment data by the Center for Labor and Market Studies at Northeastern University.

The number of people who identify themselves to census takers as nonfarm, self-employed workers rose to 9.5 million in December, seasonally adjusted, up from 9.2 million a year earlier and up from 8.9 million when the recession ended, according to the Labor Department.

The category includes all sorts of workers — real-estate agents, consultants, programmers or graphic artists — as long as they are not also employed by a business, government or nonprofit organization.

SurePayroll, a Chicago firm that provides payroll services to small businesses, says more workers are reporting earnings by tax form 1099, which is submitted for freelance work, rather than by a W-2 form, which is submitted for traditional employees.

More 1099 forms

Michael Alter, SurePayroll's president, said the number of 1099 employees the company paid for its clients rose to 4.7 percent last year, from 4.2 percent the year before. He described his client base as about 10,000 small businesses.

"We definitely see aspects of a recovery," Alter said. "The number of people we're paying is growing, but more of them are contractors."

Although this trend may be happening at the fringe of the economy, it explains at least a slice of how the jobless recovery is continuing.

Some economists believe it will continue to grow.

"It's gone on way too long to be temporary," said John Silvia, chief economist of the fixed-income division of Wachovia Securities. "We have to treat it as a realistic transformation of the economy."

While self-employment is great for workers who enjoy the freedom and flexibility, others would prefer the security and employer-provided benefits of a traditional job. The data provide no information on how much self-employment is voluntary.

Electrical engineer Dale DiBernardo, 43, of Oviedo, Fla., was happy to double his pay by joining Gibson Audio as an independent contractor. He said the idea of permanence in the workplace was an illusion, and he hopes to prosper by maintaining greater control of his career prospects.

"I've lost total trust in the management of companies in controlling my future," said DiBernardo, who worked in the past as an employee of Boeing and Jensen Audio. "The last thing I want to do is move to D.C. or Washington state or whatever and be laid off if the product doesn't take off. A lot of people are like me."

Copyright © 2004 The Seattle Times Company

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