oConomy
February 18, 2009 by Amit Bakshi

Still sick of hearing dreadful news every day about the U.S. economy?  Earlier this month, we provided some rare good news when we reported on the acceleration of U.S. freelance job growth.  Today, we're going dig deeper into our data to try to provide a fair & balanced assessment on the state of the Freelance Economy.  We are going to answer three questions:

1)    Is outsourcing growing or shrinking as companies are tightening their belts in the recession?
2)    Is competition for freelance jobs heating up?
3)    If so, are wages being depressed?

As a marketplace for online workteams, we keep close tabs on outsourcing trends, including growth, wage statistics, and country-by-country comparisons.  We share as much of this data as possible with our community of businesses & freelancers in our oConomy. This analysis is based off of oConomy data.

1. The growth of outsourcing
Jobs aren't just being slashed these days — they're being clearcut like an old-growth forest. Yet work still has to get done, which is why freelancing and outsourcing continue to grow at a furious rate. With unemployment rates at their highest in 15 years, more skilled professionals are looking for freelance work, and leaner companies are looking to outsource functions rather than hire more full-time staff. The bottom line: Last year, outsourcing on oDesk nearly tripled.

Hours Per Quarter

This broad-based trend, stretching across continents, had an interesting twist — a resurgence of homeshoring, in which U.S. buyers outsource to U.S. providers.  We reported on this trend earlier this month.  Notice that growth in the amount of work done in the U.S. was faster relative to other countries known for outsourcing, like India and Russia:

Growth in New Hires - US vs India vs Russia

We concluded that higher satisfaction rates are helping U.S. workers gain ground against the often cheaper competition overseas.

2. Competition for jobs
Although more freelance work is happening than ever, there are also more people looking to do it, which gives more leverage to employers. Eighteen months ago, there were 2.5 service providers for each buyer. Today, there are nearly 4.

oDesk User Ratio (Providers vs. Buyers) by Month

More jobs means more providers are finding work than ever before, but that spike in competition means it takes new workers longer to find their first jobs and get themselves established. In January 2007, 11% of providers found their first job within 90 days of signing up on oDesk. Today, that number is down to 3%.

microsoft-excel-02-17-2009-191312

Increased competition leaves the freelance provider with two recourses as she shapes her resume, especially in tech-oriented categories such as software development: Pursue the skills and jobs showing the greatest growth in 2008, or those with the least competition.

3. Wages
You'd expect greater competition to push down pay rates. Surprisingly, oDesk is seeing wages within countries escape that downward spiral. For example, our U.S. hourly rate stats show key areas holding steady or, for highly technical skills such as software development, actually rising.

United States Hourly Rates

So there are more people competing for jobs, but it seems that not everyone is truly competitive.  The provider with valuable skills and the ability to market himself online and deliver results over great distances can still demand healthy rates.

So what's the state of the freelance economy from our perspective? The bad news is the same that you're reading in every newspaper — full-time workers are losing their jobs, and companies are tightening their belts. The good news, though, is that there there is more freelance work than ever, and the smart, skilled freelancer is well-positioned to thrive.  And, of course, businesses have more qualified freelancers to choose from than ever.

Amit Bakshi

Vice President of Marketing at LawPivot

Amit Bakshi is the Vice President of Marketing at LawPivot. He formerly served as Product Marketing Manager for oDesk.

  • David Alexander

    The idea that freelance wages will remain high is wishful thinking by freelancers. It is also an obvious attempt to boost their egos to believe that if there is more competition and wages stay high and they have a job they must be the best among many candidates.

    The reality is that a basic rule of economics is that wages and prices tend to be sticky. If current workers are being paid a given wage, it is difficult to bring in new workers at a lower wage. It is also a basic rule of economics that as the supply of available labor increases, wages tend to fall.

    There will be more and more candidates available for each opening as outsourcing increases. All indications are that inflation is about to increase, possibly dramatically. When that occurs, it won't matter that nominal wages are sticky. A freelancer who now gets $25.00/hour will still get $25.00/hour, even if the real value of $25.00/hour falls under $20.00. When the real value of wages is inflated away, an employer may get a small percent fewer applicants. However, he will still have plenty of qualified candidates to choose from. He will not adjust the wage he offers by 25% to compensate for inflation if his top candidate who he could still pay $25.00/hour to is only 2% better than the rest.

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  • Deepak

    Partnering with 'Beggars'

    While the process of bidding enhances competitiveness among the providers, it also contributes to the risk of creating a community that is ready to be exploited in every possible manner. Generally freelancers are skilled, they have learnt everything a hard way, they are here to find solutions to buyer's problems, they are striving hard continuously to be useful but there are buyers, who, just because the market provides them opportunistic chances to command the situation, they end up adopting certain unhealthy practices and won't even look at what the ECONOMY means to all.

    For instance, I have observed that some buyers are expecting to hire a person on full time basis on a long-term contract even with the pay fixed at $0.25/hr, that leaves the person with earnings of $2.50 a day or $62.00 for the entire month! Now the question is do these buyers think that there is a group of starving beggars waiting to be appointed to do few things and earn as much as $62.00 for a whole month. This clearly indicates the utter shortcoming of bidding process that encourages exploitation of sorts and undermines human dignity. While offering $62.00 or so for a person for his entire month's work, the buyers should look at themselves if they too are sort of beggars, I feel they are. My simple question for these guys 'can you sustain yourself with $62.00/pm?' In my case it is just my monthly bill for internet connection and mobile bill put together.

    I request the providers to totally ignore these jokers who are out there to exploit the people and encourage only those who are willing to pay for the true value the partnership would generate. I strongly believe that Odesk is for creating win-win partnerships and helping each other to succeed.

    Deepak

  • John L

    dave c:
    No sorry, PMI only covers up to 20% of the loan, this is why its not required if you owe less than 80% on the house. And it only pays what the bank loses on selling the house (the loan fees not counting.. arg.. loan fees)

    Anyways yes generally the banks don't lose a penny, though they are losing nowadays with foreclosures paying less than 50% of the loan value frequently.

    Either way the REAL loses were in credit default swaps, but that is another story. Not that it wasn't all their fault.

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  • dave c

    The foreclosure lies being told need someone to write the truth and win a pultzer prize!

  • dave c

    I agree with this article whole heartedly.

    But on thing I would like to add is that today more than ever the world is thirsty and needs freelance writers to tell the true story of the biggest couple of lies ever told and then sold by the media and packaged by the worlds politicians.

    The math and facts are all there.

    The lie is that foreclosures are causing the banks to go under and the economy in the US to go under and the world economy to do the same thing.

    Lie #1 and the math

    In the US when a homeowner gets a loan they pay 2% up front, all taxes for this year and next year up front and then PMI insurance for the loan up front. The bank makes at least 5% of the loan up front given to them by the homeowner with the title for the home and pmi insurance paid for by the homeowner up front. So if the homeowner never pays 1 penny the bank makes 5% AND THE PMI INSURANCE PAYS THE BANK THE REST OF THE LOAN 100%. The bank then gets to write off all other costs and takes a tax break even though they made money! When they sell the home they get that money cash. The bank can decide whether to keep paying the loan they took out for the homeowner at 1% or just pay it off with the pmi insurance settlement and pocket the 5% up front and the sale of the home at the end. So every foreclosure nets the bank a minimum of 5% with another 50% if they sell the home for half price because the insurance policy paid in full up front by the homeowner pays 100% of the loan to the bank if the homeowner never pays one penny, or whenever the homeowner stops paying.

    So Foreclosures make the banks money and it is the biggest lie ever told.

    Lie #2 and the math
    Economic recession in the US is a given according to the media. But the truth is never in the history of the world has one nation been so economically strong as to be able to produce over 1000 suv automobiles per day, breath the air right over the factory, drink the water right next to the factory and do it with less than 1000 workers! So 1 worker produces over 1 auto per day! Nothing economically compares to the manufacturing giants of GM, Ford or Chrysler. IT is a big LIE that they are losing money. The same goes for agriculture, there is nobody in the world or history of the world that can create as much corn or wheat with one person, the numbers are astounding. Yet the media will tell you we are in economic recession.

    So freelance writers need to start telling the true stories and dispell all the lies being told to make a few rich people richer.

  • Peter-John

    I cannot agree with you more. Freelance writing will get tougher - as more and more qualified and experienced writers find themselves unemployed - but any writer, whether full-time or part-time should never consider themselves "unemployed" even though technically if they are not earning money, they are.

    Our words are powerful. And until such time as we have the skills to write books that sell millions of copies, we need to sell our writing skills to those that are willing to pay for it, so in actual fact the real "problem" freelance writers face today is not the competition of fellow freelance writers, but rather whether they have the ability or skill to market themselves as the preferred writer of choice to their potential client. Many writers are brilliant in what they do,but they cannot articulate their skill in such a way that someone is willing to pay for it.

    If writers can learn to "sell" as well as they write, they could actually succeed in a time when many industries are suffering.