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.