Signing up for a gig.

Photographer: Laura Buckman/Bloomberg

The Rise of the 1099 Economy

Justin Fox is a Bloomberg View columnist. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”
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There are a lot of names for it: the "sharing economy," the "gig economy" and the "on-demand economy" seem to be the three most popular. But the most precise description of the new labor relationships being enabled by digital technology may actually be, in the U.S. at least, the "1099 economy."

The 1099-MISC is the form that businesses, nonprofits and government agencies have to fill out when they pay someone $600 or more a year in nonemployee compensation. As the Internal Revenue Service instructs:

Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash.

There are actually two whole paragraphs about fish purchases in the 1099-MISC instructions. According to the IRS,

“Fish” means all fish and other forms of aquatic life.  “Cash” means U.S. and foreign coin and currency and a cashier's check, bank draft, traveler's check, or money order. 

But that's probably not what people are talking about when they talk about the 1099 economy. They mainly mean people who get app-development assignments via Upwork, dogsitting jobs via DogVacay, car passengers via Uber or consulting work via the Business Talent Group -- to name just a few of these new intermediaries. Although there is a company that wants to be the Uber of fishing guides ... 

Signs of the purported explosion of such work have been hard to find in the standard employment data compiled by the Bureau of Labor Statistics. According to BLS numbers, there has been no rise in self-employment or in the number of people working multiple jobs. A much-cited April estimate by the Government Accountability Office put the share of U.S. workers in "contingent" work arrangements at 40.4 percent but, as I have written again and again and again, that accounting:

  1. Used an expansive definition of contingent work that included all part-time workers.
  2. Relied on a survey conducted in 2010, when part-time work was still near its cyclical high after an especially deep recession.
  3. Did not seem to be indicative of any big secular shift to contingent work. Surveys from both before and after 2010 show that the percentage has been relatively stable for decades.

Still, if we're talking about the 1099 economy, maybe we ought to be looking at the 1099s. All of that BLS and GAO data are based on surveys in which interviewers ask a sample of Americans about their work. As Eli Dourado and Christopher Koopman of the Mercatus Center at George Mason University write in a new report:

A weakness in using survey data to explore the changing nature of work is that survey answers can change along with respondents’ understanding of the nature of work. Do full-time Uber drivers understand themselves to be “self-employed” or employed by Uber? It is plausible that they might answer either way. Is being an Airbnb host “working a second job?” It is unlikely that the hosts themselves see it that way.

So Dourado and Koopman asked the IRS for data on the number of 1099-MISCs and W-2s (the compensation disclosure form for employees) issued since 1994. Here's what they found out:

There are far fewer 1099-MISCs than W-2s. It's also worth noting that some people get a lot of multiple 1099-MISCs (I got one W-2 for 2014 and four 1099-MISCs). Still, one can see from the chart that the number of W-2s went up in the late 1990s but was actually lower in 2014 than in 2010; the number of 1099-MISCs, meanwhile, rose by 16.4 million during that period.

You can see the differing trajectories better if you index the two series to the same starting point. Dourado and Koopman do that in their report. So do Tracey Grose and Patrick Kallerman of the San Francisco-based Bay Area Economic Institute. They produced their own report on the 1099 economy in September that I didn't write about at the time but was reminded of by the Dourado-Koopman data. Grose and Kallerman asked the IRS for 1099-MISC and W-2 data going back all the way to 1989, and produced this remarkable chart:

The relationship between W-2s and 1099-MISCs used to be cyclical. During and immediately after the 1990-1991 recession, the number of W-2s fell and the number of 1099-MISCs rose as cost-cutting companies shed employees and added contract workers. Then, as the economy grew stronger and the job market tighter, W-2s made a comeback while 1099-MISCs mostly lagged. 

During and after the 2001 recession, that relationship appears to have held at first, then broken down somewhat as 1099-MISCs kept pace with W-2s even as the labor market improved. Now, with companies adding jobs at an even faster pace than in the 2000s, 1099-MISCs nonetheless keep gaining ground on W-2s. 

As noted, some of this could be driven by people getting 1099-MISCs from lots of different companies. But the Census Bureau's annual count of "nonemployer businesses" -- based on tax returns filled out by sole proprietorships, which most 1099-MISC recipients technically are, and avoids the double counting -- is up from 12 percent of the workforce in the late 1990s to 16 percent in 2013, the most recent year for which the numbers are available. So this rise of the 1099-MISC does seem to be indicative of a real-if-not-yet-exactly-transformative shift in American labor markets. Either that, or a lot more people have been paying cash for large quantities of fish.  

  1. This fish business was the doing of the Small Business Job Protection Act of 1996, which included a section on the "Clarification of employment tax status of certain fishermen." U.S. Representative Bill Archer of Texas, then the House Ways and Means Committee chairman, was the sponsor. So blame him.

  2. I'm really not sure what was up with the big jump in 1099-MISCs in 1998 and 1999. Maybe dot-com startups created a short-lived burst of gig work?

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Justin Fox at justinfox@bloomberg.net

To contact the editor responsible for this story:
Paula Dwyer at pdwyer11@bloomberg.net