News Cut: July 26, 2012 Archive

Rise of the 1099 economy?

Posted at 11:43 AM on July 26, 2012 by Paul Tosto

We've written before about how the self-employed in Minnesota took a hit during the Great Recession. Nationally, though, there's evidence of a rebound -- and maybe a larger trend going forward.

Data crunched by the Idaho-based economic analysis group EMSI show the percentage of self-employed Americans has bounced back the past couple years.

While still below pre-recession levels, the data have some labor market watchers talking about the growth of people becoming their own bosses. The idea even has a cool name -- the 1099 economy -- referring to the IRS form used by independent contractors.

EMSI offers these interesting nuggets:

-- The self-employed population includes a large segment of older workers. Over 30% (3.25 million workers) are 55 or older; this includes more than a million workers who are at least 65. Another 28.2% of self-employed workers are 45-54.

-- Nearly 20% of all self-employed jobs are in the construction industry. Another 15% are classified under "other services (except public administration)," which includes repair & maintenance, personal & laundry services, religious and civic organizations, and private households. The next-largest industry is professional, scientific, and technical services (11% of self-employed jobs).

-- The largest self-employed occupations in the US are child care workers, carpenters, maids & housekeeping cleaners, farmers & ranchers, and construction laborers.

While the overall percentage of 1099-ers remains relatively small (about 7 percent of all U.S. workers, EMSI figures), demographer Joel Kotkin sees the trend growing out of the recession.

"This rise is partially reflective of hard times, and many of the self-employed earn only modest livings in fields such as childcare and construction," he wrote this week.

"However the shift to self-employment is likely to accelerate in the future, and into higher-paying professions, for reasons including the ubiquity of the Internet, which makes it easier for some types of business to use independent contractors, as well as the reluctance of large firms to hire full-time employees with benefits."

I'm particularly intrigued by EMSI's data showing a relatively large group of older workers as 1099-ers.

We know that older workers in traditional jobs were hit hard by unemployment in the Great Recession.

The data, though, suggest many older workers are bringing in income and staying employed in ways that aren't turning up in traditional employment stats.

-- Paul Tosto

The simplest machines, the smartest people

Posted at 9:30 AM on July 26, 2012 by Paul Tosto (3 Comments)

I wrote about a lot of students and their work in my years as an education reporter. The kids that stand out, though, are the ones that used their brilliance to find simple solutions to basic problems in developing countries.

I remember Patrick Delaney, a University of Minnesota electrical engineering student, who helped design low-cost, easy-to-use solar powered lanterns that brought light to remote regions of Nicaragua and could be built there.

I was thinking about Delaney and those other students as I read about the GiraDora, a simple, foot-powered clothes washer / dryer created by a couple of design students from Los Angeles that's making life easier for people in poverty-ridden areas of Peru.

It's built to meet the needs of people living on $4 to $10 a day and remedy problems tied to hand washing, including back pain and respiratory problems like asthma tied to mold.

"So much time, energy, and resources are used for basic water chores like cooking and cleaning," one of the students tells the web site Fast Company.

It leaves little time for other activities that might help one get out of poverty." In particular, washing clothes is a major timesuck--it can eat up as much as six hours a day. There are major physical challenges involved with doing a simple load of laundry, too: lugging heavy buckets of water from a clean site, for example, or finding a way to dry the clothes before they get moldy.

The result is a simple machine that transforms lives.

The designers tell Fast Company the goal is to have 150,000 users over the next five years. Interestingly, their measure of success? When people don't need their product anymore because they've moved up the economic ladder.

Like the U's Delaney, these guys went to poverty ridden areas of the world, asked the people what they needed, and delivered in a way that will last beyond them. Pretty smart.

-- Paul Tosto

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Angel tax credit: Investment vs jobs

Posted at 3:46 PM on July 26, 2012 by Paul Tosto (3 Comments)

Minnesota's Angel Tax Credit -- a tax break designed to spur small business investment -- has been incredibly popular in the two years it's been around.

State officials today announced that the $12 million they budgeted for the credit for all of 2012 is spoken for already.

Officials have applauded t the credits attracting $140 million in private investment for small and emerging companies since July 2010. But the credit was also passed on the belief that it would be a significant job creator. So far, that hasn't been the case.

Here's how the credit works: Qualified investors in the program can receive a 25 percent tax credit on investments of at least $10,000 in companies that are certified to get the credit. These are "emerging Minnesota companies that specialize in high technology or new proprietary technology."

In its 2011 report to the Legislature, the Department of Employment and Economic Development reported that $15.8 million in credits had been allocated, generating $63.2 million in investment -- but only a net 162 jobs, generating about $6.3 million in wages.

That works out to $97,531 in tax breaks for every job created by the credit through 2011.

Looked at another way, the state paid out $2.49 in angel credits for every $1 in new gross wages the credits generated through 2011.

I understand tax credit supporters hate these kinds of cost comparisons. They argue they are misleading, that eventually these companies will produce jobs so it's unfair to look at just a couple years of data.

I also admit a bias when it comes to the credit: I believe Minnesota's already a better state for business than many realize and I'm skeptical of any efforts to use tax policy to keep or attract businesses.

So I'll ask these questions: When it comes to jobs and the Angel Tax Credit, how should we define success compared to the cost? When should we expect to see the jobs created that justify the investment?

-- Paul Tosto

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