The Transparent Sector – A Chronicle of Survival. By Dr. Michal G. Carmi

How to Overcome the Failing Paradigm of the Self-Employed and Freelancers Sector?

Strategies for Strengthening the Self-Employed and Freelancers Sector

One of the most pressing lacunas in the economic system is the issue of self-employed workers and freelancers. Addressing this persistent problem requires breaking the paradigm surrounding these workers.

The need to regulate the status of self-employed workers and freelancers has been widely discussed, particularly during the COVID-19 pandemic, which created extreme pressures and highlighted how this sector lacks the financial and social safety nets that employees enjoy. However, the unique complexity of this issue also stems from an inherent difficulty in the sector’s structure. This difficulty is reflected in the dispersion and individuality that characterize self-employed workers and freelancers, as well as their struggle to find common ground for collective organization. It is a classic "Catch-22": on the one hand, they need to unite to overcome their lack of rights; on the other hand, their identity is inherently individualistic and sometimes even anti-collectivist. In the absence of governmental leadership to initiate bold reforms aimed at leveraging the economy by strengthening self-employed workers and freelancers, their plight continues to solidify as the systemic "punching bag," with their rights neglected as a default. Why Is This a Tragedy? The issue of self-employed workers and freelancers echoes the concept of the "tragedy of the commons," a type of social trap characterized by a conflict between individual interests and the collective good. Despite the clear reality that the well-being of the self-employed aligns directly with the broader interests of society and the economy, this understanding has yet to take root or translate into actionable policies.

This sector is "orphaned" and largely invisible, lacking substantial influence, subjected to systemic discrimination in labor laws, taxation, and rights, and devoid of adequate social and economic safety nets. When it comes to self-employed workers and freelancers, the national insurance system effectively fails to operate as true insurance (i.e., regular premium payments that result in compensation upon the occurrence of an insured event, such as unemployment). This is just one example of the structural disparities. Others include payment terms based on prolonged "Net + X" models (particularly in government payments), a heavier tax burden compared to OECD countries, and the existence of "false independents"—workers whose relationships with their employers are de facto those of employees but without the legal protections granted to employees. These challenges are expected to become increasingly significant as the new economy evolves, relying heavily on technological capabilities made accessible by digital transformation. Digital transformation, the penetration of artificial intelligence (including generative AI), and other developments, alongside trends among Generation Z, are likely to significantly expand the proportion of self-employed workers and freelancers in the population.

Compounding this, even before the ink dried on the economic challenges caused by COVID-19, the country found itself embroiled in its longest and most severe war, which has inflicted massive damage on the self-employed and freelancer community. This damage included the evacuation of entire regions, the suspension of economic and consumer activity, the collapse of countless small businesses, and the impact on sectors such as industry, tourism, and agriculture. These disruptions, in turn, have adversely affected self-employed workers and small businesses in these industries or service providers reliant on them.

Yet within recovery lies opportunity.

?leveraging the opportunity presented by post-crisis economic reconstruction to reset systems and conceptions, and incorporating self-employed workers and freelancers as a key driver of economic growth. This can be achieved through a genuine growth-oriented New Deal program—both top-down and bottom-up growth. The post-war economy is likely to serve as a disruptive force. With the war's conclusion, there will be a need to reshape the economic framework, challenging us to reset occupational structures and outdated assumptions in ways that enable recovery and resurgence. This process opens a window of opportunity to rebuild the economy—but this time, in a way that is sustainable and fosters macroeconomic and structural growth and productivity.

This disruption necessitates breaking the paradigm of self-employed workers and freelancers.

Our expectations of policymakers are clear: they must establish an economic framework that encourages local entrepreneurship (including inclusive, peripheral, and sectoral entrepreneurship) as it is reflected in the organic economic activity of self-employed workers and freelancers, fostering bottom-up growth. Currently, policymakers operate under the conception that the self-employed and freelancer sector, being weak and vulnerable, can be subjected to discriminatory measures. However, this is a short-sighted strategy: suppressing the drivers of economic growth will inevitably constrain overall growth and productivity. The shoulders of self-employed workers and freelancers have already borne the weight of numerous blows in recent years. It is time for policymakers to break the paradigm trap by removing the barriers that stifle self-employed workers and implementing the necessary financial, regulatory, insurance, and legal reforms.

The Impact of Digital Transformation and the Future Labor Market

The accelerated digitization and exponential technological advancement are reshaping social structures, including the labor market. The shift toward a service-oriented economy and globalization has necessitated employment adjustments in various markets. This includes significant growth in non-salaried employment forms, an increase in secondary jobs (less stable and sustainable than salaried positions), and regulatory gaps that fail to address these emerging employment models.

A Global Perspective

The challenges related to self-employed workers and freelancers have become a focal point for governments worldwide, particularly in light of the growing number of these workers and the rise of flexible work arrangements. Additionally, specific measures are being developed to address the challenges of the gig economy, such as legislation that defines and distinguishes their status through clear criteria. For instance, California's AB5 Law (2019) seeks to regulate the classification of gig workers.

Various approaches have been implemented globally to address the diverse forms of self-employment and freelancing:

• Regulatory Adjustments: Simplifying regulations to accommodate the flexibility required by self-employed workers.
• Expanding Social Protections: Adapting social safety nets to include self-employed workers. For example, France's Sécurité Sociale des Indépendants system provides self-employed individuals and freelancers with access to social services, including health insurance, sick leave benefits, pensions, and parental leave.
• Tax Incentives and Economic Relief: Some countries offer tax benefits or mechanisms to ease the economic burden on self-employed workers and freelancers.
• Legal Protections: Laws designed to protect freelancers and self-employed workers from unfair working conditions.
• Professional Development: Support for skills development, training, and career transitions tailored to the needs of independent workers.

Who Is a Self-Employed Worker or Freelancer?

Self-employment encompasses diverse and evolving formats, driven by global market dynamics, technological innovations, and digital transformation. This category may include:

• Freelancers,
• Digital nomads,
• "False self-employed" individuals who, in practice, work as employees but lack the legal protections afforded to salaried workers (particularly in the gig economy, such as those working for intermediary platforms like Uber or Wolt),
• Individuals working as both salaried employees and self-employed professionals.

Regulatory frameworks, however, often approach this sector through a binary lens, recognizing only the traditional categories of salaried employment and self-employment. In practice, self-employed workers operate across a spectrum: they may work as independent service providers, develop into small business owners, or even establish substantial economic entities. Each self-employed individual represents their own micro-ecosystem, influencing their family and community. Their families depend on the outcomes of their work, while their communities benefit from the economic activity they generate—whether as consumers or producers.

The Economic Importance of the Self-Employed

The economic significance of self-employed workers is often underappreciated. While many independent workers may remain sole service providers throughout their careers, others create complex business ecosystems that drive economic activity and contribute substantially to GDP. A study of economic dynamics reveals that many large-scale businesses and global conglomerates often originate from a single self-employed individual who identifies a problem or opportunity and leverages it into a broader economic entity. The self-employed and freelancers play a critical role in modern economies, not only as contributors to growth and innovation but also as catalysts for transformation in labor markets. Recognizing and addressing the unique challenges they face is essential for building an inclusive and adaptive labor market in the era of digital transformation and globalization.

Operational Steps

Immediate and Short-Term Response

In the immediate term, policymakers must prepare to address the professional and economic impacts of crises on the labor market as a whole and, specifically, on self-employed workers and freelancers, who are acutely affected.

Over the coming years, the economy will face the burden of rebuilding large areas impacted by war, massive security expenditures, credit rating downgrades, increased risk premiums, and a growing deficit that will likely lead to higher debt-to-GDP ratios and rising interest rates. Economic instability and social unrest are also plausible outcomes.

Therefore, a growth-oriented policy is required—one that does not impose an additional tax burden but rather alleviates it. Such a policy should focus on removing regulatory barriers, implementing structural reforms, redesigning economic conditions, and most importantly, creating an environment that enables the leveraging of grassroots entrepreneurial forces, specifically among self-employed workers and small to medium-sized enterprises (SMEs).

Long-Term Response

SWOT Analysis

Given that this document serves as a framework for discussion, only an initial SWOT analysis is provided.

Being self-employed often represents a "carrot and stick" reality, where the carrot is unreliable and inconsistent, but the stick strikes relentlessly. The main strength of being self-employed lies in the name itself—independence and flexibility. This status can positively influence personal image and provide a sense of control over one’s destiny. Additionally, the ability to engage in and manage various business and professional aspects can make self-employment an appealing career choice.

However, self-employed workers are not entitled to the labor rights historically designed for salaried employees, such as unemployment benefits, paid vacation, minimum wage, and severance pay. They also lack protections like limits on working hours and anti-discrimination policies.

Areas of Weakness

An analysis of the factors influencing the status of self-employed workers and freelancers reveals vulnerabilities in four main dimensions:

Policy Recommendations

The time has come for employment policy to fully integrate self-employed workers and freelancers into its framework. Long-term efforts should address the four identified dimensions of vulnerability:

1. Economic Equality Self-employed workers lack basic financial employment rights, such as sick pay, vacation, and severance benefits, and face a higher tax burden compared to their peers in OECD countries. Establishing universal employee rights, regardless of employment type, and reducing the tax burden are critical steps.
2. Insurance Equality The national insurance contributions required of self-employed workers and freelancers are disproportionately high compared to the benefits they receive. For instance, unemployment protections are minimal, and other benefits (such as support during war or lockdowns) are inconsistent and contingent on ad hoc government decisions. A comprehensive reform is needed to equalize their rights and ensure robust safety nets.
3. Supportive Business Environment The business environment for self-employed workers is often burdensome, marked by excessive regulation, persistent cash flow issues due to long payment terms, and professional isolation. Regulatory barriers should be removed, structural reforms implemented, and a supportive open market established. For government contracts, payment schedules should align with those of salaried workers. Additionally, targeted professional training programs and regulatory frameworks are essential to foster growth and resilience.
4. Legal Status and Representation Historically, labor laws were designed around salaried employment, leaving self-employed workers in a legal vacuum. Judicial rulings have occasionally addressed this gap by aligning self-employed workers' rights with those of salaried employees—for example, in cases of compensation for isolation days during the COVID-19 pandemic. However, sectoral agreements that encompass all employment types within a given industry are needed for true reform.

The status of self-employed workers and freelancers requires urgent and comprehensive attention. In the short term, policymakers must address the immediate challenges arising from crises such as wars or economic recessions. In the long term, substantial reforms must address economic, insurance, professional, and legal challenges to ensure equitable treatment and resilience for this essential workforce. By doing so, the economy can unlock the potential of its entrepreneurial base, fostering growth, innovation, and sustainable productivity.

Precedents and Case Studies (Local and Global) of Overcoming Crises through Economic Support for Self-Employed Workers and Freelancers

Modern history, both globally and locally, is replete with examples of crises followed by recovery. Across the world, throughout the 20th and 21st centuries, post-crisis economies have generally relied on various recovery programs. These programs often emphasized large-scale infrastructure projects, financial stabilization, and social welfare. In this context, entrepreneurship, self-employment, and small businesses have played a critical role in driving local economies as engines of recovery.

As previously noted, a self-employed worker may operate as a freelancer or an independent service provider and can evolve into a small business or, over time, a significant economic entity. Each self-employed worker creates their own ecosystem, influencing both their family and the community. Families depend on the income generated by these workers, while communities benefit from the economic activity they produce—whether as consumers or producers.

Global Case Studies of Post-Crisis Economies

1. The Marshall Plan (Post-World War II) Following World War II, the United States implemented the Marshall Plan, providing economic aid to Europe for infrastructure reconstruction, currency stabilization, and industrial revitalization. The program created opportunities for entrepreneurship, the growth of small businesses, the strengthening of supply chains, and the revitalization of local economies.
2. The Establishment of the Small Business Administration (SBA) In 1953, the United States founded the Small Business Administration (SBA) to support local entrepreneurs and small businesses. By fostering a regulatory environment and policies that encourage innovation and production, the SBA has played a pivotal role in community recovery efforts. Its stated mission explicitly includes "assisting in the economic recovery of communities after disasters."
3. The 2008 Global Financial Crisis Recovery efforts from the 2008 financial crisis included programs such as the Troubled Asset Relief Program (TARP) in the U.S., which required portions of allocated funds to be directed toward community development. Similar programs in Europe focused on financial system stabilization while making incentive packages accessible to local economies and small businesses. These included government-supported grants, subsidized loans, tax reductions, direct financial aid, and technical support to encourage entrepreneurship, startups, and employment stabilization.
4. The COVID-19 Pandemic (2020) During the COVID-19 pandemic, recovery programs such as the U.S. CARES Act provided significant financial support through the Paycheck Protection Program (PPP). This program offered loans to small businesses to retain employees and included self-employed workers, freelancers, and gig economy workers in expanded unemployment benefits. The pandemic underscored the critical need for inclusive economic recovery strategies that address the vulnerabilities of self-employed workers.

Local Case Studies and Lessons Learned

The local economy has extensive experience in managing crises such as wars and economic downturns. The post-crisis recovery process has been unique in each case, shaped by the political, economic, and social circumstances of the time. Post-crisis economies in the local context often included flexible economic policies, entrepreneurship, and government support for both the private and public sectors.

In previous post-war economies, government support for high-tech entrepreneurship proved to be a key driver of recovery. This entrepreneurial ecosystem fostered a thriving economy by creating conditions that encouraged private initiative and increased the number of self-employed workers and freelancers.

Conclusion

The fiscal burden resulting from crises will weigh heavily on many self-employed workers and freelancers, who often lack economic safety nets. The post-crisis economy will require multi-faceted responses that demand bold measures. Immediate attention must be given to the challenges faced by self-employed workers and freelancers, precisely because of the immense economic challenges confronting the nation. Unlocking entrepreneurial potential is essential. Entrepreneurship—particularly small-scale and micro-entrepreneurship—is the lifeblood of the economy. Beyond this, a long-term strategy is needed, especially as self-employment is expected to become an increasingly significant phenomenon in the labor market.

We are living in challenging times, with a heavy economic burden looming over the economy. In such a scenario, the default approach might involve imposing austerity measures. Within this context, a provocative question might arise regarding self-employed workers and freelancers: "Why ease the burden on the self-employed and freelancers now? Let them share the weight like everyone else…"

The answer lies in a fundamental principle of economics: to enable growth and productivity, entrepreneurial forces must be empowered with the necessary conditions.

The macroeconomic reality of the post-crisis era will undoubtedly be challenging, requiring policies that prevent stagnation or regression. This can be achieved through a genuine New Deal program that promotes growth—both top-down and bottom-up. Bottom-up growth will primarily emerge from individuals and small-scale entrepreneurs who, when collectively supported, can act as a social multiplier, injecting renewed enthusiasm and activity into the economy’s veins—precisely what it desperately needs.