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The future of income in America

Key takeaways

  • In the search for increased flexibility and control over income, some Americans are increasingly striking out on their own—whether full-time or part-time.
  • Technology is helping drive this shift. A growing number of people now have the ability to work from anywhere.
  • Online platforms that help connect workers with people looking for products or services and content creators with subscribers have also provided opportunities.
  • The rise of portable benefits has the potential to decouple things like health insurance and retirement savings from an employer—so workers can go independent without forgoing critical benefits.

Income has been synonymous with working for an employer for the majority of working-age Americans over the last 100 years. Most adults work for a living, and the vast majority work for an employer. But that's changing. Employer income is playing a less dominant role for some Americans as they've diversified their income sources into a mosaic of ways to earn money.

And it might be a good thing too—with inflation higher than it's been in decades, 41% of Americans with a side job need the extra income to pay their essential expenses.1 But there are long-term trends at play that suggest freelancing and side gigs may be a new way of working for many in search of flexibility and security.

3 income trends in America today

There are 3 trends that may offer clues about the future of work and income.

1. Earned income is dropping while unearned income is rising. In 1993, salaries and wages composed 78% of American taxpayers' total income. Twenty-five years later, that number was down to 68%.

What accounts for the difference? A rise in unearned income, predominantly from sources like pensions and IRAs, Social Security benefits, partnerships and S corporations, and capital gains. While a rising number of retirees can explain much of this shift, it also reflects a growing dependence on income derived from owning and trading stocks, bonds, and investment property.

Graphic illustrates the decline of earned income as a share of total income. In 1993, earned income represented 78% of total income; in 2019, it represented 68% of total income. Income from small businesses has increased from 6% to 9%.

2. The independent workforce is booming. In 2020, Upwork, an online marketplace for freelancers, estimated that there were 59 million Americans in the independent workforce, comprising those who are self-employed, freelance, or do gig work either full- or part-time.2 At the current rate, half of all working Americans will be part of the independent workforce within the next 5 years.

Graphic illustrates the rise in independent work. In 2013, 53 million people did some independent work, with 17% of them doing it full-time. In 2020, 59 million people were working independently, 36% of them full time.

3. Side hustles have caught on. One in 3 Americans claim to have a side hustle, including one in 5 retirees. The money-making opportunities are varied and plentiful. According to Stripe, a payment processing platform, the number of creators jumped 48% in the past year, and those using 50 of the most popular content creation and monetization platforms will soon pass $10 billion in aggregate earnings.3

What is driving the change to income in America?

Assembled together, the fading dominance of earned income along with the rise of independent work and side gigs are changing the picture of income from a single- or dual-source model to one represented by a mosaic of new, easy-to-access, and diversified income streams. Driving this change is a confluence of turbulent economic conditions, shifting personal motivations, and rapid technological innovations.

1. The COVID-19 pandemic catalyzed the move to independent work. After 10 million Americans lost their jobs due to economic shutdowns, many picked up part-time gig work to bolster their finances, just as they did after the Great Recession.

Millions more are considering the switch to independent work amidst the so-called Great Resignation, with a desire for flexibility and remote work as their primary drivers. In fact, one-third of Americans quitting their jobs are doing so to start their own businesses. After years of anemic growth, monthly new-business applications jumped from less than 300,000 in 2019 to more than 450,000 in 2021 as burgeoning entrepreneurs started retail businesses, consulting practices, and other ventures.4

2. Career goals have shifted for many. While the pace of resignations is elevated across the workforce, Gen Z workers are twice as likely as baby boomers to consider switching jobs.5

What are they looking for? Flexible work arrangements are most important. Boomers, on the other hand, prioritize better pay. And though the oldest members of Gen Z are just 25, 62% want to start their own businesses, and many already have.6

But they're not the only generation reassessing their career path. Many Americans are finding the linear adulthood model of learn, work, then retire obsolete and are switching professions mid-career—at age 39, on average. Some may join the independent workforce part-time as they upskill or full-time to chase their new passion.7

3. Platforms connect supply and demand while potentially fostering trust. A big barrier to self-employment is finding clients. Two-sided marketplace platforms such as Upwork and Fiverr, as examples, can help make it easier for both freelancers and companies by connecting skilled workers and relevant opportunities. They can also simplify matching supply and demand for physical goods through the likes of Airbnb for home-sharing and similar marketplace platforms for other things you can share. These platforms may eliminate some of the risk of working for and renting from strangers by offering ratings and reviews.

They can also reduce barriers that have constrained labor force participation by rural residents and those with disabilities.

4. Technology makes it easier to earn money. Why wait 2 weeks to get paid at a minimum-wage job when you can get in your car and make $100 the same afternoon? Almost anyone with a car (and background check) can start earning money with ridesharing or delivery companies and get paid the same day. If selling's your game, using an online marketplace to set up your shop can help you start generating income just as simply.

For content creators, publishing platforms make it easy to publish and manage subscribers. What's more, this may be just the beginning. As blockchain and tokens evolve, it may be even more lucrative to be a creator in the future.

Read Viewpoints on Fidelity.com: The rise of fintech: 2 trends shaping the world

5. Benefits are more widely available. Because of the Affordable Care Act, all 50 states maintain marketplaces where Americans can buy health insurance directly. But it can still be difficult to navigate through these sites.

To help make it easier, portable benefits technology was born. Businesses in this space help freelancers and the self-employed build their own benefits package. Here are 2 examples of startups that are doing the work:

  • Stride seeks to help its 2.5 million independent worker members understand what subsidies they qualify for and automatically apply them to their insurance purchase; Stride also offers dental and vision directly.
  • Catch also offers health insurance, as well as tax payments, retirement savings, and time off. It provides automatic paycheck withholding—just as an employer would—setting aside a recommended amount to cover state and federal taxes, IRA contributions, and lost income while on vacation.

While piecemealing these solutions together still isn't as simple as getting all your benefits from a single employer, portable benefits provide at least some reassurance to those on the fence about pursuing independent work.

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Do the hustle?

Technology has made it easier to access independent work and that may continue to make income diversification available to more and more people. Not everyone will want to be a solopreneur, but almost anyone can open an app and start a side hustle. And look for the income mosaic to expand further as technology improves and new ways to earn are invented.

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1. Aja McClanahan, "Side gig income becomes more critical: 41% need it for living expenses," Bankrate.com, 6/21/2022, https://www.bankrate.com/finance/credit-cards/side-hustle-survey/ 2. "Freelance forward economist report," Upwork.com, 12/8/2021, https://www.upwork.com/research/freelance-forward-2021 3. Edwin Wee, "Indexing the creator economy," Stripe.com, 10/21/2021, https://stripe.com/blog/creator-economy 4. Business formation statistics, Census.gov, United States Census, https://www.census.gov/econ/bfs/data.html 5. Sarah Foster, "Survey: 55% of Americans expect to search for a new job over the next 12 months," Bankrate.com, 08/23/2021, https://www.bankrate.com/personal-finance/job-seekers-survey-august-2022 6. Abe Selig, "Generation influence: Reaching Gen Z in the new digital paradigm," 08/31/2021, wpengine.com 7. "Career change report: An inside look at why workers shift gears," Indeed.com, 10/30/2019, https://www.indeed.com/lead/career-change

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