How financiers are like illegal construction workers

By Felix Salmon
May 20, 2010
Mark Beauchamp, following up from yesterday, provides some eye-popping numbers:

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Mark Beauchamp, following up from yesterday, provides some eye-popping numbers:

In the U.S. finance and insurance sector, we estimate that in 2008, 34% of the workers are not covered by unemployment insurance…

Sub-sectors like Central Banks, Commercial Banks, Savings Institutions all had low, single-digit percentages of non-covered workers. However, when we get into sub-sectors like Securities, Commodity contracts and Investments, the majority of workers in the field (66%) are not covered by unemployment insurance.

The further we push into more esoteric forms of finance, the higher the percentage of non-covered workers: Miscellaneous Intermediation (84%); Portfolio Management (80%); Trust, Fiduciary, and Custody activities (81%), and so on. We’ve included the full breakout in .xls here.

So our theory runs like this — in the finance and insurance industry, there was likely a widespread use of the 1099 status, evidenced by the high rate of non-covered employees in the sector nationally. When the financial crisis hit, independent contractors were “laid off” from companies, but because they weren’t employees of the firms, they would not show up as a decline in the Quarterly Census of Employment and Wages.

This is a bit like the way in which construction-sector employment didn’t fall nearly as much as everybody thought it would when the housing bubble burst: because a large proportion of the people working in that sector were undocumented all along, they weren’t counted when they lost their jobs.

The financiers aren’t necessarily illegal, of course, although paying people on a freelance/1099 basis is of dubious legality when they’re working for you full time. But this does help to explain a large chunk of Mike Mandel’s chart, I think.


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Are we supposed to feel sorry for these people because they can’t draw unemployment benefits when they are (all to infrequently, it seems) laid off? If so, let me go on record as not shedding any tears for them.

They draw their income via 1099 instead of W2 because it’s a tax dodge, or at least the people that I know who work at hedge funds do so for that reason, if I’m not mistaken If I’m correct, the reason for drawing your income in the 1099 category rather than the w2 category is that the 1099 category is taxed at the capital gains rate, which is substantially lower than the regular rate, no?

Posted by Strych09 | Report as abusive

The independent contractor/consultant 1099 is also a widely used tatic in the internet, software, tech industries.

Lots of people after the dot com bust have been working on 1099′s – full time or more. So they never show up on unemployment rolls when their contracts aren’t renewed and they’re jobless. I’ve been working on 1099 for several years now and currently am hunting for new work since the contracts have largely dried up and so many people are competing for so few contracts.

Some companies have lowest rate contract bidding where you’re “invited” to participate. One such contract for a large company that makes laptops and printers among their many services had one of these where the final winning rate was $30 an hour for a contract worth about $20,000. Whoever “won” – I hope they had a spouse with health insurance and could cover the mortgage.

Even worse are the set amount contracts. We will pay X for this piece of work – regardless of how many hours it takes. Once you’ve billed that many hours – that’s all the money in the contract regardless of how much work is left to do – and the contracts are always underfunded…

Posted by jobo | Report as abusive

@Strych09 –
I think you’re confusing it with other types of 1099′s. ms

Being paid on a 1099 –
I pay all FICA/Medicare both the employer and employee part. I pay all health insurance, retirement, and business costs. I get some deductions associated with it but it’s nowhere close to a free ridge. I have to file a schedule C.

I can’t speak to finance workers – but there’s a lot of tech workers on 1099′s that are barely making it. If it’s a tax dodge than there are lots of us that didn’t get the memo.

Posted by jobo | Report as abusive

This post reflects the common mistake of equating receipt of unemployment insurance with unemployment. In the U.S., at least, they are not the same.

The data cited by Mr. Salmon in his original post appear to be payroll employment figures derived from the Bureau of Labor Statistics’ Current Employment Statistics series. This series has nothing to do with individuals persons who are covered by state unemployment insurance systems or who may or may not be receiving benefits.

In fact, in the U.S. relatively few unemployed workers actually are eligible for insurance benefits.

So, taken together, the two posts essentially mix “apples with oranges” and confuse rather than clarify the original point that Mr. Salmon was trying to make.

Posted by southbynorth | Report as abusive

Oh come on, Felix. Financiers are like a lot of repulsive things but I’d take illegal construction workers over most run-of-the-mill financiers any day.

At least illegal construction workers can build stuff, not just tear it down.

Posted by HBC | Report as abusive

strychn9, getting paid via the 1099 does not mean you pay tax at the capital gains rate. It means your employer does not pay any social security taxes or health insurance, because technically they are not your employer. If you are paid via the 1099, you actually have to pay 1.5x the normal social security (FICA) tax, because you have to pay half of what an employer would be paying.

Getting paid via 1099 does allow you to deduct some business expenses, but not all kinds of workers can take advantage of it. If you can find health insurance, you can deduct the expense, but most likely you will pay a lot more as a single client than an employer will pay for group coverage, even after your business deduction. A 1099 working arrangement does not automatically mean tax savings, only for those who know how to game the system.

Posted by OnTheTimes | Report as abusive


If you want to be taken seriously, don’t use PC evasions like “undocumented”. These aren’t folks who accidentally dropped their U.S. passports somewhere in the desert.

They are illegal aliens. Yes, I know that “illegal immigrants” is a common phrase. However, U.S. law defines an immigrant as a lawful permanent resident of our country. Hence you can not be an “illegal immigrant” under U.S. law.

Posted by pschaeffer | Report as abusive

@OnTheTimes: Correct, except that 1099 workers pay the full employee and employer rate, but get a deduction for half of the employer rate (just like your employer does).

@pschaeffer: Felix is not referring to aliens or immigrants, legal or not. This discussion is about those who work for employers as independent contractors (“undocumented” in terms of not on company payrolls, and not being eligible for unemployment insurance). Many construction workers do so, and apparently many financial salespeople also.

If a 1099 worker goes to the same office on a daily basis as company employees, and uses company facilities and equipment, he or she should probably be a W2 employee by law, although the law is sporadically enforced.

Posted by Curmudgeon | Report as abusive

You guys spent way too much time in formal schools. Most of the labor trades and crafts guys I know that are 1099 enjoy serious tax breaks. Pay ‘em in cash, get a minimum of 25% off, and since they are only reporting maybe 50% of what they make, it still nets out well.

It could be hysterically funny, not that any Democratic politician would sign on for it, to require documentation of taxes paid on earnings as part of any amnesty program.

Posted by ARJTurgot | Report as abusive