BUSINESS 2.0:

Why Free Agents Don't Feel Free

When time is money, time away from work can seem like opportunity lost.

By Jeffrey Pfeffer, Business 2.0 Magazine columnist

(Business 2.0 Magazine) -- While I was chatting with a freelance writer recently, she mentioned something that struck me as odd: She had asked her clients to stop paying her by the hour, and instead pay by the job. Her effective hourly rate would go up, but that's not why she wanted to switch. Billing by the hour, she said, made her less satisfied with her job - especially when she wasn't working, at which times she would worry about the opportunity cost of not being on the clock.

This got me thinking: In the much-trumpeted "free agent nation" of the late 1990s, many believed that more and more of us would be working independently and would love the newfound freedom.

True, the proportion of people working in unconventional arrangements such as contracting, temping, and telecommuting is on the rise: The latest data shows that the proportion of independent contractors and on-call workers in the United States grew from 7.9 percent to 9.2 percent between 2001 and 2005 - an increase of 2.1 million workers.

So that aspect of the forecast was right. But I don't know many people today who feel liberated as a result. Part of this may be the fact that median weekly wages rose just 9 percent between 1984 and 2004, but I think there's more to it than that.

London School of Economics professor Richard Layard - one of several economists who have begun studying happiness in the workplace - has found that in stark contrast to the past, when people took more leisure time as they became wealthier, in contemporary America people seem to be unable to get off the treadmill almost regardless of how much they make.

Fortunately, there's research that shows the source of the problem and endorses the logic of my freelancer friend's proposed solution. In a study of independent contractors in Silicon Valley, Stanford engineering professor Steve Barley and two coauthors discovered that even though many people had initially gone into technical contract work - programming, writing and editing product manuals - to have a more flexible lifestyle, they came to obsess about Ben Franklin's notion that time is money.

They had trouble taking time off because they kept thinking about forgone income. And even when they were at the beach, they spent most of their time thinking about the income opportunities they were passing up. So leisure time became just as anxiety-ridden as actual work.

This tale should be familiar to anyone who has worked in a law firm or an accounting firm, because billing for your time has the same effect as hourly payment: It creates a commodified view of time. Lawyers report thinking about what billable rate would be appropriate for coaching their kids' soccer games.

It's a way of thinking that almost guarantees misery. Lawyers and accountants and other hourly types no longer see work as something with intrinsic interest and pleasure, and even when they're not at work, they're always thinking about the opportunity cost of taking time off.

All of this carries serious implications for companies and employees. For companies, it's clear that having people bill their time or paying them by the hour is a good way to ensure that they'll be eager to trade more work time for more money, something a doctoral student and I have recently confirmed by analyzing census data and running experiments.

It's also the case that just having people calculate their hourly rate of pay, even if they're paid by salary, changes the decisions they make about how to spend their time because they come to think of time as money. And many HR systems, like the one Stanford uses, report hourly rate of pay on every pay stub.

But for those of us who work for a living, the opposite is true. If we want to be happier and not obsessed every minute we spend doing something other than work - if, in other words, we really want to act on our true preferences and enjoy our lives - we need to find ways to shield ourselves from the practices of billing time and hourly payment.

Even if we have to do it, as my friend does, by consciously trying to avoid knowing or thinking about her hourly rate of pay.

Business 2.0 columnist Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior at Stanford University's Graduate School of Business. Top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.