The growing “gig economy” has received heightened policy attention in the last two months. Two weeks ago, the Department of Labor rescinded a rule that would have made it easier for workers to be classified as independent contractors. In March, congressional Democrats passed the PRO Act, which would create a stricter definition for that same independent contractor classification.
Concern for independent workers, who lack access to benefits afforded to traditional employees, is rightly founded. Many accuse “gig platforms” such as Uber, Lyft and DoorDash of misclassifying workers. But the recent wave of federal and state actions is grounded in four main misconceptions.
First, it’s a mistake to assume – as many policymakers appear to be doing – that the gig economy represents most independent workers and to ignore the diversity of roles, industries and challenges across this growing workforce.
Contrary to click-bait headlines, workers on typical “gig” or “on-demand” platforms as a main job comprise only a tiny fraction of the overall independent workforce. It includes a diversity of roles including freelance creatives (musicians, writers) and professionals (translators, software developers); high-skilled consultants; contractors such as electricians and carpenters; and over 120 other types of solo, self-employed roles.
Indeed, a recent IRS study using tax data found that industries with the greatest share of independent contractors are “professional, scientific, and technical services,” followed by “health care” and “other services” (repair and maintenance, civic and religious organizations, etc.). All three of these industries have seen the greatest growth in the number of independent contractors hired since 2001. Using survey data, the Freelancing in America 2019 report found that the top occupations with the greatest shares of freelancers are Arts & Design, Entertainment, Construction, Architecture/Engineering and Computer/Mathematics.
This hardly paints a picture of “the Uber economy.” Indeed, in a different study using tax data, IRS economist Brent Collins and co-authors found that even after including many different gig platforms for labor services (far beyond just Uber, Lyft and Doordash), this type of worker constituted only 8.6 percent of the independent workforce.
Second, the majority of workers using online labor platforms are using it as a supplemental, not a primary job. Collins’s tax study concludes, “we find that the exponential growth in labor [online platform economy] work is driven by individuals whose primary annual income derives from traditional jobs and who supplement that income with platform-mediated work.” This is corroborated by several other studies, including one by the Economic Policy Institute.
This should mitigate some concerns, since a large share of online platform workers should already have access to employment-based protections through their traditional jobs.
The third misunderstanding is that large companies are primarily to blame for the growth of independent contractors. According to tax data, the increase in usage was fastest for small and low-wage businesses (fewer than 20 employees), followed by median firms (20-100) and lastly by large firms (more than 100). This is important to highlight because regulations and restrictions on independent workers will be far more costly and burdensome for small businesses than for larger companies.
The last misconception is about the preferences of independent workers. In my review of 14 surveys, the unanimous consensus is that most independent workers prefer non-employment arrangements, even when independent work is their main job. Most (80 percent) would like access to flexible, shared or portable benefits, which are not tied to any particular job or employer.
Independent workers may look different in specific industries or cities, rightly reflecting the diversity of the workforce. For example, in contrast to aggregate studies of ridesharing drivers across the country, a 2018 study found that most ride-sharing drivers in New York City (NYC) were primary earners. NYC drivers were unique in many other ways, and as such, the city created a targeted regulation to address specific problems that don’t apply everywhere.
This type of local and targeted solution stands in contrast to California’s heavy-handed (and increasingly discredited) AB5 and the PRO Act, which ignore the diversity of the independent workforce. This is also why AB5 backfired across California: After media profiles highlighted job losses across the creative and professional freelance community, 53 additional jobs were later exempted from the rule.
Designing smart solutions for independent workers starts with understanding that the workforce is diverse. Therefore, many one-size-fits-all solutions will be prone to problems similar to what we’ve seen with AB5. Instead, specific reforms to address only targeted problems, likely on the local or industry level, will have fewer negative consequences.
Liya Palagashvili is a senior research fellow at the Mercatus Center at George Mason University.