The role of independent contractors in the US economy

Abstract: 
  
The role of independent contractors in the US economy

Download PDF
More than 10 million workers, comprising 7.4 percent of the U.S. workforce, are classified by the Bureau of Labor Statistics as independent contractors, and another 4 million work in alternative work arrangements in which they may be legally classified as independent contractors for one or more purposes. Alternative workers in 2010 will account for approximately $626 billion in personal income, or about one in every eight dollars earned in the U.S.

Independent contractor arrangements are commonplace throughout the U.S. economy, from computer software engineers and emergency room physicians to home health care providers and timber harvesters. Such arrangements generate substantial economic and other benefits for both workers and employers, allowing both firms and households to use labor services in situations where a traditional employment relationship is either impractical or uneconomic for the worker, the client, or both. The economic benefits of independent contracting include workforce flexibility, avoidance of fixed costs, the ability to “pay for performance,” the avoidance of legal and economic barriers in efficient contracting, and, perhaps most important, the satisfaction of workers’ desires to “be their own boss” and benefit from the independence associated with independent contractor relationships. Another important reason workers prefer independent contracting is that it serves as a stepping stone to entrepreneurship and small-business formation.

Policy changes that curtail independent contracting, such as the proposed repeal of the Section 530 “safe harbor” for classification of workers for tax purposes (which would increase regulatory risk for independent contractors and their clients alike), would result in higher unemployment, slower economic growth and reduced economic welfare. Specifically, curtailing independent contracting would: reduce job creation and small business formation; reduce competition and increase prices; create sector specific disruptions; and produce a less flexible and dynamic work force.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Jeffrey
Eisenach

What's new on AEI

Expanding opportunity in America
image Moving beyond fear: Addressing the threat of the Islamic state in Iraq and Syria
image Foreign policy is not a 'CSI' episode
image The Air Force’s vital role
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Monday, July 21, 2014 | 9:15 a.m. – 11:30 a.m.
Closing the gaps in health outcomes: Alternative paths forward

Please join us for a broader exploration of targeted interventions that provide real promise for reducing health disparities, limiting or delaying the onset of chronic health conditions, and improving the performance of the US health care system.

Monday, July 21, 2014 | 4:00 p.m. – 5:30 p.m.
Comprehending comprehensive universities

Join us for a panel discussion that seeks to comprehend the comprehensives and to determine the role these schools play in the nation’s college completion agenda.

Tuesday, July 22, 2014 | 8:50 a.m. – 12:00 p.m.
Who governs the Internet? A conversation on securing the multistakeholder process

Please join AEI’s Center for Internet, Communications, and Technology Policy for a conference to address key steps we can take, as members of the global community, to maintain a free Internet.

Thursday, July 24, 2014 | 9:00 a.m. – 10:00 a.m.
Expanding opportunity in America: A conversation with House Budget Committee Chairman Paul Ryan

Please join us as House Budget Committee Chairman Paul Ryan (R-WI) unveils a new set of policy reforms aimed at reducing poverty and increasing upward mobility throughout America.

Event Registration is Closed
Thursday, July 24, 2014 | 6:00 p.m. – 7:15 p.m.
Is it time to end the Export-Import Bank?

We welcome you to join us at AEI as POLITICO’s Ben White moderates a lively debate between Tim Carney, one of the bank’s fiercest critics, and Tony Fratto, one of the agency’s staunchest defenders.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.