“Gig Workers Get Break From Biden Labor Department.” That’s the title of an Oct. 11 article by Emily Peck of Axios Markets. What break is Peck referring to? The Biden administration’s Labor Department has proposed a regulation to classify many “gig workers” as employees. Peck referred to this as a “pro-Labour turn”.
Interestingly, Peck doesn’t explain why the government’s classification of gig workers as employees is good for those workers. Peck takes it as a given that they will want to be employees. But is it true? When economists observe that people are doing activity X when activity Y is an alternative, we conclude that those people prefer Y to X. So if we note that millions of people choose what is variously called “gig work” or “freelance contracting,” and there are millions of jobs available for those who want to be employees, these millions of gig workers want what they choose. Therefore, to argue for not allowing them to engage in gig work (the term I’ll use from now on), you have to show that they would, by their own standards, be good as employees. That case is still pending.
These are the first two paragraphs of my latest article for the Hoover Institution, “Give Gig Workers a Real Break.” Defined conceptsNovember 17, 2022.
The Department of Labor has proposed six “economic reality” tests as a basis for determining whether someone is an independent contractor or employee: (1) “opportunity for profit or loss depending on managerial skill”; (2) “investment by workers and employers”; (3) “degree of permanence of employment relationship”; (4) “nature and degree of control”; (5) “the work performed is an integral part of the employer’s business”; and (6) “skills and initiative.”
The idea with (1) is that the greater the opportunity for profit or loss and the greater the need for managerial skill, the more likely the individual is to become an independent contractor. With (2), the idea is that the greater the worker’s investment, the more likely he or she is to become an independent contractor. Interestingly (2), the Department of Labor states that buying one’s own equipment is not “evidence of capital or entrepreneurial investment.” hmm Equipment is certainly a capital investment by any reasonable standard. Here the bias of the Biden Labor Department in favor of declaring an employment relationship is clearly demonstrated. This is demonstrated in other ways as well. Note the wording of (2) and (5). Both implicitly assume that the entity involving a prospective contractor is an employer and that the prospective contractor is an employee. But isn’t it supposed to be determined?
In (3), the Department of Labor suggests that if “the employment relationship is indefinite or continuous,” that argues for being an employee. The department does not want to say why.
Test (5) is also interesting. It is similar to the “B” portion of the California ABC exam. It is also inconsistent. If the work isn’t integral to the employer’s business (oops—they even made me assume that the entity willing to hire a contractor is an employer), then why does it want to hire a contractor? When a contractor delivers food to a restaurant, you can be sure that food delivery is an integral part of the enterprise. But how exactly does this make the caterer an employee? And if, by any chance, the Department of Labor exempts caterers from being employees, how is that justified?
Interestingly, there is a huge gap between what the Department of Labor calls a “totality of the circumstances” analysis, a gap that belies the claim that the Department of Labor will consider all circumstances. Can you guess what that gap is? I bet the Department of Labor can’t but many independent contractors can. Not even mentioned Whether the contractor wants to remain a contractor.
Read the whole thing, especially if you want to comment and more especially if you want me to respond to your comment.
If you want to see my humorous comments, read my disclosure at the end. I’m surprised, but glad, that Hoover’s editor let me put in the last line.