August 13, 2015 Reading Time: 2 minutes

The employment status of Uber’s drivers and other workers in the “sharing economy” has become a hot political issue, with Hillary Clinton and others criticizing the lack of protections and benefits afforded to independent contractors.  Implicit in this criticism is the notion that independent contractor status is a bad deal for workers.  However, reclassifying contractors as employees would have both costs and benefits that would be felt differently by different kinds of workers in the sharing economy.

Missing from the debate is the fact that a reclassification would cost workers in the form of lower base pay.  When firms’ costs increase, they pass some portion along to consumers in the form of higher prices, and to workers in the form of lower wages.  Most full-time employees, for example, would likely receive a higher base salary, were their employers not required to subsidize health insurance and other benefits. 

One recent study estimates that the cost of payroll taxes and workers’ compensation, excluding other benefits received by full employees, would make up nearly 20 percent of Uber’s revenue.  Some portion of this cost would be passed along to drivers in the form of lower base pay.  Uber would also exert more control over employees than contractors, and could set working hours and other standards.

The benefits to workers of full employee status are clear: lower individual tax burden and protections such as disability and unemployment insurance.  A look at Uber driver demographics suggests the tradeoff might be a good one for some, but not all drivers. Jonathan Hall and Alan Kruger report that only 19 percent of drivers work more than 35 hours per week.  Worker protections could be important, if not essential, to those working full-time as drivers.  But part-time drivers, 31 percent of whom also work a  full-time job, would likely not be willing to trade base earnings for benefits they may receive elsewhere. 

One interesting group is the 30 percent of drivers who have an additional part-time job.  By not working enough hours in any one job, they may currently fall through the safety net.  The diversity of Uber drivers points to an even larger issue:  If workers increasingly combine part-time work from several sources, is a system that relies on a single employer to provide protections and benefits out of date?  Instead of arguing over what obligations firms in the sharing economy have under traditional rules, perhaps Uber and policymakers should work together on innovative solutions that work for new types of workers.

Max Gulker

Max Gulker

Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.

Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.

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