What’s Next for America’s Independent Workers?
The popular YouTube channel “CNBC Make It” recently profiled truck driver Clarissa Rankin, who happily works as an independent “owner‐operator” trucker (and budding social media star) and makes good money in the process. Hers is an entertaining and heartening story of American perseverance and success, and the short video (posted below) has already racked up more than 500,000 views and thousands of supportive comments.
If various state and federal policymakers have their way, however, Ms. Rankin’s business model might be soon regulated out of existence — whether she likes it or not.
Rankin, like every other owner‐operator truck driver in America, is an independent worker – someone who takes on projects or jobs from different clients, relatively free from the clients’ control. As detailed in my chapter on Independent Contracting and Gig Work in the new Cato book, Empowering the New American Worker, independent work encompasses everything from trucking to rideshare driving to freelance writing to software and app development. Some workers work independently full‐time, but most (surveys say anywhere from two‐thirds to 80 percent) do it as a part‐time “side hustle.” Independent work has also become increasingly popular: according to consulting firm MBO Partners, more than 51 million Americans worked independently at some point in 2021, up from just 38 million in 2020.
Contrary to what you may have heard, most Americans are like Ms. Rankin – they engage in independent work because they prefer the arrangement over traditional employment, not because they’re forced into it by some greedy business owner. A big driver of this preference is the flexibility and control—over schedule, location, clients, public affiliations, etc.—that a standard employee usually lacks. One 2021 study found that nearly half of all independent workers are unable to work a traditional 9–5 job, and a separate survey found that 70 percent of independent workers cited flexibility as the major reason for going into freelance work. As shown below, the vast majority of independent workers are happier and healthier with their work and want to remain in independent work in the future. Just 11 percent of full‐time workers want to return to traditional employment. That same survey also found, perhaps surprisingly, that almost 70 percent of full‐time independent workers in 2021 believed that their work is actually more secure than traditional employment. Other reports show that most independent workers engage in white collar work, not oft‐maligned “gig economy” jobs, and can make great money doing so.
Business owners and consumers also gain from independent work arrangements, which have also been shown to provide broader economic and social benefits too. Ridesharing services have reduced drunk driving; food delivery services helped restaurants weather pandemic lockdowns; and new platforms such as Bite Ninja have helped restaurants navigate labor shortages by having gig workers run drive‐thru windows from home.
Despite these benefits and Americans’ clear preferences for independent work, various laws and regulatory proposals seek to significantly curtail the arrangement. This past October, in fact, the Biden administration released a proposed rule that experts believe would expand the federal definition of “employee” by applying a watered‐down version of the “ABC Test” that several states adopted to limit independent work. Under that test, a worker may be classified as independent only if he meets all three of the following criteria: A) he’s free from the control of the entity for which the work is performed; B) he performs work that is different from the hiring entity’s usual business; and C) he already works in the same trade, occupation, or business as the work being performed for the hiring entity. California adopted the ABC test in 2019 with the passage of the controversial Assembly Bill 5 (AB 5), and five other states (Connecticut, Massachusetts, New Jersey, Nebraska, and Vermont) also use it.
As these states’ experience shows, applying the ABC test nationally would force hundreds of now‐independent occupations to be reclassified as employees, regardless of workers’ and employers’ own contracting decisions. This could impose significant economic harms—including for the very workers the proposed rule is supposedly protecting. Traditional employees can be more than 20 percent more expensive for companies to employ than independent workers. Compliance and mandated benefits, such as health insurance, drive up costs, especially for smaller firms. Thus, firms that are unable or unwilling to pay more to rehire previously independent workers could respond by raising prices or cutting the positions entirely.
We’ve seen this play out in California. In 2020, for example, Uber estimated that AB 5 would increase costs by $3,625 per driver in California, could double the price of rides, and would reduce rideshare availability by up to 60 percent. Right after AB 5 passed, Vox terminated more than 200 freelance writers, and many other freelancers were let go around the same time. Thus, California scrambled to exempt more than 100 occupations from AB 5 since 2019, including rideshare drivers, writers, and photographers.
As my Cato colleague Walter Olson recently documented, however, many other occupations didn’t get a carve‐out: “Workers hurt by AB 5 included many tutors, performers in music and theater, plumbers, nurse practitioners, writers, photographers, contract software developers, and many others.” Among those others are about 70,000 “owner‐operator” truck drivers like Ms. Rankin. In fact, when court rulings applied AB 5 to California’s commercial trucking industry in July 2022, hundreds of truckers protested their reclassification as employees and temporarily blockaded the Port of Oakland, one of the busiest shipping hubs in the country. Will a national rule push Ms. Rankin to consider doing the same?
The public commenting period for the Department of Labor’s proposed rule closes today.
(For more on independent work, including tax and other policy recommendations to help Americans who want to engage in the practice, check out the full chapter in Empowering the New American Worker or this Cato Daily Podcast.)