Spotlight Exclusives

Equal Treatment for Independent Workers: Policy Proposals for the Self-Employed Economy

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More and more Americans are choosing to become self-employed, either through small businesses or in the gig economy – the growing portion of the labor market characterized by short-term contracts or freelance work rather than permanent jobs. Such alternative work arrangements have grown from 10.1 percent of all employment in February 2005 to 15.8 percent in late 2015.  There was no comparable change during the previous 10 years (1995 to 2005).

However, this growing segment of the workforce does not fit neatly into the regulatory categories that govern fair treatment and employee benefits, raising concerns that low-wage workers will be vulnerable to exploitation. At the 2017 Daniel Patrick Moynihan Lecture, Dr. Alan Krueger, Bendheim Professor of Economics and Public Affairs at Princeton University and former chairman of the Council of Economic Advisers under President Obama, explained that while changes in technology have made work more accessible to some, gig economy workers are losing out on key protections offered to the traditional workforce. The growing number of self-employed “are left to account for their own social compact, incurring transactional costs,” he said.

Current labor laws create a safety net for employees of what Krueger calls the “W2 economy” – the sector of the economy made up of full-time traditional jobs. However, that safety net doesn’t extent to those in the gig economy. The key question, said Krueger, is “how do we extend this safety net to this growing group of workers?”

Much of Krueger’s latest research has focused on developing policy recommendations that would modernize labor laws to address this concern. Last month, Krueger completed a survey of 10,368 people in alternative work arrangements to inform his recommendations – and he shared the results during the lecture.

“There are several major areas where policy interventions can prove beneficiary to these workers – discovering preferences for benefits, utilizing shared accounts, offering job training, changing taxes, addressing discrimination, and alleviating contractual issues,” he said.

Krueger said that to fully address these issues, policy solutions must also be proactive enough to prevent future problems from arising. For policies to be fair to both traditional and nontraditional workers, they must take advantage of risk pooling, avoid adverse selection, and address tax compliance problems.

On the issue of discrimination, Krueger proposes extending to independent contractors Title VII of the Civil Rights Act, which prohibits employment discrimination based on race, color, religion, sex, and national origin. Krueger’s study revealed that 47 percent of African American and 28 percent of female respondents felt that they were discriminated against by a potential employer or client.

On contractual issues, Krueger emphasized making sure that proper legislation is in place to guarantee full and timely payments for independent contractors. In New York City, the Freelance Isn’t Free Act of 2017 effectively establishes and enhances protections for freelance workers, specifically the right to a written contract, timely and full payment, and protection from retaliation. He said he hopes that this model, as suggested by Sen. Mark Warner (D-VA), who introduced Krueger at the event, will be adopted nationwide.

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