About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

100 Tex. L. Rev. 353 (2021-2022)
The Economic Basis of the Independent Contractor/Employee Distinction

handle is hein.journals/tlr100 and id is 375 raw text is: The Economic Basis of the Independent Contractor/Employee Distinction Eric A. Posner* In recent years, a controversy has erupted over the distinction between employees and independent contractors. Commentators have argued that in the modern gig economy, many people traditionally classified as independent contractors are as vulnerable as employees and should be granted the legal protections that employees alone normally enjoy. However, the distinction between the two categories remains inescapable, and the theoretical basis for it has not been identified. I argue that the distinction is derived from market structure. Employees are workers who, because they must make relationship- specific investments in a single firm, are subject to labor monopsony. Independent contractors do not make such relationship-specific investments, and hence normally operate in a competitive labor market. Employment and labor law may be explained as a methodfor protecting workers from labor monopsony; because independent contracts are not subject to labor monopsony, they do not require such protection, and in fact may impose costs on others if granted it. Introduction The law's distinction between employees and independent contractors (or, merely contractors) has sparked intense debate over the last few years. As a result of advances in technology, some workers who have traditionally been classified as employees are now being treated as contractors: they make a living by undertaking a series of gigs for different labor buyers (as I will call the firms or households that purchase the services of workers) rather than working for a single employer.1 Many commentators worry that these * Kirkland & Ellis Distinguished Service Professor, The University of Chicago Law School. Thanks to Oren Bar-Gill, Oliver Hart, Daniel Hemel, Max Huffman, William Hubbard, Aneil Kovvali, Genevieve Lakier, Mark Lemley, Jonathan Masur, Sarath Sanga, Steve Shavell, and participants at workshops at the University of Chicago Law School and Harvard Law School, for helpful comments, and to Michael Christ and Justin Taleisnik for research assistance. Thanks also to the Russell Baker Scholars Fund for financial support. 1. Some commentators claimed that these alternative work arrangements (outside the employment relationship) have transformed labor markets throughout the United States, a claim that received a boost from a 2016 study, which found that alternative work arrangements increased from 10.7% in 2005 to 15.8% in 2015. See Lawrence F. Katz & Alan B. Krueger, The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015, at 1 (Nat'l Bureau of Econ. Rsch., Working Paper No. 22667, 2016) (discussing the findings of a survey on alternative work arrangements). However, the authors later revised their estimate down to a 1% increase. See Lawrence F. Katz & Alan B. Krueger, Understanding Trends in Alternative Work Arrangements in the United States 2 (Nat'l Bureau of Econ. Rsch., Working Paper No. 25425, 2019) (explaining analysis that indicates a modest upward trend in the incidence of alternative work arrangements of about 1 percent of the workforce).

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most