The ‘Gig Economy’ and Independent Contracting: Evidence from California Tax Data

WORKING PAPER: The ‘Gig Economy’ and Independent Contracting: Evidence from California Tax Data PDF

Most labor market policy in the United States is designed for long-term employment relationships. Self-employed workers, including independent contractors and on-demand platform (“gig”) workers, are excluded from labor market protections such as wage and hour laws, occupational safety and health regulations, unemployment insurance, and employer-provided health insurance and retirement programs. They are also poorly covered by our tax collection system, which relies heavily on employer reporting of worker earnings for enforcement. Growth in independent contracting could undermine labor market arrangements, with implications for regulation, tax collection, and worker wellbeing.

This paper uses California tax data to provide an alternative lens on many of the outstanding empirical questions about independent contracting. We use de-identified, individual-level data from California personal income tax returns for tax years 2012 through 2017 to measure the prevalence and nature of self-employment and independent contracting. We estimate that 14.4% of California workers aged 18-64 in tax year 2016 had some independent contracting income. Over half of independent contractors also had traditional jobs generating W-2s, and most of these received the bulk of their earnings from their traditional jobs. Workers with low earnings are significantly more likely to earn independent contracting income and to rely primarily or exclusively on that income. We explore the characteristics of independent contractors and their distribution across family type, geography, and industry.

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