Op-Ed: Labor Department stuck in 1930s with rule against independent contractors

Photo Credit: Getty

The Department of Labor is stuck in the 1930s. That’s the most likely explanation for its new rule that could lead to thousands of freelancers losing their livelihoods. The department is propping up a century-old model of what work should look like at a time when technology is rapidly changing how it could look.

The rule concerns independent contractors, which includes not just “gig economy” workers but freelancers and a variety of other professionals. The new rule states that unless some very specific circumstances are met, contractors should be deemed employees, with their work hours and benefits standardized. Supporters of the rule like Sen. Elizabeth Warren say this is a victory for workers.

Yet when a similar rule was imposed in California, devastation followed. Many freelancers lost their livelihoods, others left the state, and the legislature had to rewrite the law to exempt hundreds of professions. A report by the Mercatus Center at George Mason University found that self-employment in the state fell by 10 percent, and all employment by almost 5 percent. As a result, a popular vote overturned the law.

With a national rule, however, few of those escape options are possible. Freelancers are unlikely to flee the country, and there is no such thing as a national ballot measure. The department has only just finalized the rule, so revisions are unlikely unless there is a change in control of the executive or legislature this November. Independent contractors face an extremely uncertain future.

The reason why the rule is likely to be such a problem is because it is based on a vision of what the workplace should look like from a century ago, when large corporations dominated.

Large corporations made sense when it was harder to be nimble as a business. Nobel Prize winner Ronald Coase explained the reason we have corporations at all is because of the presence of what are called transaction costs. If I have a business idea that requires the services of someone else, I face those costs. If the business idea requires someone with advanced mathematical calculation skills I don’t have, I can either contract with someone who has those skills to do the work every time I need it, or I can hire them as an employee instead and have them always available.

Read the full article on The Center Square.