Subcommittee on Workforce Protections
Good morning, Chairman Kiley and members of the Subcommittee on Workforce Protections. It is an honor to testify before you.
My name is Liya Palagashvili, and I am an economist at the Mercatus Center at George Mason University. My research focuses on the independent workforce and the evolving nature of work.
Today, my testimony focuses on the Department of Labor’s (DOL) proposed rule that restricts the independent workforce. The three key themes are:
- The independent workforce is a diverse and growing sector of the labor market, providing flexible job arrangements for over 60 million workers across the nation.
- The Department of Labor (DOL) proposal will impose restrictions on this workforce, which will lead to job losses.
- Independent work provides an important source of income for women who cannot take on traditional employment and restricting independent work will adversely impact women’s labor force participation rates.
What is the Independent Workforce?
One out of every three Americans works outside of traditional employment today, either for their primary or secondary source of income.
These independent workers span across industries, skill levels, and educational attainment—for example, they can be musicians, ridesharing and delivery drivers, software developers, graphic designers, landscapers, Instagram influencers, and self-employed online merchants.
According to IRS tax data, “Professional, Scientific, and Technical Services” make up the largest share of independent workers and has also seen the fastest growth in independent workers since 2001. While Uber, Lyft, and DoorDash are ubiquitous in our everyday lives, these workers amount to fewer than 10 percent of the overall independent contractor workforce.
Beyond that, the tax data show that app-based workers are primarily supplemental earners who have fulltime jobs elsewhere. I will quote directly from the IRS report on this: “the exponential growth in the online platform economy for labor is driven by individuals whose primary annual income derives from traditional jobs and who supplement that income with platform-mediated work.
The Department of Labor’s Rule Restricting Independent Work Opportunities Will Lead to Job Losses
One part of the DOL’s proposed independent contractor rule adds new considerations that significantly limit the circumstances under which a worker can legally be classified as an independent contractor.
The DOL is doing this in hopes that organizations will hire more workers as official employees instead. At first glance, it may seem like a win for those who might be reclassified as employees and receive benefits.
However, that is unlikely to be the case for the majority of workers.That’s because it is impossible for every single independent work opportunity to turn into full-time employment offer. And let me provide you with a recent example to demonstrate this point.
When California passed AB5, which is a similar law that restricts independent work opportunities, lawmakers lauded it as a win for workers. But some of those same lawmakers changed their minds later when news outlets like the New York Times and the LA Times highlighted how AB5 had led to job losses, especially among freelance musicians, classical performers, truck drivers, translators, editors, and writers.
Following this backlash, California later exempted these professions, and many others, from AB5. I would like to emphasize here that jobs were saved in California when more than 100 professions and industries were exempted from AB5. But the DOL’s rule cannot exempt any professions or industries, which means that its rule will have far more significant and wide-reaching consequences across our economy and all jobs.
These jobs losses are especially problematic as the Fed announced last week that a recession is expected in the coming months. Several decades of economics research shows that workers turn to independent work after they have faced a loss of income or unemployment. Recent reports using IRS tax data also found that independent work opportunities are critical for financially strained workers when they face economic hardship.
At a time when employment opportunities are likely to become scarcer, it’s unwise for the DOL to also limit independent work opportunities. Eliminating independent work will mean that workers will be unemployed for longer periods, thereby risking a far more severe recession.
Independent Work Provides an Important Source of Income for Women Who Cannot Take on Traditional Employment
But perhaps one of the most unfortunate consequences of the DOL’s rule is how it will adversely impact women. Across nationwide surveys, women who are primary caregivers have indicated that they engage in independent work because they require flexible work arrangements. Indeed, one survey found that a quarter of women left their employment jobs to take on independent work because they wanted flexibility or needed more time to care for a child, parent, or other relative.
A recent academic study finds that self-employment rates are higher for women who have young children and that self-employed female workers have more flexibility in their work location, hours, and schedule as compared to women in traditional employment.
Restricting independent work opportunities and reclassifying them into traditional employment would disadvantage many women who turn specifically to independent work for the flexibility they need in their work schedules. There are far better ways to address the challenges of independent work without the DOL regulations making women their collateral damage.
Thank you. I welcome your questions.