With the rise of the “gig economy” has come a debate over who is an employee, and who is truly an “independent contractor.” Do we need to create a new category of worker just for the Uber era?

Labor advocates tend to want as many people as possible to be classified as real employees, so they can receive the protections that law affords to employees, and the benefits that go along with being an employees. Companies themselves, particularly the new class of startups that depend on facilitating cheap, one-off tasks, tend to want the opposite—to pretend as many workers as possible are “independent contractors,” so that the company is not forced to incur any extra costs or take any extra responsibility for them.

This is not a dynamic that can continue forever in a nation where being an employee is essential to obtaining many necessities for a reasonable standard of long-term living. A nasty, all or nothing battle over what kind of workers company will have to consider employees is already looming. But two economists (including Obama advisor Alan Krueger) argue in a new paper that what is needed is a middle way: a new category of worker classification, called “independent workers,” that splits the difference between employee and independent contractor, in response to the changing nature of work. Here, the authors enumerate what independent workers would get:

In our proposal, independent workers — regardless of whether they work through an online or offline intermediary — would qualify for many, although not all, of the benefits and protections that employees receive, including the freedom to organize and collectively bargain, civil rights protections, tax withholding, and employer contributions for payroll taxes. Because it is conceptually impossible to attribute their work hours to any single intermediary, however, independent workers would not qualify for hours-based benefits, including overtime or minimum wage requirements. Further, because independent workers would rarely, if ever, qualify for unemployment insurance benefits given the discretion they have to choose whether to work through an intermediary, they would not be covered by the program or be required to contribute taxes to fund that program. However, intermediaries would be permitted to pool independent workers for purposes of purchasing and providing insurance and other benefits at lower cost and higher quality without the risk that their relationship will be transformed into an employment relationship.

The paper says that 600,000 workers, or 0.4% of the U.S. work force, currently “work with an online intermediary in the gig economy.” (About 10% of workers are self-employed, and the number actually fell last year.) Does such a small fraction of workers really call for an entirely category of employment? Noam Scheiber says no, pointing to examples of startups that succeeded even while classifying many workers as full-time employees, and arguing that the drawbacks of the new category, in the form of the rights that independent workers would be deprived of, outweigh its benefits. Greg Ip at the Wall Street Journal is more amenable to the idea, and gets to the essence of the issue that labor advocates can certainly get behind, even if they do not fully buy the details of the “independent worker” proposal: “The object, Messrs. Harris and Krueger say, is to ensure that such companies thrive based on the strengths of their business model, not on ‘regulatory arbitrage,’ that is, their ability to pay less for employees than other firms do.”

As we stand today, companies like Uber and AirBnB do owe at least part of their success to regulatory arbitrage. Taxis are heavily regulated and taxed; Ubers are not. Hotels are heavily regulated and taxed; AirBnBs are not. You don’t have to be a great fan of the taxi or hotel industries to admit that the playing field is not fair. More importantly, allowing one segment of an industry to operate more cheaply by cutting costs on the backs of workers ensures not only that that segment of the industry will grow and flourish, but that the number of workings being screwed will increase.

I do not know whether we need a new category of worker. But if we do, the rationale should be to protect workers, and not to more smoothly enable the long-term transition towards a model of a lifetime of independent hustling to live.

[Photo: Flickr]