The status of workers and platforms in the sharing economy

• DOI: http://doi.org/10.1111/jems.12299
• Author: Julian Wright,Andrei Hagiu
• Published date: 01 January 2019
• Date: 01 January 2019

Received: 30 August 2018

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Accepted: 4 September 2018

DOI: 10.1111/jems.12299

The status of workers and platforms in the sharing

economy

Andrei Hagiu

1

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Julian Wright

2

1

Questrom School of Business, Boston

University, Boston, Massachusetts

2

Department of Economics, National

University of Singapore, Singapore

Correspondence

Julian Wright, Department of Economics,

National University of Singapore,

Singapore 117570.

Email: jwright@nus.edu.sg

Abstract

We consider whether workers who provide their services through online

platforms, such as Handy and Uber, should be classified as independent

contractors or employees. Using a formal economic model, we show how being

too strict or too liberal in classifying workers as independent contractors

(relative to the actual degree of control workers have) can be detrimental, not

just to firms and welfare, but sometimes to the workers themselves. We also use

the model to explore the extent to which an intermediate classification of

workers between employees and independent contractors may lead to better

outcomes. The intermediate classification is meant to apply to firms that retain

control of some actions while their workers control others, as is the case for

many online platforms.

KEYWORDS

contracts, employment, gig economy, online platforms

1

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INTRODUCTION

As the sharing (or gig) economy grows in importance, policymakers have been grappling with what regulations and

laws should apply. A key area of concern regards the proper legal status of workers who provide their services to

consumers through online platforms, such as Amazon Mechanical Turk, Freelancer, GrubHub, Handy, Instacart,

Postmates, Task Rabbit, Uber, and Upwork. Should Handy cleaners, Uber drivers, and other “gig workers”be

considered employees or independent contractors? On the one hand, online platforms typically give their workers more

control over when they work, how they work, and for whom they work relative to traditional employers, which suggests

the workers should be thought of as independent contractors. On the other hand, the workers are oftentimes entirely

reliant on the associated platform for their income and have little or no bargaining power, and some important

decisions are controlled by the platform (e.g., the price charged to riders is controlled by Uber, not by drivers, and

Handy cleaners must follow restrictive guidelines for how to interact with their customers).

There is little agreement on how to classify workers in such settings. The platforms involved have invariably

classified workers as independent contractors, making them ineligible for most employee benefits and labor

protections.

1

Indeed, Handy has proposed bills in eight state legislatures in the United States to permanently classify

most gig workers as independent contractors, with the bills passing the house or senate in each state, and so likely to

become law soon. At the same time, several courts have ruled that Uber drivers should be classified as employees and

eligible for the associated benefits and rights.

2

The regulators’concern is that some platforms are attempting to have it

both ways: avoid paying payroll taxes and other employment benefits, while at the same time reaping the benefits of

significant control over how their workers perform services for their customers.

J Econ Manage Strat. 2019;28:97–108. wileyonlinelibrary.com/journal/jems © 2019 Wiley Periodicals, Inc.

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ORIGINAL ARTICLE