New institutions and technologies have made it simpler for self-employed individuals to do work for firms and peers that could have previously only been done in an employment relationship. As a result, speculation has grown that traditional jobs in the United States will be replaced by “gig” or “freelance” work performed by self-employed workers acting as independent contractors. While a shift towards a “gig economy” could increase opportunities for flexible work, it could have major ramifications for tax administration and social programs, which are often administered through employers. Therefore, it is crucial for policymakers to understand where and why such shifts are occurring.
Despite the attention from media and from policymakers, the evidence to date on the rise of a gig economy and of alternative work arrangements more generally has been mixed. On the one hand, administrative records, some survey evidence, and abundant anecdotal evidence suggest that alternative work arrangements, particularly independent contracting relationships, are on the rise. Self-employment more generally has been shown to be increasing in tax returns. Some recent surveys find that more than 30 percent of the workforce is engaged more broadly in some sort of freelance or “gig” work. At the same time, self-employment has not grown in the Current Population Survey (CPS), and the recent 2017 installment of Contingent Worker Supplement (CWS) to the CPS found that alternative work arrangements of all forms were no more prevalent in 2017 than they were in 2005 when the supplement was last conducted.
We examine the universe of tax returns in order to reconcile seemingly contradictory facts about the rise of alternative work arrangements in the United States. Focusing on workers in the “1099 workforce,” we document the share of the workforce with income from alternative, non-employee work arrangements has grown by 1.9 percentage points of the workforce from 2000 to 2016. More than half of this increase occurred over 2013 to 2016 and can be attributed almost entirely to dramatic growth among gigs mediated through online labor platforms. We find that the rise in online platform work for labor is driven by earnings that are secondary and supplemental sources of income. Many of these jobs do not show up in self-employment tax records: approximately 44 percent of the overall growth in the 1099 economy comes from people who do not file self-employment taxes. Examining the relationship between 1099s and self-employment tax records more generally, we find that the previously documented increases in self-employment tax filings since 2007 are largely driven by workers without 1099s. We discuss implications of these findings for tax administration and measurement of alternative work using tax data.
Chosen excerpts by Job Market Monitor. Read the whole story at Is Gig Work Replacing Traditional Employment? Evidence from Two Decades of Tax Returns