RELEASE: Independent Contracting in California: An Analysis of Trends and Characteristics Using Tax Data
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New Reports Shed Light on Role of Independent Contracting in California
Sacramento, CA—March 1, 2022: New research released today uses California tax data to better understand independent contracting in California and the role it plays in the state’s economy. Using fully anonymized tax data from 2014 through 2016, the researchers measured how many Californians were engaging in independent contracting work and how they combine this work with more traditional employment. Workers who were paid as independent contractors cover a wide range of occupations, from truck drivers, hairdressers and so-called “gig-workers” to highly paid occupations like doctors, lawyers and real estate agents. In 2016, 9% of Californian workers earned a living solely through independent contracting. Another 9% combined a traditional W2 job with independent contracting usually for supplementary income. But the large majority of workers in California (82%) did not participate in independent contracting: they earned a living through one or more W2 jobs.
“The pandemic made it clear that we need to better understand this sector of the economy, especially as it relates to worker protections and worker supports like unemployment insurance,” explains co-author Jesse Rothstein, Chancellor’s Professor of Public Policy and Economics at UC Berkeley, and the faculty director of the California Policy Lab’s UC Berkeley site. “The framework and methodology we use in this research would be very helpful in future research to better understand this sector.”
A short fact sheet released today summarizes findings from two publications:
- Independent Contracting in California: An Analysis of Trends and Characteristics Using Tax Data, a policy report that presents a broad set of findings about the characteristics of independent contracting in California for workers age 18-80; and
- The “Gig Economy” and Independent Contracting: Evidence from California Tax Data, a working paper that provides more detail about the definitions, data and methodology of the research and an analysis on the prevalence and trends in independent contracting.
“With new laws and an economy that’s constantly changing, it’s important to understand what role independent contracting plays within California’s economy,” adds co-author Annette Bernhardt, director of the Technology and Work Program at the UC Berkeley Labor Center. “Future research can shed light on how independent contracting and working for on-demand platforms has changed since the start of the pandemic and the passage of AB5.”
Seven key takeaways from 2014-16 tax data analysis
- Traditional employment in a job that provides a W2 remained the most common way that workers earned a living in California. In 2016, around 82% of California workers held a traditional W2 job and did not participate in any independent contracting. Around 18% of California workers participated in some amount of independent contracting.
- Of the 18% of Californians that participated in some form of independent contracting, around half used independent contracting to supplement their W2 earnings, often in small amounts relative to their W2 income. The other half (9% of California workers) worked solely as independent contractors.
- The share of Californians who participated in independent contracting did not change dramatically from 2014 to 2016. The total proportion of workers with independent contracting earnings increased only slightly, from 17.8% in 2014 to 18.3% in 2016. That growth was the result of a slight increase in the proportion of workers combining W2 and independent contracting work. In analysis over a longer period of 2013 to 2017, the researchers also found little evidence of rapid growth in independent contracting.
- Work for on-demand labor platforms—often called ‘gig’ work—made up a small share of all independent contracting. In 2016, 1.4% of California workers reported earnings from an on-demand labor platform company, such as Uber, TaskRabbit, or Lyft. The majority of these workers got most of their earnings from W2 jobs, supplementing them with their platform earnings. The one in five platform workers that relied solely on platform work in 2016 accounted for just over half of all on-demand labor platform earnings.
- Workers who relied exclusively on independent contracting for their income tended to be older, married, and live in lower-income households, compared to other workers, and had low earnings on average. Around half lived in a household with an adjusted gross income in the lowest quartile — double the rate of workers who only rely on traditional W2 work and workers who combine traditional W2 and independent contracting work.
- Relative to W2 work, independent contracting was over-represented in certain sectors including: construction; transportation and warehousing; real estate; professional services; arts, entertainment, and recreation; repair and maintenance personal services; child day care services; janitorial and landscaping services; and direct selling establishments in retail. While the industry distribution of independent contracting did not change significantly between 2014 and 2016, the share of independent contracting work in transportation nearly doubled during this time.
- Because of data limitations, the study was not able to identify the misclassification of employees as independent contractors.
Founded in 1964, the UC Berkeley Labor Center works to address the most critical challenges affecting working families in California and across the nation. The Center provides timely, policy-relevant research on labor and employment issues and carries out training and education programs for labor leaders and students.
The California Policy Lab creates data-driven insights for the public good. Our mission is to partner with California’s state and local governments to generate scientific evidence that solves California’s most urgent issues, including homelessness, poverty, criminal justice reform, and education inequality. We facilitate close working partnerships between policymakers and researchers at the University of California to help evaluate and improve public programs through empirical research and technical assistance.