One of the signal errors of Biden administration policy has been its tendency to take regulatory actions that reduce the flexibility of the economy generally and the labor market in particular. The latest example of this problem is a new US Department of Labor rule aimed at reclassifying millions of “gig” workers—people who work in contract roles—as employees. The effect of this move is to complicate employment decisions for businesses and workers in the midst of a challenging labor shortage and a rapid transformation of work arrangements.
The new rule institutes a “totality of the circumstances” test, with six criteria, to determine how economically dependent workers are on their employers. If a worker is found to be sufficiently dependent, they become an employee. The rule may not be as stringent as California’s divisive (and potentially as unconstitutional) AB 5—but it will have much the same effect: limiting employment opportunities, especially for those who are just starting out or want or need flexible work schedules. From the standpoint of the economy, the rule will introduce new rigidities into an already stressed labor market.
The Biden administration’s new rule is squarely at odds with the expressed needs and desires of the overwhelming majority of American workers. A recent AEI survey shows that when it comes to making job decisions, flexibility trumps all. A striking 78 percent of American workers say flexibility in their job is “one of the most or a very important” factor in looking for a job. By contrast, just 55 percent say the same about pay. The American workforce is sending a clear message: Flexibility is no longer just a perk; it’s the crown jewel of employment.
Women, the principal caregivers for most American families, especially value flexibility. Across all racial groups, women have a higher preference for flexibility than men. Mothers drive this trend: 9 in 10 employed moms say that work-life balance is one of the most important aspects of selecting a job.
In a rapidly aging workforce with lots of job switching, younger and middle-aged workers also greatly value flexibility. Over 80 percent of early- and mid-career workers, respectively, say that work-life balance is one of their most important employment considerations. This drops to 79 and 68 percent among late-career and post-retirement-age workers, respectively. Employers scrambling to attract and retain talent need as many tools as possible to make work workable for their employees. Instead, the Biden regulations threaten to shrink options for workers and employers.
To be sure, the administration’s policy seeks to address a real problem: access to benefits (e.g., health care, unemployment, retirement) that are often unavailable to contract workers. As nontraditional employment arrangements grow in popularity, tying these benefits to traditional employment arrangements makes less sense. To fix this bottleneck, Mercatus Center economist Liya Palagashvili has argued in favor of “portable” benefit policies. These benefits are tied to workers rather than employers, meaning that they allow workers to access them even as they change jobs, work for multiple employers, or engage in nontraditional work arrangements. Rather than erode employment opportunities, this type of reform adds to them by enhancing worker and labor market flexibility.
Finally, let’s not forget what happened to AB 5. Barely a year after it was signed into law it was partially repealed by a ballot proposition which exempted rideshare and delivery workers. When Palagashvili analyzed the impact on AB 5-covered workers, she found that, rather than turning contractors into employees, it reduced employment levels; that is, it led not to better jobs but to fewer ones. The American workforce deserves more than false promises and reduced opportunity. The Biden administration should take note.
