Eleanor Wilking

Publication Date



Federal tax law divides workers into two categories depending on the degree of control exercised over them by the service purchaser (i.e., the firm): employees, who are subject to direct supervision; and independent contractors, who operate autonomously. Such worker classification determines the administration of income tax and what it subsidizes, as well as which nontax regulations pertain, such as workplace safety and antidiscrimination protections. The Internal Revenue Service and other federal agencies have codified common law agency doctrine into multifactor balancing tests used to legally distinguish employees from independent contractors. These tests have proved challenging to apply and costly to enforce. Yet we know almost nothing about how firms actually classify workers systemically and how such classification relates to the control firms exercise over workers.

To bridge this gap between legal principles and legal practice, this Article introduces a novel empirical analysis using a comprehensive data source—all digitized U.S. income tax filings between 2001 and 2016. This analysis establishes several new facts. First, using six measures of firms’ control over workers, I show that employees and contractors have grown increasingly similar over the past two decades. I found this convergence to be particularly pronounced among lower earning workers. I then develop a novel theoretical framework to interpret these findings. Second, I provide empirical evidence that the presence of financial incentives created by government policy increases the likelihood that employees are reclassified as contractors.

These results suggest a growing misalignment between how workers are classified and the substance of firm–worker relationships. Put another way, two otherwise identical workers, with relationships that feature a similar degree of control, may end up being classified differently due to, among other factors, their firms’ financial incentives. I conclude by discussing the key normative questions raised by the apparent erosion of the legal boundary delimiting contractors and employees.

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