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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
independent contracting is expanded due to this rule, this could generate benefits that may include:
Increased job creation and small business formation.
Increased competition and decreased prices.
A more flexible and dynamic work force, where workers are able to more easily move to locations or to employers where their labor and skills are needed.
Eisenach explains several channels through which these efficiency gains may be achieved. First, by avoiding some fixed employment costs, it is easier for firms to adjust their labor needs based on fluctuations in demand.
Second, by using pay-for-preference, independent contractors are incentivized to increase production and quality. Third, contracting can be an important mechanism for overcoming legal and regulatory barriers to economically efficient employment arrangements. The analysis of these benefits assumes that businesses, especially in other industries, would like to increase their use of independent contractors, but have refrained from doing so because of uncertainty regarding who can appropriately be engaged as an independent contractor under the FLSA. Conversely, significant use of independent contractors may not be suitable for all industries, thus limiting the growth in its utilization.
Some commenters agreed that expanding independent contracting can lead to employment gains. For example, Dr. Palagashvili discussed the literature showing how restricting independent contracting can lead to loss of jobs. This final rule, by expanding independent contracting, could conversely increase employment. She also noted the importance of independent contracting for unemployed workers, referencing a paper that found workers who suffered a spell of unemployment are 7 to 17
percentage points more likely than observationally similar workers to be employed in an alternative work arrangement when surveyed 1 to 2.5
years later. 222 223

She also emphasized the importance of independent contracting to startup firms. She references her work conducting interviews and a survey of technology startup executives. During these interviews they found that 71
percent of startups relied on independent contractors and thought it was necessary to use contract labor during their early stages. Independent contractors are important to startups because during unpredictable times, when startups are trying to find their market and build their product, they need flexible labor and need to be able to hire and fire easily.
Several commenters disagreed that the rule would improve outcomes in the labor market. FTC Commissioner Rebecca Kelly Slaughter commented that it is inappropriate to conclude that competition will increase and prices will decrease when more workers are classified as independent contractors because, according to the commenter, the only support offered in the NPRM
was a 2010 non-peer-reviewed article providing little evidence of this claim.
The Department maintains that economic laws generally apply to labor markets, and that as supply increases then prices can be expected to decrease.
UFCW contested the Departments claim that this rule will lead to increased productivity. They presented an example of how independent contracting hurts efficiency: Instead of ecommerce fulfillment carried out by a team of output-optimizing role players, the independent contractor item selection and packing is carried out by the same individual who does the delivery, adding unnecessary and time consuming steps to the process. The independent contractor must first park his or her car, walk into the store, orient him or herself to the store layout, select and pack the items, transact the payment, then carry the packed items back to the car. The Department does not think UFCWs claims are valid across the incredibly dynamic range of independent contractor jobs, and further questions UFCWs unsupported assertion that the expansive emergence
Economics 2010, https papers.ssrn.com/sol3/
papers.cfm?abstract_id=1717932.
222 L. Katz and A. Krueger, The Role of Unemployment in the Rise in Alternative Work Arrangements, American Economic Review, 1075, p. 388 2017, https www.aeaweb.org/
articles?id=10.1257/aer.p20171092.
223 It should be noted that government-mandated coverage is not free. The total value that a worker provides a business must be at least as large as the wage, any provided benefits, and government state or Federal mandates combined. Congress and/or state governments may conclude that the value of mandating certain coverages outweighs the costs of such coverage, but that does not necessarily mean that all covered workers receive significant benefits
from such coverage or value such coverage compared to other compensation. In fact, in some cases workers may be able to strike a better deal with a business than would be provided under the terms of an employee relationship that operates under the associated mandates. Such as in a situation where a worker has clusters of available time to work punctuated by extended periods of inability to work, such as a long-haul shipper who spends a month at sea and then a month at home or a divorced parent who has five kids to care for every other week but is fully available on the off weeks to work as many hours as needed. In these cases, independent contractor relationships may be pivotal in mutually benefiting workers and business owners.

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of mobile customer-service-focused delivery applications reduces the opportunity for productivity-enhancing innovation. Further, even the example ignores that efficiencies will likely be gained over time as the independent contractor fulfils additional orders each day, week, and month. The Department does not believe that these commenters provided reliable data to revise its analysis, especially in light of the data provided to its support by other commenters.
4. Improved Worker Satisfaction and Flexibility The Department believes this rulemaking may also result in greater autonomy and job satisfaction for workers. Several surveys have shown that independent contractors have high job satisfaction.224 Using the CWS, which only considers primary, active contractors, the Department estimates that of independent contractors with valid responses, 83 percent prefer their current arrangement rather than being an employee, compared with only 9
percent who would prefer an employment arrangement the remaining 8 percent responded that it depends.
Additionally, the main reasons individuals work as independent contractors demonstrate that being an independent contractor often has valuable benefits. The 2017 CWS asked, What is the main reason you are selfemployed/an independent contractor?
The two most popular reasons were 1
being their own boss, and 2 scheduling flexibility.225 In fact, these two choices were each selected over three times more often than any of the other options.226 Additionally, McKinsey Global Institute found that independent workers report higher levels of satisfaction on many aspects of their work life than traditional workers. 227 The McKinsey Global Institute examined workers who work 224 See,
e.g., MBO Partners 2019, supra note 131.
Department used PES26IC to identify preferred work arrangement and PES26IR to identify the reason they work as an independent contractor.
226 The third most commonly selected reason was Money is better, supporting the Departments view that monetary and non-pecuniary benefits are central motivations of most independent contractors.
227 McKinsey Global Institute, supra note 89 at 11. A 2009 Pew survey similarly found that selfemployed workers are significantly more satisfied with their jobs than other workers. Rich Morin, Job Satisfaction among the Self-Employed, Pew Research Center, September 2009, http
pewsocialtrends.org/pubs/743/job-satisfactionhighest-among-self-employed. In particular, 39
percent of self-employed workers reported being completely satisfied with their jobs, compared with 28 percent of employees. Id.
225 The
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