Why Independent Contractors Are Important

Higher rates of both hiring and separations for the construction sector are consistent with a market that has high worker turnover due to seasonal and contract- or project-based labor needs. Photo Credit NAHB

In recent years there has been discussion of limiting or eliminating independent contractor status for workers in the United States, an option currently protected by federal tax law. Such a change would be costly for home builders and other small businesses, who rely on independent contractors to provide services that are not used in a large enough quantity (or over a sustained period of time) to justify a full-time position within their business.

The economics of why this occurs in the construction sector can be seen in the data. JOLTS data from Bureau of Labor Statistics showed a number of open positions in construction has been growing since the depths of the recession. This data also allows for examination of the amount of job turnover, an indicator of labor markets for which independent contractor rules make economic sense.

Such lumpy demand for workers results in high turnover as contracts are begun and completed, typically under weather constraints. Moreover, with respect to separations, the data clearly indicate that while the categories for the rates of quits and other separations for construction are comparable with the rest of the economy, the layoffs/discharges separation rate is twice as high.

Overall, the JOLTS data for the construction sector reveal an industry with high rates of worker turnover. For such industries, independent contractor status makes a good deal of economic sense as it provides the flexibility to link demand for workers with available supply. Given the current weakness in economic growth, the economy needs more flexibility in this regard, not less.

- Courtesy of NAHB