The status of workers and platforms in the sharing economy

We consider whether workers who provide their services through online platforms, such as Handy and Uber, should be classified as independent contractors or employees. Using a formal economic model, we show how being too strict or too liberal in classifying workers as independent contractors (relative to the actual degree of control workers have) can be detrimental, not just to firms and welfare, but sometimes to the workers themselves. We also use the model to explore the extent to which an intermediate classification of workers between employees and independent contractors may lead to better outcomes. The intermediate classification is meant to apply to firms that retain control of some actions while their workers control others, as is the case for many online platforms.