WHAT is an employee? Judges in several American courts are grappling with just this question. Most notably, some drivers for Uber, an app-based taxi service, are suing to have themselves declared employees, rather than independent contractors, in a bid to gain more rights. With technology making it ever easier to farm out small tasks, and freelancing on the rise, the traditional definition of employment may eventually break down. Yet the importance of the “employee” label—and the benefits that come with it—is often overstated.
Historically, the challenge for economists has been to explain employment rather than contracting. Firms with employees use plans and hierarchies to get things done; those who use contractors rely on markets and prices instead. In 1937 Ronald Coase, an economist, argued that this comes down to transaction costs. For instance, it is difficult to contract on output when it is tough to judge quality (as with, say, a spreadsheet). When transaction costs are high, it may be better to replace contractors with employees, who are paid for their input rather than outputs.
A corollary to Coase’s theory is that when...Continue reading
from Economics http://ift.tt/1FiyiGC
via IFTTT
No comments:
Post a Comment