The relationships between workers and the economic units for which they work are complex and changing. These work relationships cover various dimensions, including work arrangements, forms of employment, the degree of workers’ autonomy in decision-making, the level of economic risk they are exposed to, etc. Work relationships are closely related to workers’ status in employment.
To better reflect the complexity of work relationships and better adapt the analysis to changing situations, the 21st International Conference of Labour Statisticians (ICLS) adopted the 2018 International Classification of Status in Employment (ICSE-18), updating the previous classification (ICSE-93).
The ICSE-18 increases the level of detail (with 7 aggregated categories and 10 detailed categories compared to only 5 categories in ICSE-93) and flexibility (with two dichotomies based on the type of authority exercised by workers and the type of economic risk they are exposed to) of the classification.
One of the key motivations underlying the design of the ICSE-18 was to better capture the blurring boundary between paid employment and self-employment, by improving the measurement of “in-between” workers. Notably, the ICSE-18 introduced the new category of dependent contractors, allowing to identify those who are not employees but are still dependent on a given economic unit.
This blog offers a first glimpse into the dependent contractors, a group of workers who have long existed but have been dismissed by statistics until recently.
Who are the dependent contractors and how were they previously (mis)classified?
The need for data on the group of workers who fall between the traditional concepts of paid employment and self-employment is not new. In fact, it has long been a major challenge for statisticians in developed and developing countries alike. Different terms were used to refer to them, such as “dependent self-employed”, “quasi-employee”, “intermediate worker”, and “workers with disguised employment relationships”, to name a few.
Recognizing that each of these terms has its limitations and to better reflect their situation, the 20th ICLS adopted the term “dependent contractors”. According to the 20th ICLS definition, dependent contractors are:
Workers who have contractual arrangements of a commercial nature (but not a contract of employment) to provide goods or services for or through another economic unit. They are not employees of that economic unit but are dependent on that unit for organization and execution of the work, income, or for access to the market. They are workers employed for profit, who are dependent on another entity that exercises control over their productive activities and directly benefits from the work performed by them.
Their dependency may be operational (linked to the organization of the work) and/or economic (for example, through price setting). This dependency implies that their activity could be at risk if the economic unit terminates the contract. The economic units on which they depend may be market or non-market oriented, including corporations, governments and non-profit institutions.
Dependent contractors are employed for profit and paid via a commercial transaction. Thus, they are usually responsible for reporting their own taxes and for arranging their own social insurance.
Looking at the two possible structures of the ICSE-18, dependent contractors are classified as workers in employment for profit according to their economic risk, but as dependent workers according to their degree of authority. This conveys very clearly the mixed situation they are in: exposed to the economic risks of the self-employed but constrained to the lack of autonomy in decision-making of employees.
The figure of the dependent contractor has long existed in urban and rural settings, in countries at all stages of development, and in a variety of economic sectors. Despite their long-established existence and their wide diversity, the lack of an internationally-recognized statistical category for them meant that, until recently, they were unseen or at least misrepresented by official statistics. Dependent contractors gained notoriety during the last decade with the rise in digital platform employment, heavily associated with this group of workers.
It wasn’t until 2018 that they received their own international standard definition and statistical category for measurement, through the ICSE-18, meaning that they were necessarily misclassified before. Their analysis was muffled since they were included in other categories, alongside workers with very different working conditions. The ILOSTAT new Visualization tool on the impact of latest statistical standards allows us to see the impact of moving from ICSE-93 to ICSE-18, casting light on which categories were used to classify dependent contractors before their own category existed.
Indeed, Labour Force Survey data available on the correspondence between ICSE-93 and ICSE-18 for 16 countries shows great heterogeneity in how dependent contractors were classified before the ICSE-18 enabled their separate identification. In fact, they were typically spread across several categories under ICSE-93, most commonly employees and own-account workers.
In some countries, the vast majority of dependent contractors were assimilated with own-account workers, while in others, most of them were taken as employees. Additionally, in almost all countries with data, a small share of them were previously classified as contributing family workers. It was also possible to see some dependent contractors in the categories of employers or members of producers’ cooperatives.
A pretty clear gender pattern emerges here: the shares of dependent contractors previously classified as contributing family workers and as employers are higher among women than men in all countries with data. Likewise, in most countries with data, the share of dependent contractors who used to be seen as own-account workers is higher among women, whereas in all countries with data, the share of dependent contractors who used to be categorized as employees is higher among men.
This heterogeneity in the treatment of dependent contractors before the establishment of their own separate category highlights the role and value of this statistical development. Dependent contractors are a specific group of workers with many particularities. Their work relationships and working conditions differ considerably from those of employees, employers, own-account workers, and contributing family workers. Thus, their inclusion in any of these categories would lead to misrepresentations of the labour market. The separate identification and measurement of dependent contractors provides a more accurate depiction of the world of work, to inform effective and targeted policymaking.
A small group in magnitude but highly impactful nonetheless
Implementing a new classification such as the ICSE-18 requires time and resources, including to conduct thorough testing to determine the best operational approach. In particular, deciding on how to best identify dependent contractors is quite challenging. Given that the ICSE-18 is still a rather new classification, the number of countries having already fully implemented it is limited, albeit growing. To help in this endeavour, the ILO has created model LFS questionnaires implementing the 19th and 20th ICLS standards, including questions to identify dependent contractors. These questions result from a rigorous and incremental testing process based on varied country experiences.
Again, data available for 16 countries shows great variability in the magnitude of dependent contractors. Across these counties, the share of dependent contractors in employment goes from a few decimal points (0.3 per cent in Russia) to almost a fifth of the employed population (18.9 per cent in Tanzania). In 7 out of these 16 countries, the share is under 5 per cent.
The unweighted average of these 16 countries points to 6.5 per cent of the employed being dependent contractors.
There seems to be a tendency for high-income and upper-middle income countries to have lower dependent contractor shares than low-income and lower-middle income countries. The unweighted average share of dependent contractors is 2.4 per cent in high- and upper-middle income countries, while it is around 9 per cent in low- and lower-middle income countries.
Even though in many countries dependent contractors may represent a rather small group of workers, their impact can still be significant in the labour market. Indeed, some characteristics of dependent contractors make them central to the structure and functionning of the world of work in many contexts. Dependent contractor jobs may be a motor for employment generation, socioeconomic inclusion, and economic performance.
For example, even though their numbers may be small in many countries, they may be fast increasing. Indeed, they are often a very dynamic group, with more immediate job opportunities in times of need than those found in other categories of status in employment. Besides, although their share in total employment may be small, it may be much more significant for some population groups in particular.
Nonetheless, several policy issues often arise in discussions about the situation of dependent contractors, including the extension of rights and obligations to them, and the question of whether some of them should be legally recognized as employees.
Diverse profile of dependent contractors across economic activities
Dependent contractor jobs are varied and span across a wide range of economic activities, both in urban and rural settings. Some examples of dependent contractors include:
- A hairdresser who rents a chair in a salon and whose access to clients is dependent on the salon owner.
- A waiter paid solely through clients’ tips.
- A homeworker contracted to manufacture garment products.
- A consultant working for a corporation or a government agency.
- A farmer of a smallholding producing foodstuff for a corporation which provides the materials and sets the price.
- A construction worker that is subcontracted to work on a bridge under the supervision of the main contractor.
- A vehicle driver with a commercial contract to provide services organized by a transport company.
- A vehicle driver providing rides organized by a digital platform and using his/her own car.
- A person performing processing-information tasks from their home, organized by a digital platform.
All these examples show that it is not the type of activity per se that makes the workers dependent contractors, but how their activities are organized and who has control over this. These workers are dependent contractors insofar as they depend for their work on another entity which sets the prices, organizes the work, exercises economic control, etc.
The diversity of examples shows that, although dependent contractors have been greatly associated with the “gig economy” and digital platforms in recent times, the types of jobs they perform expand well beyond these areas.
In most of the (few) countries with data available, the largest share of dependent contractors is found in agriculture. These are mostly lower-middle income countries. In the rest of countries with data, the biggest share of dependent contractors works in wholesale and retail trade, repair of motor vehicles and motorcycles, transportation and storage, construction, or manufacturing.
On average, dependent contractors work in over 10 different sectors of economic activity in each of these countries, evidencing their wide-reaching presence.
Dependent contractors, labour underutilization and job quality
In some contexts, dependent contractor jobs may appear as an immediate alternative to unemployment or underemployment. Dependent contractor jobs are varied and spread across the economy. Many of them require little preparation, resources, and equipment, allowing workers to take up a job almost immediately. However, the actual outcomes of these jobs and their working conditions may not be ideal.
The links between dependent contractor jobs and informality are particularly relevant, albeit complex. In countries where informality is prevalent, dependent contractors were likely to be (mis)classified as employees before the ICSE-18 (typically informal employees). Now, they can be properly identified in their own category, often times even as formal dependent contractors. The statistical measurement of dependent contractors and the informal economy has a great impact for policymaking.
One of the many strengths of the resolution adopted by the 20th ICLS introducing the ICSE-18 is that it suggests a number of key indicators and variables to cast light on the landscape of work relationships. Some of these measures are particularly useful to understand the situation and working conditions of dependent contractors.
For example, data on average hours of work per week available for 14 countries suggests that, in general, dependent contractors have shorter working hours than employees (with its associated impact on take-home pay). However, this may vary from one economic activity to the next: dependent contractors in some specific activities may work extremely long hours to achieve a satisfactory pay, especially if many workers are resorting at the same time to dependent contractor jobs and demand for their products or services is limited.
What is more, as dependent contractors have commercial agreements, their working time might cover a wider set of tasks than those directly associated with delivering or producing the goods or services in question. Thus, their working time might be underestimated if not correctly measured.
Also, data available for 16 countries on multiple-job holding shows that dependent contractors have a higher tendency than employees to have more than one job.
Concluding remarks
Dependent contractors are a specific group of workers in the boundary between employees and the self-employed. Their characteristics, including their potential for jobs generation and dynamism, make them a crucial group in labour markets around the world. Nonetheless, their “in-between status” (that is, their exposure to economic risk coupled with a lack of autonomy in the organization of their work) raises some questions to be addresed by policymakers, such as their coverage by labour rights and obligations.
The new international statistical standards allowing for the separate measurement of dependent contractors are a key development in this regard. Better and more detailed data can inform targeted and effective policymaking, including for this dynamic group of workers.
