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Independent contractors are a vital and growing source of California’s economy, according to a new report co-sponsored by several leading business organizations. Attempts to rein in independent contractors through onerous regulations would have a harmful effect on California’s economic productivity and employment.

Independent contracting is a business arrangement in which a client firm (or government) will contract with, usually, a small business or individual to perform work that might otherwise be performed in-house by staff employees. Labor unions in California and elsewhere have criticized these arrangements and attempted to apply onerous regulations on record-keeping and taxation that would reduce the incentive to employ or become an independent contractor.

The study, prepared by Philip J. Romero, PhD, Professor of Finance, University of Oregon and former chief economist for Governor Pete Wilson, found that independent contractors are an important source of economic strength in California, and that arguments aimed at undermining independent contracting are based on myth, not credible data.

Key findings in the report include:

Romero concludes that the greater cost of restrictions on independent contracting is not the short-run impact; it is “the suppression of innovation and productivity improvements that are at the heart of all economic progress.”

The Economic Benefits of Preserving Independent Contracting, by Philip J. Romero, PhD, Professor of Finance, University of Oregon, was co-sponsored by CFCE (of which I am president), California Business Roundtable, California Hispanic Chambers of Commerce, California Asian Pacific Chamber of Commerce, and National Federation of Independent Business, California.

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