The increase in taxpayers reporting self-employment income cannot be attributed to the increase in gig work

The emergence over the past decade of new institutions and technologies that have made it easier for firms to hire self-employed contract workers rather than employees has fueled widespread speculation that the U.S. labor market is shifting to an economic concerts. But labor force surveys show no increase in the self-employment rate since 2000, while the percentage of individuals reporting self-employment income on their tax returns rose dramatically from 2000 to 2018.

In a new study, researchers set out to determine whether income tax returns were picking up on a big shift in the labor market that big surveys missed. They examined third-party reporting from online gig platforms and found that an increasing number of workers have had payments from gig economy apps since 2014, but the amounts earned were small and mostly limited to casual work. driving. They concluded that the rise of gig economy platforms cannot explain the growing percentage of individuals reporting self-employment income to the Internal Revenue Service. Rather, the researchers found that the increase was driven by the self-reported earnings of individuals who would benefit from refundable tax credits by reporting additional income.

The study, by researchers at Carnegie Mellon University, Michigan State University and the University of Chicago, is published as an NBER working paper.

“Our study shows that the increase in the share of taxpayers reporting self-employment income since 2000 cannot be attributed to the recent growth of platform-mediated gigs,” explains Andrew Garin, assistant professor of economics at Carnegie’s Heinz College. Mellon, who directed. the study. “Rather, our findings show that individuals have become more likely to report self-employment income on tax returns when the tax code prompts them to do so—even when the underlying labor supply does not change—and that changes in reporting behavior are a important driver of the observed trends.”

The researchers examined whether these trends in self-employment might have been driven by changes in what taxpayers chose to report rather than changes in the work they did. To isolate purely reporting responses from real labor supply responses, the study examined workers with first births around a year-end threshold for children to qualify for generous Earned Income Tax Credit benefits. This approach compares individuals who performed the same work during the year but received different benefits from reporting additional self-employment income on tax day.

Individuals were more likely to report self-employment income on their tax returns when they had an incentive to do so, even conditional on the actual work they did during the past year, the study found. Consistent with purely strategic reporting behavior, there was no impact on reporting by taxpayers with no incentive to report additional income and no effects on reported payments by firms of any kind. The study also found that these reporting responses have increased over time as knowledge of tax incentives has become widespread.

“Changes in taxpayer reporting behavior are a major driver of the discrepancies between self-employment trends we see in self-reported information on individual tax returns and trends in data reported directly to the IRS by firms,” ​​notes Garin. “Our findings caution against trusting trends in administrative data over trends in survey data without careful consideration of the process by which the data are generated.”