The Impact of Client Nonpayment on the Income of Contingent Workers: Evidence from the Freelancers Union Independent Worker Survey

Abstract

The authors use the Freelancers Union's annual Independent Worker Survey (IWS) from 2007 to 2011, the union's administrative membership file, and the American Community Survey to estimate the extent to which client nonpayment of independent workers is a problem and the ability of a written contract to reduce the odds of nonpayment. They develop tests for nonresponse and sample selection biases, although due to a lack of instrumental variables and contract endogeneity, they must speculate on the size of the bias. They find that contract use is associated with income that is 13.7% higher (for New York State respondents 21.7% higher) than income produced without a contract. They also find that contract use reduces nonpayment; however, even when a contract is used, 38.8% of respondents still had trouble getting paid: One-third were paid late, and 10% were either paid less than the agreed upon amount or were never paid.