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Is it a job? Or a gig?

How to decide whether you’re employing someone or contracting them

In the age of Uber, TaskRabbit, and Upwork, the line between employee and contractor has grown increasingly fuzzy. New research by Andrei Hagiu, an associate professor of information systems at Questrom, and Julian Wright of National University of Singapore suggests a useful proxy is how much decision-making power firms cede to workers. For example, do ride-sharing companies hand what the researchers call “transferable investment decisions,” such as car quality and maintenance, to drivers or make those calls at a corporate level?

Because these decisions affect customer demand and revenue, Hagiu and Wright’s research, published in Management Science, suggests that revenues should fall to whoever makes the investment calls. A firm that chooses to control most of these transferable decisions should expect to keep a higher share of revenue and to employ its workers. An organization that enables workers to make more of these decisions should engage them as independent contractors and give them a bigger slice of the returns.

“When deciding how much control to allocate to their agents over revenue-enhancing activities, firms must match more control with higher revenue shares,” says Hagiu.