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Nonregular Employment and Payout Policy: Evidence from the Massachusetts Independent Contractor Law

Author

Listed:
  • JiHoon Hwang

    (Eller College of Management, University of Arizona, Tucson, Arizona 85721)

  • Kathleen M. Kahle

    (Eller College of Management, University of Arizona, Tucson, Arizona 85721)

Abstract

Compared with regular employees, independent contractors (ICs) offer labor flexibility and cost savings to their employers. Using a difference-in-differences design around the 2004 Massachusetts law that discourages IC usage, we find that this exogenous decrease in IC usage makes treated firms’ earnings more sensitive to changes in sales, increases labor-related expenses, and reduces profitability. Firms subsequently reduce share repurchases. The decrease is more pronounced for firms with high operating leverage and financial constraints. Our results are robust to entropy balancing. We conclude that IC usage affects firms’ operating leverage and profitability, which in turn, influence payout policy.

Suggested Citation

  • JiHoon Hwang & Kathleen M. Kahle, 2024. "Nonregular Employment and Payout Policy: Evidence from the Massachusetts Independent Contractor Law," Management Science, INFORMS, vol. 70(9), pages 6415-6437, September.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:9:p:6415-6437
    DOI: 10.1287/mnsc.2022.00103
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