Antitrust law’s usual instruction to competitors who agree on price is admirably brief: Don’t. Labor law makes a deliberate exception for employees who bargain collectively. Advocates now want that exception to cover at least some independent contractors, including rideshare drivers, truck owner-operators, consultants, and other small-business owners.
The proposal may sound like a tidy way to counter the power of large platforms. It raises much messier questions. Who qualifies for the exemption? Who represents contractors with different interests? And what happens to prices, output, market entry, and workers who prefer flexible or individually negotiated terms? Answering those questions requires examining the economics of collective bargaining, the legal and political difficulty of defining a new exemption, and the costs that protected coordination may impose on workers outside the bargaining group.
The labor-antitrust exemption reflects a durable political compromise. It should not become a blueprint for shielding collective price-setting by independent contractors from competition. A better approach would preserve competition and flexible work while addressing specific worker-welfare problems through portable benefits, clear classification rules, and fewer regulatory barriers to entry and mobility.
Cartel Economics With a Union Label
Antitrust begins with a simple proposition: Competition generally serves the public better than private agreements that suppress it. That principle should not change merely because labor is the input at issue. Agreements among employers to fix wages or divide workers rightly raise serious antitrust concerns. The economic mirror image is easy to recognize. When workers who would otherwise compete to sell their labor agree on wages or contract terms, or jointly withhold their services, they coordinate as sellers in the labor market. Structurally, that conduct resembles a cartel. The law immunizes an important subset of it, but legal immunity does not alter the economics. I made this symmetry explicit in “Antitrust Applies to Unions as Well as to Employers”: Restraints on either side of a labor transaction can distort competition.
Unions can still produce benefits. Collective voice can lower information costs, help workers secure shared workplace benefits, and provide channels for resolving grievances. The relevant law & economics question is whether monopoly privileges and antitrust immunity improve welfare compared with less restrictive alternatives. Exclusive bargaining replaces competition among workers—and often among forms of worker representation—with a single bargaining agent.
A negotiated increase in wages or benefits may therefore represent a transfer rather than a productivity gain. When the price of labor rises above the competitive level, employers respond in familiar ways: They hire fewer workers, substitute machines or other workers, invest less, raise downstream prices, or reduce output.
Workers outside the bargaining unit may bear many of those costs. A union wage premium can make union jobs scarce and push displaced workers into nonunion employment, increasing the labor supply and depressing wages there. Reduced output can also limit opportunities for customers or at suppliers and competing firms. Seniority rules and restrictive work practices may further divide insiders from outsiders, allowing incumbent workers to collect above-market returns while leaving new entrants with fewer openings.
None of this excuses employer monopsony—the power of one or a few employers to suppress wages—or employer collusion. It instead supports applying the same competitive baseline to both sides of the market. Concentration among sellers does not become harmless simply because the sellers happen to be workers.
Liya Palagashvili and Revana Sharfuddin sharpen this point in their review of 147 studies on union power and worker outcomes. They find that powerful unions can secure short-term gains while contributing to slower employment growth, less investment and research and development, weaker firm growth, and fewer future jobs.
Palagashvili and Sharfuddin distinguish between a union’s “voice” function and its “monopoly face.” U.S. law generally gives a certified union exclusive authority to represent a bargaining unit, foreclosing rival unions, alternative forms of representation, and individual bargaining within that unit. The literature they review suggests that more pluralistic representation and flexible agreements can preserve useful worker voice while reducing the costs of monopoly bargaining.
Even workers protected by monopoly unionism can lose from it over time. A rule marketed as pro-worker should therefore be judged by its effects on employment, investment, productivity, mobility, and worker choice—not merely by the size of a negotiated wage increase.
A Century-Old Compromise Meets the 1099 Economy
More than a century ago, the United States made a political and legal choice to shelter core labor activity from antitrust law. As Andrew Liu and I explain in a new Mercatus policy brief, the statutory labor exemption rests chiefly on the Clayton Act, the Norris-LaGuardia Act, and the labor law framework that followed. It shields union collective bargaining from federal antitrust challenges and protects specified peaceful tactics, such as certain strikes and picketing.
These protections extend beyond formal union members. Union and nonunion employees may engage in certain concerted activity through a bona fide labor organization seeking better wages, hours, or working conditions. A complementary judge-made doctrine, known as the nonstatutory labor exemption, protects restraints closely tied to collective bargaining between labor and management.
From a competition perspective, this arrangement is exceptional. From an institutional perspective, it is understandable. Congress adopted the exemption after courts applied the Sherman Act—the principal federal law against anticompetitive agreements—to strikes, boycotts, and other labor activity. Congress deliberately placed part of labor relations beyond ordinary antitrust rules.
Whatever one makes of that history, the employee labor exemption now sits deep within federal statutes, collective-bargaining institutions, and political expectations. Wholesale repeal is not a realistic near-term agenda. Sound analysis must therefore separate two questions: Is the inherited exemption economically sound, and should lawmakers expand its boundaries? One can doubt the first without embracing the second.
The compromise behind the existing exemption provides good reason for caution. Independent contractors are not simply employees with a different tax form. They include rideshare drivers, truck owner-operators, consultants, designers, real estate agents, tradespeople, caregivers, data trainers, and small-business owners. Their investments, dependence on particular buyers, ability to serve multiple clients, entrepreneurial discretion, and tolerance for risk vary widely.
A rule exempting employee collective bargaining is imperfect, but comparatively clear. A rule allowing any service provider with sufficient bargaining disadvantage to coordinate with rivals would require courts or agencies to decide how much dependence, invested capital, entrepreneurial discretion, or buyer power is enough. That is precisely the boundary problem Liu and I identify.
Choose Your Own Labor Exemption
Proponents of extending the labor exemption to independent contractors have offered two principal routes. The first is legislation. Eric Posner proposes tying worker status more closely to monopsony power. Douglas Melamed and Steven Salop propose specially authorized bargaining groups for independent contractors, perhaps limited to markets with substantial buyer power and subject to safeguards against monopoly abuse.
Melamed and Salop offer the stronger economic case because they at least target a genuine market failure instead of granting a blanket immunity. Their proposal also exposes the administrative difficulty. The government would need to define the relevant labor-purchasing market, measure monopsony power, determine which contractors belong in the group, specify what subjects they may negotiate and for how long, and prevent the bargaining entity from excluding rivals or restricting output. Courts struggle with those tasks even in conventional antitrust cases. A 2025 International Center for Law & Economics (ICLE) white paper, “Labor Monopsony and Antitrust Enforcement: A Cautionary Tale,” examines the unsettled evidence on labor monopsony and the perils of mechanically applying product-market tools to labor markets.
Liu and I also identify a more immediate political obstacle. The Department of Labor’s February 2026 proposed independent-contractor rule favors an entrepreneurship-centered “economic realities” test, which examines the practical nature of the working relationship. The proposal treats control and the opportunity for profit or loss as core factors. That approach conflicts with proposals to define employee status according to bargaining power.
Any new exemption would also create valuable privileges on either side of its legal boundary. Industries, platforms, unions, professional associations, and contractor groups would have strong incentives to lobby over coverage, eligibility thresholds, bargaining subjects, and the choice of authorized representative. A measure intended to clarify worker status could instead produce another round of classification disputes and litigation.
The second route relies on creative judicial interpretation. In 2022, the 1st U.S. Circuit Court of Appeals held in Jinetes that independent-contractor jockeys could invoke the Norris-LaGuardia Act’s labor-dispute framework. In January 2025, an outgoing Federal Trade Commission (FTC) majority issued an enforcement policy statement endorsing a broad view of protected labor activity for independent contractors and gig workers.
Those developments show that courts can breach the doctrinal line between employees and contractors. They also expose the problem Liu and I identify: Once formal employment status stops supplying the boundary, what replaces it? Distinguishing “wages for labor” from “prices for services” becomes especially difficult when a self-employed person sells her own time and skill. Tests based on market power or whether business capital can readily serve other purposes merely move the ambiguity elsewhere.
Massachusetts shows that targeted political action can succeed. A 2024 ballot measure created a state collective-bargaining regime for app-based rideshare drivers, and the commonwealth certified a statewide bargaining representative in 2026. The experiment deserves attention, but it provides no warrant for quietly rewriting federal antitrust doctrine. Massachusetts adopted a transparent political carveout with defined geographic and industry limits. If other states follow, policymakers can observe the effects on employment, prices, market entry, and innovation.
This state experiment therefore counsels federal restraint. Legislatures should own the tradeoffs they create. Antitrust doctrine should not hide those choices behind an elastic definition of “labor dispute.”
Two Monopolies Don’t Make a Market
Even if Congress could write a workable exemption, the economic case for extending it is weaker than advocates often suggest. The strongest argument for contractor collective bargaining is countervailing power: When a platform or other purchaser has genuine monopsony power, coordinated contractors may claim a larger share of the gains from trade.
Yet a bilateral monopoly—a market dominated by one buyer and one seller—is still no one’s idea of competition. A protected seller cartel may offset the buyer’s bargaining leverage, but it can also restrict output, raise consumer prices, exclude lower-cost or part-time providers, and entrench a bargaining organization whose interests differ from those of workers with the fewest alternatives. A second monopoly offers no general cure for the first.
Policy should target the source of the problem. If employers or platforms collude, antitrust law should attack the collusion. If licensing rules or other entry barriers suppress competing buyers, policymakers should remove those barriers. If a single buyer maintains durable market power through exclusionary conduct, conventional antitrust remains available when the government or a private plaintiff can prove the required elements.
The distinction between bargaining leverage and output-reducing monopsony matters. Related Truth on the Market articles, including “Kroger/Albertsons: Is Labor Bargaining Power an Antitrust Harm?” and “Labor Antitrust: A Solution in Search of Evidence,” caution against treating every shift in the division of bargaining gains as an antitrust injury or assuming that market-concentration statistics prove monopsony.
That caution cuts both ways. A contractor group that negotiates higher fees has not necessarily created social value. The relevant questions are whether buyers purchase fewer services, consumers pay more, quality or availability declines, or the arrangement excludes new providers. Competition policy should focus on actual effects on output and innovation. It should not become a general-purpose tool for redistributing the gains from trade.
Those output effects carry particular weight in independent contracting because heterogeneity and flexibility are often the point. A uniform minimum rate, mandatory benefits package, common scheduling rule, or exclusive representative may help contractors who would have chosen those terms anyway. The same rules may hurt a parent seeking a few flexible hours, a student willing to work for less during off-peak periods, a specialist who prefers individual negotiations, or an entrepreneur using platform work to supplement income while building another business.
A bargaining cartel naturally favors common terms. Independent work creates value partly by permitting uncommon ones. As the law replaces diverse arrangements with a standardized bargain, it risks destroying the flexibility and range of choices that workers seek through independent contracting.
Evidence about worker preferences makes that risk concrete. In the Bureau of Labor Statistics’ (BLS) July 2023 Contingent and Alternative Employment Arrangements survey, 80.3% of independent contractors whose sole or main job involved contract work preferred their current arrangement. Only 8.3% preferred a traditional employment arrangement. Those preferences do not prove that every contractor has adequate bargaining power. They do provide strong evidence against presuming that contractors as a class want employment-like terms. A pro-worker policy should preserve flexible contracting while addressing specific gaps directly, rather than make workers’ preferred arrangement scarcer to deliver benefits available through less restrictive means.
Economic incidence—who ultimately bears a cost—provides another reason for caution. If collective bargaining raises the expected cost of hiring contractors, firms will not simply absorb the difference. Higher consumer prices, lower output, automation, tighter eligibility requirements, narrower geographic service, and substitution toward employees or larger vendors all become more attractive. Contractors with the fewest alternatives bear the resulting loss of opportunities.
That prediction does not rest on an exotic economic theory. It describes the standard response to a higher input price. The size of the response depends on how sensitive demand is to price and how readily firms can substitute other inputs. Those effects may be substantial in platform markets, where software can quickly reallocate tasks and firms can redesign their business models.
Worker-classification evidence points in the same direction, with an important caveat. Extending an antitrust exemption would not itself reclassify contractors as employees. Collective-bargaining proposals nonetheless often accompany reclassification efforts or rules that make contractor relationships more closely resemble employment.
A study by Palagashvili and her coauthors of California Assembly Bill 5 (AB5) reports that, in affected occupations, self-employment fell 10.5% and overall employment fell 4.4%, without a corresponding meaningful increase in traditional employment. Policymakers should not mechanically apply those estimates to an antitrust exemption. The study supports a broader institutional lesson: Restricting one form of work does not ensure that firms will recreate the same opportunities under another legal label. Some jobs simply disappear.
An Exemption Worth Lobbying For
Public choice—the study of how political incentives shape government decisions—offers another reason to resist casually expanding the exemption. Mancur Olson’s “Logic of Collective Action” explains why small, concentrated groups organize more effectively than large groups whose members each have little at stake. George Stigler’s “Theory of Economic Regulation” shows how organized interests can acquire and use regulatory power. Gordon Tullock’s classic “Welfare Costs of Tariffs, Monopolies, and Theft” explains that monopoly’s social costs include the resources spent securing and defending special privileges, in addition to the lost transactions caused by monopoly pricing.
None of these arguments assumes bad motives. Unions, platforms, professional associations, incumbent contractors, and regulators can all respond rationally to the incentives that legal rules create.
A new antitrust immunity would confer a valuable right on some competitors: permission to coordinate. Political combat would predictably follow over who qualifies. Incumbent contractor groups could seek definitions that exclude new entrants. Unions could pursue exclusive-representation rules. Platforms could bargain for provisions favoring their business models over those of rivals. Established firms might welcome compliance costs that smaller entrants cannot afford.
Consumers and prospective contractors would prove harder to organize because each would bear only a small share of the total cost. Our warning about special-interest capture—organized groups shaping rules for their own benefit—is therefore central to the analysis. It is a cost created by the exemption itself. A legal regime intended to offset private market power can end up manufacturing politically protected market power instead.
Benefits Without the Cartel
A better approach would address the concrete problems of independent work directly. Portable benefits offer the most promising example. Traditional benefits come bundled with employee status largely for historical and tax reasons. Nothing inherent in health coverage, retirement savings, disability insurance, or paid leave requires tying those benefits to a single employer.
Portable-benefit accounts would instead belong to workers. Multiple hiring entities could make voluntary or required contributions, and workers could keep the benefits as they move among clients. Palagashvili and Jonathan Wolfson describe this model in “Why Independent Workers—and the Companies That Hire Them—Need Portable Benefits.” By June 2026, they reported that eight states had enacted some form of portable-benefit reform and that others were considering legislation.
The central legal reform is a classification safe harbor—a rule ensuring that specified benefit contributions do not count as evidence of employment. Without one, firms may hesitate to contribute to contractors’ benefits for fear that a court or agency will later use those contributions to reclassify the relationship. States can remove that disincentive by declaring that qualifying portable-benefit contributions do not determine worker status. Congress can adopt the same rule for federal employment laws.
The proposed 2025 Unlocking Benefits for Independent Workers Act illustrates this safe-harbor approach. If conflicting state rules eventually create a serious obstacle to interstate contracting, Congress could narrowly preempt them, meaning federal law would displace only the state rules that penalize qualifying portable-benefit arrangements. That preemption should address the identified conflict without imposing a national employment model.
Classification policy calls for the same precision. Actual misclassification—labeling someone an independent contractor while exercising the control and creating the dependence that governing law treats as employment—should remain subject to liability. Yet “misclassification enforcement” should not become shorthand for forcing bona fide entrepreneurs into employee status.
Classification rules should account for control over schedules and work methods, opportunities for profit or loss, personal investment, service to multiple clients, and other signs that a person operates an independent business. The Department of Labor’s 2026 proposed rulemaking, which would replace Biden administration guidance on employee and contractor status, gives greater weight to those entrepreneurial factors. Whatever test the department ultimately adopts, it should be stable, clear, and easy to administer. Uncertainty alone can deter firms from offering contract work.
Policymakers should also remove regulations that restrict entry and worker mobility. These include unnecessary occupational-licensing requirements, which require government permission to work in certain fields, as well as artificial limits on new business models, rules that impede benefit innovation, and restrictions that shield incumbent firms from competitors.
A large body of research links excessive economic regulation to weaker productivity and growth. James Broughel and Robert Hahn’s survey and synthesis of research across countries, for example, finds substantial evidence that economic regulation tends to reduce welfare in otherwise competitive markets. The labor-market consequence follows readily. Businesses hire employees and contractors when doing so creates value. Rules that discourage entry, investment, experimentation, and firm growth eventually reduce demand for their work.
This framework applies the same principles to both sides of the labor market. Enforce antitrust law against employer wage-fixing and no-poach cartels, in which employers agree not to recruit one another’s workers. Pursue exclusionary conduct when it satisfies the elements of monopolization. Apply worker-protection laws to sham classifications.
At the same time, preserve competition among workers, distinguish bargaining-power complaints from antitrust injuries, and protect workers who prefer independent contracting over standardized employment. The goal is larger than expanding the reach of labor law, antitrust law, or any representative institution. Policy should maximize opportunities for mutually beneficial exchange while preserving competition and worker choice.
Competition Works for Workers
The labor-antitrust exemption is a political settlement that the United States is unlikely to abandon soon. Policymakers can accept that legal fact without elevating it into a general economic principle. Unionization replaces some labor-market competition with coordinated bargaining. That coordination may raise wages for insiders while reducing employment, investment, mobility, and opportunities for outsiders. Monopoly representation can even harm the workers it purports to protect. Palagashvili’s research is especially important because it makes a crucial distinction between the case for worker voice and the case for monopoly unionism.
Extending this exceptional immunity to independent contractors would compound the underlying problem. Liu and I explain why broad legislative and judicial routes would create unstable legal boundaries. Law & economics supplies another objection: A new exemption would authorize additional restraints in markets where flexibility, diverse arrangements, and easy entry create much of the value. It could raise contracting costs, reduce output and job opportunities, limit worker choice through standardized terms, and create new privileges worth lobbying to control.
Targeted reform offers a better pro-worker agenda. Portable benefits can follow people among jobs. Safe harbors can let firms support those benefits without risking reclassification. Stable classification rules can preserve bona fide independent work while holding firms liable for genuine fraud. Antitrust enforcement can target employer collusion and exclusionary conduct, while broader reforms remove regulatory barriers to entry and entrepreneurship.
Employees and independent contractors share an interest in a dynamic economy where firms compete to hire, workers can move among opportunities, and new business models can challenge incumbents. Durable gains in worker welfare are more likely to come from stronger competition and fewer harmful regulations than from one more legally protected restraint.
There is nothing pro-worker about making opportunity scarcer.
