Riders on the storm

Online food delivery platforms typically operate through a controversial business model that relies on subcontracting self-employed workers, known as riders. Using a search and matching model, we quantify the labor-market effects of the Spanish Riders' Law in 2021 that establishes the presumption of dependent employment for riders. Riders with heterogeneous preferences for leisure trade off work flexibility and easier employability as self-employed against enjoying higher wages as employees. Our main finding is that the reform succeeded in increasing the share of employees but failed to fully ab- sorb the large outflows from self-employment and decreased riders' wages, resulting in welfare losses. However, complementing the reform with a pay- roll tax cut for platforms hiring employees preserves employment levels and increases substantially riders' welfare.