New California law threatens to kill the gig economy
California Gov. Gavin Newsom recently signed into law a bill that will make all independent contractors in the state, mainly drivers for ride-share companies Uber and Lyft, into statutory employees. Bolstered by a recent decision by the California Supreme Court, AB 5 will take effect on January 1, 2020, and make all ride-share drivers eligible for the full range of benefits available to full employees. This includes minimum wage, workers’ compensation, overtime pay, unemployment, and paid sick leave.
While this might sound like a good thing, data show how regulations like these can actually hurt drivers and increase costs for consumers. In short: Everyone will be worse off.
Anyone old enough to recall the pains of relying on old taxi cab companies can tell you the benefits of the new ride-share platforms. All you do is open your smart phone, drop a pin, and your ride is on its way. Gone are the days of standing on a street corner waving your arms or trying to direct a confused dispatcher to your location.
The flexibility inherent in the Uber model also has another important benefit: a reduction of cost. While prices can vary widely across the country based on geographic region, according to the ride-share forum RideGuru, on average Uber and Lyft are $5 to $10 cheaper than traditional taxi rides.
But the reason ride-share companies can offer these comparatively lower prices is primarily because of their unique business models. Uber and Lyft allow individuals to operate as independent contractors, free to offer ride-share services if and when they choose. According to a Pew study, 42% of “gig workers” who earn money from an online platform like Uber, Lyft, or Airbnb, do it as a side hustle to supplement their main income—not as their primary job. Drivers can drive as much or as little as they choose. The flexibility and ease of participation is what makes opportunities with Uber or Lyft attractive in the first place.
But under AB 5, hundreds of thousands of independent contractors across the state will be forced into full employee status. And it is not only ride-share drivers who will be affected; independent health and psychology care workers, truck drivers, and even local musicians booking gigs will be swept within AB 5.
Instead of the flexibility that has become the hallmark of the “gig economy” and made it so attractive to contractors and entrepreneurs, newly deemed employees will be subject to rigid statutory standards, and the cost for each company to “employ” an individual driver will skyrocket. This further limits options for drivers. For example, after New York implemented strict regulations on ride-sharing, Lyft prevented drivers from logging into the app when there was low demand.
Additionally, millions of newly deemed employees will be opened up to the influence and coercion of powerful labor unions. While people should be free to join unions if they choose, public policy should not be enacted to increase the eligible employee base for union dues.
Many ride-share drivers in California are likely in favor of AB 5. But no one is forcing them to be drivers for Uber or Lyft. There are myriad opportunities available across the world’s seventh-largest economy. These contractors drive for ride-share companies because they choose to. This flexibility is one of the benefits of living in a (relatively) free market economy.
For Californians, it can seem like the government is always trying to protect people from some perceived real or imaginary boogeyman. And as so often happens in the Golden State, the lawmakers care more about patting themselves on the back for fixing a made-up problem than they do about helping consumers and entrepreneurs.
Gov. Newsom and state legislators appear to have forgotten the first law of public policy-making: No matter how good your intentions, what matters most is results.
And the probable results of AB 5 look quite disastrous.
