And The Damage From AB 5 Begins

California Attorney General Xavier Becerra has officially filed suit against Uber and Lyft for violating Assembly Bill 5 (AB 5). The action is a clear signal that the state’s policy leaders are determined to maximize the economic damage from this ill-considered policy at a time when millions have been furloughed or lost their jobs and are trying to earn a living from home.

AB 5 effectively forces all firms to classify their workers as employees, not independent contractors. This new intrusive mandate targets one of the more innovative parts of the information economy – the gig economy.

Often leveraging technology, the gig economy empowers individuals to use their skills (e.g. web programming skills) or their assets (e.g. cars) to earn income on their own terms. Gig economy workers can set their hours and work schedules to fit their own individual needs and schedules. Since gig economy workers will often work for multiple companies, they can also benefit from having a more diversified source of income.

Companies benefit from the gig economy because they have access to a more flexible workforce that can quickly scale up or down to best meet the needs of consumers. In this way, companies can provide consumers with higher quality goods for lower cost. Companies will also benefit from a reduction in the numerous, and unnecessary, regulatory costs and mandates.

The gig economy is the quintessential win-win situation.

And, public opinion in California agrees that the flexibility enabled by the gig economy is valuable. In an October 2019 survey 56 percent of Californians polled stated they believe that gig economy workers “should not be required to become employees”, while only 22 percent agreed they should.

Not only is AB 5 unpopular, it was never economically sound. By limiting workers opportunities and increasing costs on businesses, AB 5 destroys economic opportunities in California, decreases the income for hardworking families, and stifles one of the most innovative aspects of the U.S. – the gig economy.

Ostensibly, AB 5 prevents businesses from misclassifying workers as independent contractors when in actuality they are employees. The misclassification allegedly denies workers protections and income. However, such assertions are inconsistent with the opinion of many of the participants in the gig economy.

As a few examples, 51% of freelancers would not go back to traditional work for any amount of money, 26% of millennials think the gig economy offers more security than traditional work, and (perhaps most tellingly) 84% of freelancers are living their preferred lifestyle compared to just 54% of those working in traditional jobs.

If you thought California might suspend AB 5 or tread lightly during the COVID-19 crisis, think again.  Newsom addressed the issue in his Tuesday press conference in light of the state’s efforts to verify unemployment assistance claims for gig economy workers.

“The budget that I’ll be submitting as the May Revise on May 14th will further (the state’s AB 5 enforcement) effort.  We have a lot of work to do in that space around misclassifications . . . just one of many reasons why we’re pleased the State of California is taking leadership in this space.”

Newsom’s announcement means that the state plans to double down on enforcement of AB 5 at a time when California is facing a multi-billion deficit and billions in painful budget cuts thanks to the coronavirus-fueled recession.

Essentially, the AG is suing Uber and Lyft because the politicians in Sacramento like Newsom believe that they know best. The inevitable result from such a regulatory over-reach is declining incomes and economic stagnation for families in California.

Dr. Wayne Winegarden is a senior fellow in business and economics at the Pacific Research Institute, and the director of PRI’s Center for Medical Economics and Innovation.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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