As per usual, the government is using its regulatory power to destroy a blossoming market in order to ‘help’ thousands of people. Lawmakers in California have passed a new measure called Assembly Bill (AB) 5, which is aimed at companies like Uber (NYSE:UBER) and Lyft (NASDAQ: LYFT), that will make it harder for people to maintain their status as a contract worker.
California Assemblywoman Lorena Gonzalez and Governor Gavin Newsom drummed up enough support to pass the bill back in September but it won’t go into effect until January 2020.
Labor leaders and unions are also behind the bill . They say it will provide sick leave, unemployment pay, minimum wage and a host of other benefits to thousands of people who are currently classified as contractors but work comparable hours to a full-time employee.
In theory, a law like this one is protective of American workers’ rights now that the sharing economy has morphed into a ‘gig economy’. Alexandrea Ravenelle, an Assistant Professor in Sociology at the University of North Carolina at Chapel Hill and the author of Hustle and Gig: Struggling and Surviving in the Sharing Economy , says the introduction of profit-seeking middlemen to the sharing economy was inevitable.
“We’ve also seen a transition from a focus on sharing or low-cost access to a move to on-demand services, where the platform becomes a profit-seeking middleman. As a result, the sharing economy has essentially been replaced with the gig economy. It’s not surprising to see large corporations enter the ‘sharing sphere,” especially if there’s way to save money by making workers into independent contractors who have little by way of workplace protections and who face extensive risks, including financial, physical, sexual and even criminal risks.”
From that perspective, Gonzalez looks like a white knight riding in to save gig economy workers from being exploited.
But that’s not the case in reality. Both Uber and Lyft say their legal teams are confident that even with AB 5, their businesses will run as usual— with contract workers. So, instead of protecting American laborers from evil Uber, the law could actually kill the careers of hundreds of thousands of freelance workers- many of whom believe their flexible working conditions are worth the tradeoff.
As The Week’s Bonnie Kristian put it , “In the name of protecting workers, Assembly Bill 5 will prohibit some them from working. In the resultant chaos, a lucky few will secure full-time jobs while the rest are “helped” right out of a stable income stream.”
Under the new bill, journalists won’t be able to submit content to the same company more than 35 times per year. That’s about 20% of the articles Kristian is currently contributing to The Week as a freelancer.
Someone will benefit from AB 5, though. While heroically fighting against Uber’s greed and the exploitation of the American people, the California bill will also significantly increase the taxes Uncle Sam receives from gig economy workers. A happy coincidence, I’m sure.
Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute, says that although the bill doesn’t mention taxes, it could have far-reaching consequences .
“It makes it more difficult for [workers] to claim federal income tax deductions for business expenses. It also precludes them from taking the new 20 percent federal deduction for certain income of pass-through businesses that was included in the 2017 Tax Cuts and Jobs Act. That’s because employee compensation is not eligible for this deduction.”
Essentially, it takes away people’s choice to forgo traditional benefits in leu better hours. Coincidentally, it also ensures that the government gets the most out of its workers. So, in a battle between greedy employers and greedy politicians, the loser will be the thousands of mothers, students and teachers with a side hustle.