While the gig economy helps entrepreneurs around the country pursue their dreams, California is enforcing rules that will crush this innovative movement. The move takes away the people’s freedom to decide how they would like to pay their bills, live their lives, and pursue their dreams.
While each state is freely able to choose its own path, even if that involves treading on livelihoods, the reason why bad ideas coming out of California are important to watch is that they are often adopted by other states as well. Even worse, in this case, some within the federal government are debating whether to follow California’s disastrous lead.
The policy that California is now enforcing is on a mission to crush the gig economy. Assembly Bill 5 is popularly known as the “gig worker bill” and was signed into law by Gov. Gavin Newsom in late 2019. Now, California businesses are starting to see some of its first enforcement actions, including through a lawsuit brought by the California attorney general against Uber and Lyft, arguing that they have misclassified their workers. That is because AB5 requires all “gig workers” to now be classified as employees.
While supporters of AB5 praise the idea that its enforcement means minimum wages, breaks, and other such benefits, the problem is that it also dramatically changes the nature of the business model for these ride-sharing companies, hindering their ability to operate and risking the jobs of these workers. A minimum wage doesn’t mean much if you are no longer employed.
Even beyond employment, this policy hurts entrepreneurship. “Gigs” are often stepping stones that people use to reach their dreams. Steve Harvey has a great speech in which he talks about the need for entrepreneurs to take the “jump.” Like all jumps, the jump into entrepreneurship comes with some certain feelings: Risk, self-doubt, and nerves are at the top of that list. Because of these feelings, not all are able to take the leap into entrepreneurship.
However, there are several ways to make this jump easier. One can make the entrepreneurial jump less risky by continuing to earn money through a part-time gig. That opportunity is what the gig economy has given thousands of entrepreneurs around the country. They can work their day jobs of trying to get their businesses off the ground and then drive people, deliver packages, or whatever job will hire them for part-time work.
These jobs give the entrepreneurs a safety net. They can pay their mortgages while pursuing their business ventures. There are more than 57 million people in the United States that work as freelancers and near 600,000 working as ride-share drivers, which all add a total of about $1.4 trillion to the economy each year.
AB5 makes this avenue of earning nearly nonexistent for Californians. The state’s mistake could end up pushing more business and more work opportunities to other states as businesses and workers flee to pursue their dreams and build their businesses. With federal legislators now looking to adopt the same ill-advised proposal, and considering Joe Biden’s support for AB5, the whole country needs to take notice quickly.
Earlier this year, the House passed the PRO Act, which has the goal of forcing more companies to classify contractors as employees just like AB5 does. If the federal government should do anything on this matter, it should be almost the opposite of the PRO Act. The federal government should defend and expand the right of individuals to work.
There aren’t many federal actions that a libertarian economist like me would support, but with California going the wrong way and the House following its lead, it would be great to see a bill that instead defends worker choice, provides workers with more opportunities rather than fewer, and helps us avoid a patchwork of regulations.
Under our system, states are allowed the freedom to make bad decisions when it comes to governing their residents. State governance is part of the beauty of our country, but AB5 is bad policy for entrepreneurial dreamers. Other states should avoid California’s ill-advised public policy assault on entrepreneurship. It should be avoided on the national level too.
Charles Sauer (@CharlesSauer) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is president of the Market Institute and previously worked on Capitol Hill, for a governor, and for an academic think tank.