When California Governor Gavin Newsom signed a landmark labor bill into law this week, it wasn't just a case of a single U.S. state trying to empower workers who fuel the modern workforce.
California has the world's fifth-largest economy, surpassing that of the United Kingdom. It's home to Silicon Valley, the center of the world's technological transformation—and an area other regions are trying to emulate. The repercussions of this new law will be felt across the globe.
Unfortunately, while the law brings some positive new developments for workers, it is also saddled with a series of problems that I fear will hurt the people it's designed to help.
As co-founder and CEO of Steady, a platform designed to help people increase their income and plan financially stable futures, I hear every day from people struggling to find work in the gig economy. More than 4 million Americans want to work full time but can't get enough hours to cobble together a full-time schedule. Millions more have contingent or alternative work arrangements, and often work without benefits or access to unemployment insurance.
California Assembly Bill 5 (known as AB 5) will require companies to treat many of these workers as employees. As the assemblywoman who wrote the bill, Lorena Gonzalez, explained in a Washington Post op-ed, the law "guarantees to those workers the normal rights and privileges—and benefits—enjoyed by most employees."
Let's start with the good news. Today's gig workers absolutely need protections in order to build strong financial futures. This law will, among other things, give many of them access to benefits such as health insurance, disability insurance and workers' compensation for injuries suffered on the job. They will also qualify for the minimum wage.
The law will also allow workers to organize and unionize. All this goes in a good direction—and the opposite one from some recent developments at the federal level.
But the list of flaws with this bill, which may be less obvious, cannot go without mention.
Most companies that hire large numbers of gig workers, such as ride-hailing services Uber and Lyft, are already under pressure to raise their prices to create sustainable business models. AB5 will add even more pressure because the companies' operational costs will go up. The law of supply and demand indicates that when these companies increase their prices, fewer people will use them. That will mean fewer available work hours.
This law will also make it much tougher for these companies to offer "on demand" work, in which people can work at a moment's notice when they need to earn some extra money. Because minimum wage laws will apply, these companies will need to schedule workers in advance and try to ensure they are fully utilizing each individual. They're unlikely to pay minimum wage to workers who might not be needed for an entire hour at a time.
I expect we'll see a new level of stratification among gig workers, with the highest performers, such as those with the highest ratings from consumers, receiving guaranteed work, while the rest receive few or no shifts and find themselves scrambling to get any hours at all.
We also have yet to see how the minimum wage will affect tipping. If customers tip less because they know these workers are receiving minimum wage, the workers might not come out ahead financially. (There is some evidence that this has happened in the restaurant industry.)
And that's not all. The increased costs of hiring workers will push gig platforms further into automation, with machines taking over more jobs from people who work in warehouses; delivery personnel; drivers, and more. Training programs to prepare these workers for new jobs in the future are already under way in some places, but this new law is likely to speed up this change faster than workers can prepare.
With the Organization for Economic Cooperation and Development warning of a weakening global economy, and increasing concerns about the strength of the economy in the United States, I fear workers may be in for a double whammy in the next couple of years. More employees of companies could face layoffs and therefore be looking for work to pay the bills, but less work may be available. During the government shutdown this past December and January, our team at Steady heard from many government employees who needed work.
The best solution is to create a separate federal classification for gig workers. That would give them necessary protections, such as allowing them to organize and bargain for benefits and wages, without forcing companies to give them all the same things traditional employees get. Given that contractors and freelancers may make up half the U.S. workforce within a decade, we need laws that will empower them without taking away the work they count on.
Adam Roseman is co-founder and CEO of Steady.
The views expressed in this article are the writer's own.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
