Uber Besting Unions Is for the Best

Californians have set precedent, supported workers in gig economy
December 19, 2020 Updated: December 23, 2020

Commentary

The people of California have sent a clear message: Gig-economy workers aren’t employees. Through a referendum, voters chose freedom and flexibility over the protectionism and central planning of unions.

On Nov. 3, 58 percent of California voters favored Proposition 22, which sets a special regime for gig workers that preserves the industry’s distinctive nature. Contrary to Assembly Bill 5 (AB5)—which had the support of organized labor—the ballot measure exempts gig-economy companies such as Uber from classifying those working through their platforms as employees.

The new regime, evidently a compromise, contemplates a minimum rate, vehicle insurance, and some medical benefits. Service providers of on-demand platforms are no longer mere independent contractors, but the arrangement is still a win for workers’ freedom.

Why Proposition 22

Companies including Uber, Lyft, and DoorDash ran a $200 million campaign to get the proposition approved. They also warned users that adhering to the traditional employment status would increase prices and constrain services.

Classifying gig workers as regular employees would have suffocated the sharing economy and the benefits that it’s provided for all parties involved. Much of it would have moved to the gray market, as it has done elsewhere. However, such last-resort defiance would have been unhealthy for the sector and the rule of law.

After Uber beat the taxi cartel fair and square by breaking up antiquated monopolies, unions took up the mantle. AB5, which extended the employee status to gig workers in California, came into force on Jan. 1. The legislation forced sharing-economy companies to reclassify contractors as employees and grant them the state’s minimum wage, paid sick leave, medical insurance, and other benefits.

Uber and Lyft resisted the court orders to comply. Instead of acquiescing, they spearheaded the most expensive policy initiative in the state’s history, Proposition 22.

They argued, correctly, that traditional employees aren’t the appropriate category for gig workers. Peer-to-peer networks in the gig economy connect labor to riders or consumers of other services in a temporary and instant manner, with software usually being the only middleman. There is no commitment from either platform or user to keep employing a particular worker.

To garner enough support from those on the fence, Proposition 22 offered an inflation-adjusted minimum hourly payment, a 12-hour work limit per day, anti-discrimination and anti-harassment policies, and training programs for workers.

Other benefits include medical coverage for workers who average between 15 and 25 weekly hours and accident plus death insurance for drivers.

In response to a few violent incidents, the ballot measure requires criminal-background checks and enacts a zero tolerance for misconduct, including misdemeanor charges for those who impersonate app-based drivers.

Had Proposition 22 failed, millions would have found themselves out of an income stream. During the COVID-19 pandemic, jobs with minimal barriers to entry were a godsend for many. This third-way solution safeguards users and provides a safety net to independent contractors.

At the same time, Proposition 22 allows companies to provide ridesharing and delivery services at a reasonable cost to users while keeping unions at bay.

Why Uber’s Victory Matters

Proposition 22’s victory is a turning point for the sharing economy. It illustrates that citizens, interest groups, and regulators must come together and work out a fruitful solution rather than curtail disruptive market innovation.

It’s also a wake-up call for policymakers who offer nothing more than bans or obsolete legislation. As campaigners argued, Proposition 22 sets the ground for the future of work in an economy increasingly driven by technological disruption and breakthroughs.

Just like voters, investors came on board with the idea. The day after Californians approved the ballot measure, Uber’s stock price shot up 14 percent. Lyft’s climbed more than 11 percent.

California’s Proposition 22 is only the beginning. Uber, Lyft, and DoorDash plan to push for similar measures nationwide, and they’re already lobbying in other states.

Likewise, New Jersey state Sen. Troy Singleton, a Democrat, introduced a bill to create a portable-benefits employment regime. That way, gig workers can offer services through different platforms but keep a basic safety net.

As bottom-up legislation evolves, different and better approaches will continue to emerge in the United States and elsewhere.

Disruption for Optimization

The gig economy is here to stay and will only grow. Uber alone has 91 million active users and 3.9 million drivers. PwC estimated the “sharing” sector will grow to more than $335 billion by 2025, and that’s being conservative.

The most recent study commissioned by Upwork, a platform for freelance work, revealed there were 59 million gig workers in the United States in 2019, which amounts to 36 percent of the workforce.

Efforts to put the genie back in the bottle are counterproductive and will prove futile, since the value to users and providers is so evident and established.

Be it out of necessity or preference, workers turning to the sharing economy have expanded opportunities across the social ladder. Rethinking the delivery of services and optimizing underutilized resources such as idle cars have created enormous welfare gains.

Uber’s disruptive advantage is in not having to hire drivers or acquire fleets to offer a convenient and inexpensive service. Regardless, the well-being of drivers and users, as they connect via the app, is crucial to the business model. Creative destruction is a cornerstone of capitalism, but innovators who successfully integrate the different stakeholders stand the test of time (and of politics).

Neither gig workers nor users believe in returning to the old status quo. Unionized employment simply doesn’t represent the spirit of today’s economy, and jurisdictions seeking to attract entrepreneurs and jobs should take heed of California’s momentous vote.

Fergus Hodgson is the founder and executive editor of Latin American intelligence publication Econ Americas. He is also the roving editor of Gold Newsletter and a research associate with the Frontier Centre for Public Policy.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.