Union Backed Legislative Bills May Kill "Gig Economy" Through Regulation

Sacramento politicians cannot resist the urge to “regulate” the “gig economy” to impose arduous work rules, regulations, and a whole host of bureaucratic red tape on one of the most successful economic enterprises to surface in the past few years.

People here in the Bay Area love Lyft and Uber, not the heavily regulated taxi cab market which never is around when you need it and does not adequately serve the needs of the market in the Bay Area and elsewhere.  Apparently, people everywhere love these companies and others like them because they are cost-effective, responsive to the market, are always available and just a click away on an online “app.”

But not everyone is happy about the emergence of the “gig economy.”  The taxi cab industry has been devastated and the labor unions in Sacramento do not like any segment of the economy that grows faster than them, and is not heavily regulated.  

What’s the solution?  “Regulate” it to death. But for all the wrong reasons.  Two California legislators have introduced bills that bring far-reaching, and onerous state regulatory schemes to the “gig industry.”  Such legislation is essentially a “death knell” for an enterprise that was built on innovation and has been so successful due to a “lack of regulation,” not the market failure that regulation creates in the sector to begin with.

Everything that is good about the “gig economy,” would disappear in the face of government regulation.  And nobody on the union side of the aisle has any problem with that, in fact, that’s its intent.

Former cab driver turned Democratic Sen. Ben Hueso (D) has a bill, SB 1035, that would allow the California Public Utilities Commission (CPUC) to study and regulate the industry, and provide new powers to law enforcement to impound cars and take action against the “gig economy.”  Update:  This bill was held in the Senate Committee on Transportation and Housing on April 19th with many members saying that the state should deregulate the taxi industry as opposed to doubling-down on a failed regulatory approach, according to an LA Times report.

Sen. Hueso is “billing” the legislation as “pro-consumer” and “pro-public safety” but its clear intent is to raise the burden of regulation and cost on the “gig economy” to a level where it is uncompetitive with the state’s heavily regulated taxi cab industry.   The bill is supported by the California Labor Federation.

Democratic Assemblywoman Lorena Gonzalez (D) has introduced a bill, AB 1727, that would allow workers in the “gig economy” to unionize and exact any number of costly concessions (i.e work rules, wage increases, new benefits) under the state’s failed system of collective bargaining.  The bill is supported by the California Teamsters Public Affairs Council, UFCW Western States Council, and lobbyist Richie Ross.   Ironically, some unions oppose the bill because they say it does not go far enough to “regulate” the industry.

 

New Regulations on the “Gig Industry” may potentially disrupt the cost-effectiveness and market competitiveness of fast growing companies like Lyft and Uber.

 

Both pieces of legislation would serve to “kill” the “gig economy” even though they are supposedly meant to help its workers.  Both pieces of legislation would help grow the size of government by creating an untold number of new positions for unionized bureaucrats, and even law enforcement agencies, to make unreasonable demands on both the “gig economy” and its workers.

A new analysis by KQED News and Maplight sheds some new light on the potential motivations behind the two bills–calling into question the intentions of the legislation as well as identifying what political forces are really behind the effort to “regulate” the gig economy.

The KQED News analysis finds that California organized labor organizations hold an unfair advantage in the money game, over their tech company counterparts–by a factor of 10 times.

Moreover, over the past two election cycles unions have given “state legislators nearly $6 million in political contributions–that’s 10 times more than the largest tech firms here,” according to the KQED report.

The report also shows that Assemblymember Gonzalez and Senator Hueso have also reaped significant campaign contributions from organized labor, which are well in excess of what their colleagues have raised on average.

As the images below illustrate, Asm. Gonzalez has raised $122,250 from organized labor since 2013.  Sen. Hueso has raised $89,900 since 2013.  The average amount given to individual legislators from organized labor was $53,506 since 2013–meaning these legislators have gotten more than double what the average state legislator got from organized labor.

 

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Of course these lawmakers would undoubtedly say, that the campaign contributions they received have nothing to do with their decisions to carry and champion the legislation.  But any smart political strategist will tell you just the opposite–that’s how the game is played in Sacramento, maximize your war chest to fend off opponents in the next election.

Tech companies, on the other hand, cannot compete with the huge sums donated by labor organizations and gave Asm. Gonzalez only $1,000, and Sen. Hueso $2,100 over the same period.

But if and when these bills come up for a vote in committee or on the floor, and you factor in the 10 time disparity of labor versus tech contributions–it quickly becomes clear that organized labor will have a much bigger say in the future of the “gig economy” than the tech sector will.

New regulations on the “gig economy” would also apply to tech companies such as Intel who hire contractors to run their cafeteria that employ “gig workers.”

The whole reason the “gig economy” makes sense is that it is unregulated, and those jobs would disappear if turned into W-2 positions that increases costs by more than 50-100% for the same work performed.  These jobs only make sense if they are unregulated.

The whole reason those workers have jobs is because the free market is allowed to work, in the absence of the impossible layers and cost-increases imposed by a government regulatory scheme that produced the undesirable results in the taxi cab market and other markets that gave rise to the “gig economy.”  Business knows that, but most Sacramento politicians do not.

Economists say that the biggest losers of over-burdensome and costly government regulation are consumers because most businesses can pass along cost increases to consumers, assuming they are still in business and profitable over the long-term in the wake of regulatory schemes.

The better idea would be to look at why the heavily regulated taxi cab market (and other similar markets) is failing, and deregulate it so that it can better compete with the “gig economy.”

Everyone knows the story of King Midas–everything he touched turned to “gold.” Well the story of Sacramento and state government regulators is the opposite–everything they touch turns to “stone.”

Sacramento—please keep your hands off the “gig economy.”

About the Author: David Kersten is an expert in public policy research and analysis, particularly budget, tax, labor, and fiscal issues. He currently serves as the president of the Kersten Institute for Governance and Public Policy – a moderate non-partisan policy think tank and public policy consulting organization. The institute specializes in providing knowledge, evidence, and training to public agencies, elected officials, policy advocates, organization, and citizens who desire to enact public policy change

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