You can’t have your cake and eat it too. Recently, presidential candidate Mayor Pete Buttigieg joined a rally in San Francisco to support Assembly Bill 5 (AB5), which would transition drivers from “contractor” to “employee” status. Despite his criticism of Uber and Lyft, Buttigieg’s staff have already spent $9,000 on the services in the first six months of 2019. Instead of attacking these companies publicly while using them privately, candidates should realize that AB5 could devastate the industry.
This isn’t the first regulation that takes aim against Transportation Network Companies (TNCs). In New York, the city council restricted the number of licenses and mandated a wage raise for drivers. Since then, the number of drivers has dropped while prices have increased for the average rider. But what happened in New York is just a taste of what could happen in California.
Wall Street analysts predict the reclassification in California would cost $3,625 per driver, or $300 million for the entire Golden State. While some, like Assemblywoman Lorena Gonzalez (sponsor of the bill), think large companies can absorb the loss, TNCs continues to lose billions every year, with Uber losing $5.4 billion dollars in the most recent quarter — a record high number. With these additional expenses, TNCs would struggle to survive California.
But even if TNCs miraculously survive California, only a minority of drivers would be left to see the benefits.
The reclassification would force many TNCs to restrict employment for those that can work more hours at a rigid schedule. With flexibility being one of benefits for working at a TNC, the 68 percent of all drivers who work part-time would feel the sting as they would ultimately be let go.
Research from National Bureau of Economic Research (NBER) found that when reclassifying drivers from a fully flexible system to a more rigid schedule approach, or “taxi” scheduling, the number of drivers would greatly diminish. NBER reports, “If required to supply labor inflexibly at prevailing wages, they would also reduce the hours they supply by more than two-thirds.” Furthermore, the only way to negate this effect is by doubling wages, which still wouldn’t address the shortage of drivers that would be needed on the streets.
However, it’s not just drivers that would be affected. Writers, medical professionals, construction workers and many others would see their work restricted under AB5.
Unfortunately, politicians use AB5 to run a good talk, but passage of the bill would end up hurting millions of Americans who use their part-time job to earn extra income. Candidates can either praise or criticize TNCs, but it’s disingenuous to do both.
For the time being, we must wait and see whether TNCs will survive California, but things could get a lot worse. Already, the city of El Monte has pushed for making the minimum wage for drivers $30 an hour — the highest in the nation. Hopefully next time a politician speaks at a rally, they can be more appreciative of the Uber that takes them there.