Former President Ronald Reagan may have been right when he said, "The nine most terrifying words in the English language are: I'm from the government, and I'm here to help." Politicians and bureaucrats treat the public as if they were damsels in distress, a la the classic Universal horror movies of the 1930s and 1940s. Rather than heroically rescuing constituents from the clutches of monsters, they run around the set like chickens with their heads cut off, perplexing the villains and victims. This is the art of politics, it seems. Government, as The Gipper would say, is not the solution – it is the problem. And yet, both the Leviathan and the voters never seem to learn their lesson.
Biden Administration Targets Gig Economy
It is estimated that approximately 59 million Americans participate in the gig economy, whether it is driving an Uber or delivering food for DoorDash. Many of these workers, more than two-thirds who choose to work independently, can either earn a full-time living or generate supplemental income. Surveys reveal most of them are satisfied by their work arrangements. But it is the unions, possibly afraid of labor competition, that are unhappy, and now the federal government wants to take action to please one of the most powerful lobbying entities in the United States today.
Speaking in an interview with Reuters, Secretary of Labor Marty Walsh revealed that he believes gig workers should be classified as "employees" and receive traditional benefits. This hinted at a significant shift in public policy that could have vast implications across the marketplace. He told the newswire:
"We are looking at it but in a lot of cases gig workers should be classified as employees ... in some cases they are treated respectfully and in some cases they are not and I think it has to be consistent across the board.
These companies are making profits and revenue and I'm not (going to) begrudge anyone for that because that's what we are about in America. But we also want to make sure that success trickles down to the worker."
Walsh believes that not having benefits, such as unemployment insurance, will ultimately force the government to cover the cost, mainly when there is widespread joblessness.
The Department of Labor (DOL) is expected to unveil new rules that establish legal guidelines for how these companies treat gig workers. In the coming months, the federal department could propose mechanisms to ensure gig labor includes sick time, health care, consistent wages, and everything else that the average U.S. employee has in the workplace. Reports suggest that Walsh could exploit the DOL to enforce occupational safety and health rules, overtime payments, and the correct administration of employee benefit plans.
A Stock Selloff
Soon after the interview was published, many related stocks plunged during the April 29 and April 30 trading sessions. Uber slumped 8%, Lyft fell 12%, DoorDash dropped 9%, and Grubhub slipped 3.3%.
Uber recommended that Washington promote policies that enhance independent employment rather than introduce measures that would eliminate it. DoorDash stated that its users "value the flexibility to earn when and how they choose," adding that the company is striking a balance between "protecting their independence while providing greater security and benefits."
Will There Be Vast Implications?
Should federal regulations mandate that these gig economy firms offer costly benefits associated with full-time employment, it would inevitably lead to a broad array of unintended consequences, from lost income to higher consumer prices. California is an example of what goes wrong when politicians, who might have good intentions, intervene and make everything and everyone worse off.
In September 2019, California approved AB5, a law that forces companies to reclassify freelancers and gig workers as full-time employees, meaning that they would be eligible for a guaranteed state minimum wage, benefits, and protection under the state's enormous labor laws. It went into effect on Jan. 1. Although lawmakers stated they were doing it for the good of laborers, it turns out that they were appeasing none other than organized labor.
The law negatively affected two-thirds of the state's two million independent contractors. The consequences were immediately felt, with Vox Media announcing hundreds of freelance writers would be let go. More than a year later, the legislation has significantly harmed consumers, small businesses, and independent contractors, says the Pacific Research Institute (PRI) in a new report titled "The Small Business Gig." It states:
"Since surveys find that large majorities of workers are satisfied with their gig economy arrangements, it is also difficult to argue that widespread exploitation is occurring. Instead, gig economy platforms offer gig economy workers with desired work opportunities and provide customers with preferred services delivered in a preferred manner.
Government shouldn't be picking economic winners and losers through new restrictions that limit people's freedom to become entrepreneurs while preserving the old way of doing work."
The report also highlighted an important point: The government misunderstands the economics behind the gig economy – and this will have lasting repercussions.
The War on the Gig Economy
It is ostensibly the new administration's view that it is better to be unemployed at, let's say, $15 per hour with benefits than it is to be employed at a rate the person voluntarily agreed to when signing up for the service. The gig economy is an excellent avenue for people to make a few more dollars a month or engage in full-time entrepreneurship without the associated paperwork, licensing, and fees related to starting a business. Washington is out of touch with both the economy and reality – it always has been. But why must the public suffer for anachronistic and paternalistic civil servants' incompetence?
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