The Impact of California’s Gig Work Legislation: Job Losses and Outcomes

California’s attempt at forcing gig workers to become traditional employees backfired by driving many of those workers out of their jobs.
In the wake of a new law (Assembly Bill 5) that was intended to reclassify many independent contractors as regular employees, self-employment in California fell by 10.5 percent and overall employment tumbled by 4.4 percent, according to a study released Thursday by the Mercatus Center, a free market think tank housed at George Mason University. In professions where self-employment was more common, the effects were more dramatic, and in some fields employment declined by as much as 28 percent after A.B. 5’s implementation.
Meanwhile, researchers Liya Palagashvili, Paola A. Suarez, Christopher M. Kaiser, and Vitor Melo reported finding no increase in the number of employees classified as full employees. In professions where there was an uptick in traditional employees receiving W-2 wages and benefits, those increases were not large enough to cancel out the number of self-employed workers who left jobs.
“These results suggest that AB5 did not simply alter the composition of the workforce as intended by lawmakers,” the four researchers wrote. “Instead, our findings suggest that AB5 was associated with a significant decline in self-employment and overall employment in California.”
That could have significant implications for the Department of Labor’s (DOL) recently announced attempt at duplicating California’s policy across the rest of the country.
Last week, the DOL announced a new set of rules for determining whether a worker is an employee or an independent contractor. Like with California’s A.B. 5, those proposed federal rules are meant to crack down on what the government sees as a deliberate effort to misclassify workers as contractors—which can change, among other things, the benefits that an employer is obligated to pay. Most gig workers and independent contractors are content with their more flexible, less structured employment arrangements—so in some sense, these governmental efforts seem to be trying to save workers from their own choices.
The Mercatus research suggests that, given a different set of choices, many of those workers would choose to exit the work force rather than accept (or be able to take) a more traditional employment arrangement. In fact, a sizable number of workers seem to have left the labor force entirely. The Mercatus study claims A.B. 5’s passage was associated with at least a 6.5 percent decline in labor force participation in California.
As a result, funneling workers into traditional employment might not be as simple as federal regulators believe.
“Our results suggest that the DOL rule may lead to a significant decrease in self-employment and overall employment nationwide,” wrote Palagashvili in a blog post summarizing the group’s findings. “Further, it is not clear whether the new DOL rule would definitively lead to an increase in traditional employment, as intended.”