California’s leaders have long pointed to the gig economy as one of the state’s high points, as they tout their economic policies.
“California is a place of unparalleled economic opportunity, where high tech comes to take flight (and) where our creative workforce entertains and connects the world,” wrote Gov. Gavin Newsom in a recent op-ed.
Our high-tech economy is indeed a success. The state’s finances are highly dependent on it remaining so, given that the capital-gains-based budget rises and falls in tandem with the fortunes of these big tech firms. For all the lip service, state officials sometimes forget that innovation and change are the keys to success in the entrepreneurial tech sector – and that legislative efforts that stifle those qualities could threaten the golden goose.
Newsom penned those words as he touted a new plan to reduce income inequality and create “an upward economy that works for every Californian.” We agree with his sentiments, but want to remind him that government can do far more to gum up the economic works than to improve matters.
One example, Assembly Bill 5, is moving through the Legislature as the session draws toward a close. It is likely to provide a test case for whether Newsom will stand up for innovation and economic growth, or whether he will side with union activists who seem to view the tech economy as a threat rather than a boon.
The legislation would codify the California Supreme Court’s 2018 Dynamex ruling, which imposed an “ABC” test to determine when companies can use independent contractors rather than full-time employees. Firms can only use contractors if they are free from the control or direction of the company, are performing tasks that fall outside the company’s usual work and if those contractors have established their own independent business.
Newsom is calling for compromise – but is expected to sign it if it passes. This measure poses an existential threat to the gig economy and many of the independent contractor jobs that employ 8.5 percent of California’s workforce.
AB 5 doesn’t only affect high-tech industries. As we noted in an editorial on Sunday, the legislation threatens old-line companies including newspapers, who use contractors as carriers. The bill, as it now stands, exempts some professions such as doctors, lawyers and insurance agents, but leaves many industries vulnerable. It imposes an industrial-era work model on the modern economy.
This would be bad for consumers, who will pay more or lose access to valuable services. It would be bad for workers, who would lose job flexibility and would ultimately find fewer opportunities. It would harm the state budget and economy. The fate of AB 5 will say whether California wants to remain the place where technology can take flight – or whether innovative new companies and concepts are forced to take off elsewhere.
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