All Commentary
Wednesday, November 4, 2020

California Voters Just Saved Uber and Lyft From Regulatory Destruction

A regulation would have destroyed the business model the gig economy relies on. Voters carved out key exceptions.

Image Credit: Flickr

Spoiler alert: Democrats were always going to win California’s electoral votes for president. The real nail-biter was how the Golden State would come down on several highly consequential ballot measures. 

They may be liberal, but Californians voted down a series of left-wing policy proposals such as rent control and allowing government racial discrimination in the name of diversity. They also approved a ballot initiative, Proposition 22, to exempt key gig economy companies such as Uber and Lyft from punitive regulations which had nearly driven them out of the state.

A resounding 58 percent of voters voted in favor of the ballot measure to override, in part, a California regulation passed in 2019 which mandated that ride-sharing drivers, freelancers, and other independent contractors must be classified as full-time employees. This would mean they have to be paid minimum wage, required benefits, and so on. 

Why can’t Uber just hire their drivers as full-time employees? It undermines their very business model. 

“Uber would only have full-time jobs for a small fraction of our current drivers and only be able to operate in many fewer cities than today,” Uber CEO Dara Khosrowshahi explained. “Rides would be more expensive, which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips. Uber would not be as widely available to riders, and drivers would lose the flexibility they have today.”

Neither Uber or Lyft actually make a profit, and converting their workforce to full-time employees would have cost approximately $3,625 per driver in California. As reported by Quartz, “that’s enough to boost Uber’s annual operating loss by more than $500 million and Lyft’s by $290 million.”

This regulation essentially made the flexible business model that gig economy workers seek out illegal, to the extent that Uber and Lyft actually considered shutting down in California altogether. Policymakers claimed to be fighting the “exploitation” of independent contractors but ended up endangering their livelihoods. So, it’s no surprise that both informal surveys and internal company polling showed that drivers themselves were overwhelmingly supportive of Proposition 22 and wanted to remain independent contractors.

Ultimately, this is just another example where well-intention regulations enacted by central planners in the State Capitol had unintended consequences that far outweighed any benefits.

“Lawmakers should be keenly aware that every human action has both intended and unintended consequences,” FEE’s Antony Davies and James R. Harrigan wrote in explanation of this phenomenon. “Human beings react to every rule, regulation, and order governments impose, and their reactions result in outcomes that can be quite different than the outcomes lawmakers intended.” 

“So while there is a place for legislation, that place should be one defined by both great caution and tremendous humility,” they continued. “Sadly, these are character traits not often found in those who become legislators.”

Thankfully, voters proved more cautious and humble than their legislators—and saved California’s gig economy workers from joblessness in the process.