Today’s California workers need portable safety net
As Uber and Lyft scramble to find a profitable business model, it’s not surprising that they are opposing California Assembly Bill AB5. If this law goes into effect, it would force them to treat their California drivers as employees rather than as so-called “independent contractors.” That in turn would likely increase these companies’ labor costs by 20% or more, by requiring them to provide Social Security, Medicare, unemployment and injured worker benefits, paid sick and parental leave for their drivers, as well as follow laws having to do with minimum wage, rest breaks, anti-discrimination, worker safety and more.
You have to wonder why large employers like Uber and Lyft would want to deny their workers these most basic protections. To be sure, some businesses benefit from a degree of labor flexibility, since they need to have an ability to ramp up and down in response to fluctuations in demand. But hiring a largely contractor workforce so that a company can greatly lower its labor costs by wiping out the safety net for its workers undermines a key component that has made the U.S. economy so successful in the post-World War II era.
Fortunately, there are innovative solutions to this tension. The most promising is enacting a “portable safety net” for ridehail drivers as well as other California workers. Each contractor-worker would have an individual security account into which any business that hires that worker would contribute an amount prorated to the number of hours worked for that business. Those funds then would be used by that worker to pay for her or his safety net needs.
A portable safety net provided to all workers who need one would allow not only flexibility for workers but also the security that they and their families need. It would move us beyond all the wranglings and lawsuits over worker classification, and over who’s in and who’s out. We also would remove the perverse incentive that currently exists for businesses to use cheaper contractors as a way of undercutting their competitors, which unleashes a race to the bottom.
Note that requiring all businesses in an industry to pay into their workers’ individual security accounts would not hurt the competitiveness of any those businesses, because all employers would be subject to the same rules and therefore affected equally. The costs for this kind of “safety net insurance plan” could be passed on by businesses to their customers, since that is the largest pool capable of absorbing these costs. It would be a virtuous circle in which “a rising tide floats all boats.”
A number of countries already do something like this. President Barack Obama endorsed portable benefits in his 2016 State of the Union address, and U.S. Sen Mark Warner has introduced a bill about it at the federal level.
It would seem like this has the makings of a win-win solution, and indeed has been proposed by Uber and Lyft in other state legislatures, notably New York, Washington and New Jersey. But the legislation died in all three states because the companies came to the table with a measly offer — rather than something close to the 20% of a worker’s wage that is necessary to provide an adequate safety net, Uber and Lyft offered around 2.5%.
The controversial secret negotiations going on in California right now between these companies and labor unions have led to charges that the unions are selling out. Certainly no labor union worth its name should settle for the crumbs that these companies have offered.
A portable safety net for California workers is a good idea, but only if employers contribute their fair share to ensure that the labor force and the broader economy are placed on a healthy foundation for the future.