On September 18th, California Assembly Bill 5 (AB5) was signed into law. Its effects will be felt most strongly in the gig economy, where many don’t feel great about it. The basic premise of California AB5 is to define the law what constitutes independent contracting and what circumstances make workers full employees with benefits (such as minimum hourly wage and compensation plans).
Lyft, Uber, Postmates, and DoorDash are the companies where the most workers will be affected. Hundreds of thousands of drivers (alongside thousands at other companies in this gig economy space) will now be considered employees. Full time drivers are in for a somewhat good change, as they will receive positive benefits but are also now committing themselves to businesses that were designed to profit off of independent contractors. According to a Lyft driver interviewed in a recent report in the Wall Street Journal, ride rates have decreased by about 50% in the past four years. The cost of being a full-time driver is now higher and higher because they make near (and sometimes sub) minimum wage and have to pay the costs of keeping their vehicles in top shape at all times. In the chart below you can see how much California makes up of these companies profit streams.
The people that AB5 affects most negatively are the part time drivers, as they now lose the flexibility of choosing when and how long they work in the face of being required and pushed to work more and more hours to make being a driver actually profitable. Expenses like gas, car repair, and giving up time at other part-time/independent professional endeavors will take a toll and force these drivers to either seek full time employment or move on to other pursuits. Other states will most likely follow the path California AB5 has set up, as gig economy corporations have grown sacel-wise at such a rate in usage and in contractors that labor laws must be passed to ensure the safety of full time workers. Adding the misfortune of drivers negatively affected by this bill is that they still have no control over what the pricing on rides is. Uber and Lyft can cut back pricing on rides as much as they want to accommodate the decrease in drivers on the street
Uber alone accounts for over 65% of the ride share market according to the Business of Apps journal. Even as their IPO this year did not go very well, they still stand as the juggernaut in the ride service arena, as seen in the Statista chart below.
On the opposite consumer side of things, this bill will lower the amount of uber drivers on the street while demand keeps increasing, and according to the Wall Street Journal will make ride prices unstable. It will be interesting to see how this change affects the free shared rides agreement Lyft has with USC for a two mile radius around campus. Many students use it to get home safely each night, as this benefit activates after 7pm. It would not be unreasonable for the company to cease programs like this for the time being while their employee number will likely go through a shifting period.
Sources:
https://qz.com/1706754/california-senate-passes-ab5-to-turn-independent-contractors-into-employees/
https://www.theatlas.com/charts/OffkCowSV
https://www.statista.com/chart/17261/lyft-vs-uber/