Date
21 October 2019
If Uber raises its fares to cover extra costs due to California’s new labor bill, business volume may decline and drivers' income could get affected. Photo: Bloomberg
If Uber raises its fares to cover extra costs due to California’s new labor bill, business volume may decline and drivers' income could get affected. Photo: Bloomberg

California’s new labor bill and its impact on the gig economy

California’s State Senate last week approved a landmark bill that would require gig-economy companies like Uber and Lyft to treat workers as employees instead of independent contractors. The legislation means the workers would be entitled to benefits such as medical insurance coverage, paid annual leave, etc.

It’s estimated that the law will benefit at least one million contractors or self-employed people involved in the gig economy. Meanwhile, it would significantly increase operational costs for the so-called sharing economy companies.

In the past few decades, big companies have often been outsourcing non-core tasks such as cleaning and transport, as well as IT services. Former employees in these departments would set up their own companies and work for their old employers on contract basis.

The key motive is of course to save money by cutting employee benefits. Sharing economy basically pushes the outsourcing model to the extreme.

With the passage of the new labor law, affected companies will face extra costs.

If they choose to pass on the higher costs to customers, it’s hard to say whether workers will truly benefit.

If Uber, for instance, raises its fares, business volume may decline and Uber drivers’ income could be negatively impacted.

The full article appeared in the Hong Kong Economic Journal on Sept 18

Translation by Julie Zhu

[Chinese version 中文版]

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RC

Hong Kong Economic Journal columnist