Category Archives: labor

September Brought Uptick in Jobs – Will Next Government Steps Help or Hurt?

This is a press release originally posted at cei.org.

Employers added 661,000 jobs in September, and the unemployment rate declined to 7.9 percent from 8.4 percent, the U.S. Bureau of Labor Statistics said today in its monthly report. CEI experts expressed encouragement that deregulatory policies and re-openings are helping people recover financially from pandemic lockdowns and shutdowns this year but warned that more government action is needed – to deregulate and to reject a return to lockdowns.

Statement by Sean Higgins, CEI research fellow:

“Friday’s Labor Department report that the economy added 661,000 jobs, dropping the official unemployment rate to 7.9 percent, is welcome news but also a reminder the economy has a long way to go to fully recover. The good news is the data suggest people are eager to go back work and shop, eat in restaurants, and go to theaters. But they cannot and that’s holding the recovery back.

“If we want the economy to recover, we cannot revert to locking everything down in reaction to a recent surge in coronavirus cases. We must find better ways to allow people to safely interact, instead. Doling out more stimulus funds to businesses or extending unemployment relief is placing duct tape over the problems, while piling on more debt that taxpayers will eventually have to pay off.

“The department’s report found the sector with the largest growth was leisure and hospitality, which added 318,000 jobs in September. That accounted for about half of the overall employment gains in the last month. Bars and restaurants accounted for the largest part of that, adding 200,000 jobs, with the rest in gambling, amusements, and hotels. These gains are dramatic because hospitality was the sector hardest by the outbreak. Since February, that sector of the economy has recovered 3.8 million jobs but remains down more than 2.3 million from where it was at the beginning of the year. That’s about a third of the total 6.8 million jobs lost since February.

“Retail trade grew by 142,000 jobs over the last month, the largest part of it (40,000 jobs) coming from clothing outlets, indicating more people are out shopping. Retail is still down 483,000 jobs overall from February.

“The good news is these sectors can rebound quickly when given the chance. Doing that means allowing people to get out of their homes to re-engage safely with the outside world. That has to be the focus if we want the economy to recover.

Statement by Ryan Young, CEI senior fellow:

“The economy continues to create jobs, but the pace is slowing. It will be some time before the economy is back to normal, let alone everyday life. Unfortunately, there are still thousands of government-created barriers that keep people out of work. These include licenses, permits, entry barriers, excessive paperwork, and tariffs—not to mention looming antitrust threats against the very tech companies that help make remote work possible. Over-regulation is hindering virus response and economic recovery.

“President Trump and Congress should continue to eliminate never-needed regulations. Depending on how the election goes, further regulatory reform will a positive addition to the Trump legacy or the springboard for a second-term agenda. Either way, regulatory reform is the right thing to do to get people back to work.”

California’s #NeverNeeded AB5 Is Harming the Coronavirus Response

California’s AB5 law was already backfiring before the COVID-19 pandemic hit. The legislation intends to reclassify many California-based independent contractors as formal employees in an attempt to raise their wages and benefits. It has instead cost thousands of jobs—many of which are home-based and quarantine-friendly.

California legislators have reportedly been mulling an “oops” bill that would offer exemptions from AB5 requirements. Over in the Orange County Register, I argue that exemptions are not enough. AB5 should be repealed outright:

While offering exemptions has the virtue of requiring politicians to admit their policies are hurting people, it has three significant problems.

One, exemptions take time to process. We don’t have that right now. …

Two, the officials who grant exemptions would gain great power. There is a risk some would use this power to enrich themselves. California legislators would also be tempted to bully companies for campaign contributions by dangling AB5 exemptions.

Three, exemptions would give favored businesses a government-granted advantage over competitors.

Read the whole piece here. I weighed in earlier on AB5 here. Ryan Radia’s CEI study on AB5 is here.

The Spectrum Case against AB5

California’s Assembly Bill 5 (AB5) is intended to classify more independent contractors as formal employees. The goal is for workers to get higher wages and benefits. It is aimed mostly at rideshare and food delivery companies like Uber, Lyft, and GrubHub, but thousands of other workers are losing their jobs in other fields from journalism to entertainment to business consultants. These unintended consequences are almost exactly what Ryan Radia predicted in a CEI study published shortly before AB5 came into effect.

Part of AB5’s problem is that it comes from a fundamental misunderstanding of the labor market. It treats workers as either contractors or formal employees, but that is not an either/or question. The labor market is a wide-ranging spectrum, not a simple binary. There are all kinds of in-betweens, nuances, and complications.

AB5 uses what is called an ABC test to determine if a worker is an independent contractor or a formal employee. It consists of three questions:

  1. How closely is each worker supervised or directed? Do they check in with a boss every day? Or do they work mostly on their own and have wide discretion on how to do their job?
  2. Is their work part of the company’s core business? For an Uber driver, the answer is yes. For an accountant or a maintenance worker, maybe not.
  3. Is the hiring company the contractor’s sole or dominant customer? Is the job mostly in the contractor’s area of specialty or expertise?

The bill text is vaguely worded. In practice, nearly any freelancer qualifies as a formal employee under AB5. But a lot of job arrangements are somewhere in between.

Legislators have come up with two categories to describe a spectrum with countless categories. AB5 is a clunky piece of legislation, and thousands of workers are paying the price.

Take actors, for a classic California example. Acting is a classic gig-oriented job. But some actors have steady gigs. Filming a one-off movie or commercial is almost surely in the independent contractor category. But what if an actor has repeat dealings with the same studio? In the old days, many actors had exclusive contracts with a studio, and were likely employees under most reasonable definitions. But what if an actor has a non-exclusive contract but still appears in multiple films in the same movie franchise, like the Marvel Cinematic Universe? Where should that fall on the ABC test? It could go either way. Under AB5, politicians make the decision, not the employee.

What if an actor works on two or more unrelated films with different producers and directors, but that are produced by the same studio? Or multiple movies with the same production team, but released by different studios? Are those treated differently than the Marvel movie actor under the ABC test? Workers don’t get to make that choice under AB5.

What if an actor becomes a regular go-to person for an advertising agency and does regular commercials for them, but never signs a contract and does other acting work, too? At what point on this broad spectrum does the actor pass from one category to the other? It will take years of case-by-case political decisions, and likely many lawsuits to give clarity to AB5’s broad wording. Many workers just don’t have the time or money to be without work while these new problems wind through the court system.

And it’s more than Hollywood actors. The Los Angeles Times reports about how AB5 is affecting fine artists:

We received more than 120 responses from artists across California — jazz and classical musicians, directors of arts nonprofits, magicians, costume designers, actors, a burlesque dancer and freelance food stylist, among others.

The overwhelming majority said AB5 is hurting their careers. Many are unsure how to comply with the law. Others are cutting back on programming or canceling services because of the cost required to convert independent contractors to employees.

This is the same spectrum problem. Rather than trying to fit real-world people into tidy regulatory categories, policy should allow workers to choose their own work arrangements.

The old workplace ideal of the 1950s doesn’t apply in the 2020s. Back then, the ideal was to have a Monday-to-Friday job, first shift, always at the same office, with everyone on the same company insurance and pension plan. And where possible, the gig was often intended to be for life, or at least until retirement.

Today’s workers want more diverse choices than their parents and grandparents had. Some people like the traditional model; it’s still there for them. Other people like being able to work from home or from a café some days. Other people like the kinds of jobs available in big cities like New York, but don’t necessarily want to live there. According to GlobalWorkplaceAnalytics.com, the number of telecommuters increased 173 percent from 2005 to 2019.

Not everyone wants to work traditional hours. For people with young kids or other family responsibilities, or who are in school, that is often not possible. Other workers do want a 40-hour schedule, but prefer to work four 10-hour days instead of five eight-hour days to get an extra day at home with kids.

Many rideshare drivers are retirees who want to have something to do, but don’t want scheduled hours. Others are people who are between jobs and use ridesharing as a way to make ends meet while they look for their next 9-to-5 gig. AB5’s rigid categorization hurts these workers at various places along the contractor-employee spectrum.

Other workers want more flexibility with their benefits. Don’t like the company health insurance plan? Would you prefer a different retirement savings plan? Tough, say AB5 supporters. Some workers prefer higher wages with fewer benefits. Other workers prefer the opposite. It is much more difficult for employers to accommodate diverse preferences under AB5.

That’s the main reason why independent contracting is becoming more popular. The old model doesn’t fit everybody, so everybody shouldn’t be fit into it. Contractors can choose an insurance and retirement plan that fits their family’s needs and that they can take with them wherever their career takes them. Under the traditional model, if you lose your job, you lose your insurance at the worst possible time. Formal employees who frequently change jobs have to endure hours of unnecessary paperwork changing benefit plans. Independent contractors are spared those headaches.

Californians are learning the hard way that the labor market is a diverse spectrum, not a simplistic two-lump model of contractors and formal employees. Unfortunately, the rest of the country might soon  copy California’s mistake. New York is mulling its own version of AB5. The House of Representatives recently passed the PRO Act, which contains a federal version of AB5’s ABC test. After seeing California’s experiment, hopefully legislators will reconsider.