California’s Assembly Bill 5 Targeting Uber and Lyft is Premature and Bone-headed

Did you know – that the cost of every single ride on LYFT and UBER is subsidized by the respective company?

You might have suspected that was the case.

The underlying reasons for that is why neither one is profitable nor has any chance of becoming profitable any time soon.

What you might not know is that there are some seriously positive social ramifications to this.

The biggest one is that, because the cost of each ride is subsidized, its effect is a massive transfer of funds from the rich to the working class.

The “rich” are the investors in LYFT and UBER who provide the billions in cash to run these money losing operations. Which means that they are providing the cash to pay drivers for money-losing rides – and allow low-income folks a fighting chance to be able to afford and use these rides in food and transportation desserts.

I bet you didn’t think of that, did you?

The very thing that democrats in states like California try to do every single day is the very thing that they are attempting to kill by passing this bill.

But the social ramifications go beyond that.

LYFT, UBER and similar gig services have created millions of jobs that didn’t exist even 10 years ago. Without these companies, these folks would not have the means to earn a living or to supplement their income.

More income for each worker means more cash circulating in the economy which makes for a much healthier economy. And that in turn is good for everyone (including the drivers who now have more demand for their services…)

Today, when someone needs to make extra cash, they can start a job on-demand in days. On their own schedule.

This bill takes much of that away (for reasons I’ll discuss later below.)

There are hundreds of thousands of gig workers who simply cannot commit to a full time job or a job that isn’t flexible.

This bill puts all those jobs in jeopardy.

Without these jobs, the unemployment rate in the US would likely be twice what it is now. And a lot of that cash along with its very important velocity multiplier would not exist. Given the billions of dollars involved, I suspect that its a major contributor to the robust economy we have now. If it didn’t exist, the economy would be in far worst shape.

In fact, if California has its way, more than half of these jobs are at risk. You can see a microcosm of that effect by looking at what’s happening in New York. New York imposed restrictions on what UBER and LYFT can do – and as a result, it has cut down (or in some cases eliminated) the income of its most vulnerable workers in the fleet.

So, what will these workers do? Some will simply go back on public assistance programs. Others who were supplementing their income to afford a vacation or buy a new car will likely just give up on those efforts (with the associated drop in demand for those services..)

If you see the unemployment rate tick up next year I will bet dollars to donuts that its because many of these workers are now unemployed.

Dumb with a capital D

So, remember – LYFT and UBER are not profitable. Yet, California has passed a law that will likely increase their costs by anywhere between 30% and 100%, thus massively increasing the losses at which these companies have to operate.

California (and New York) are basically saying that they would rather have workers who are unemployed instead of having these companies stay in business with their contractors and have a fighting chance at profitability.

You can only wonder who gains with this kind of stupidity.

(Hint: its unions.)

In order to protect the much smaller group of unionized workers, California has risked the jobs of hundreds of thousands, if not millions of workers.

Its because of these kinds of shenanigans that I have no love for unions. For all the good they have done in their past, these days they seem hell bent on looking out for their own small groups of workers instead of the interests of all workers.

But, I digress…

So how will these companies respond?

Well, Uber has already thrown down the gauntlet and is telling California to take them to court – which is going to be a long drawn out process.

You have to assume California will ultimately win.

However, during that time period, UBER will likely accelerate its move to driver-less cars. Bye-bye workers.

But, lets assume that’s not the case and they still need drivers. Then, those drivers have to be treated like employees – with all the risks and headaches that come with that.

Which means that they will favor employees that can work 37 hours a week. And those employees will not be allowed to work more than that (otherwise the very expensive healthcare law kicks in).

So even full time employees get screwed.

And its likely that these employees now have to sign non-compete contracts (no more working for both UBER and LYFT), be expected to adhere to a schedule (no more flexibility) and to provide doctors notes for being sick and so on and so on – the very thing that, I suspect, 50% of the workers don’t want.

Back to the social ramfications

Fares will rise. Since costs rose, fare will rise – there is no choice there.

Many users who depended on the low rates (remember the massive dollar transfers I mentioned above), will no longer be able to afford these rides. Worse, they might not even have the option. If UBER and LYFT are now scheduling employees, controlling where they work and when, do you think that the “bad” or “poor” neighborhoods will be high on the list of where these drivers are directed to work?

Yeah, I didn’t think so.

Imagine, workers who live in these neighborhoods will be REQUIRED to drive to another wealthier neighborhood before “clocking in” for rides. Rides that were normally available as workers left and returned home are no longer going to be consistently available.

Basically, the bill is a massive screw you to most of the drivers as well as its low-income customers.

Gotta love politicians for selling out their constituents.

I am not against regulation. But there is a time to impose regulation.

This wasn’t the time – you don’t impose regulations like this on a nascent industry that isn’t profitable unless you really really want them to go out of business. Or you just want them providing services to high-income customers.

So what should have been done?

Trying to legislate higher pay only gets you so far. The fundamental issue is that workers might not have the skills necessary to get higher paying jobs. So maybe the bill should have been addressing that issue instead – free education for example. And offering student loan forgiveness in return for public works (or maybe even just out-right cancelling them.)

These things provide a future. Driving a car? Making a delivery? Not so much. What kind of job security is that going to give you in 10 years? Those jobs are going away! All this bill did was give the companies incentive to accelerate that process!

Its so easy for legislators to target “big tech”. God forbid they actually try to do their job and pass bills that make a difference in the long run for the gig-workers that they are supposedly so concerned about.

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