With control of Congress and the White House, Democrats are making labor policy one of their first priorities. Ironically enough, that's actually not so good news for independent contractors and gig economy workers across the country.
The legislation at the core of their agenda may be the PRO Act, which Democrats just reintroduced with sponsors including Speaker of the House Nancy Pelosi and Senate Majority Leader Chuck Schumer. Among a number of other things, the bill would severely restrict the legal definition of independent contractors in a way that would largely end the gig economy as you may know it.
The legislators' stated intention would be to protect workers and bolster their rights under law. Through the reclassification of independent contractors, Democrats aspire to force the gig economy companies to hire workers as full employees and therefore provide them the accompanying salaries and benefits.
\”The men and women of labor are the backbone in our economy and the foundation of our strength,\” Pelosi said. \”With American workers seeing their lives and livelihoods devastated through the ongoing pandemic and economic crisis, the reintroduction of the PRO Act is much more important than ever.”
\”I am proud to join my colleagues in introducing this legislation to place more money in the pockets of hard-working Americans, creating a foundation that provides livable wages to the families,\” Schumer added.
The context here's crucial, because this legislation isn't coming out of nowhere. It's modeled after a similar but highly controversial California bill, AB 5, that likewise forced the reclassification of independent contractors.
President Biden supported AB 5 at the time, and is on the record supporting the PRO Act, too. And now that Democrats control Congress, it might pass the House and find support in the White House. The only question could be whether it could make it through the closely-divided Senate.
So, it's worth examining the sweeping impact this legislation would have on the economy.
Millions of Jobs Outlawed with the Stroke of a Pen
The PRO Act would outlaw countless existing jobs with the stroke from the president's pen.
After all, it would make illegal any independent contractor arrangement in which the worker provides services within \”the usual course of the business of the employer,\” meaning jobs like Uber drivers, Doordash drivers, Instacart grocery deliverers, and more could not exist as we know them. There are roughly 10.6 million independent contractors in the U.S., accounting for 6.9 % of all employment. Some of these workers might not be affected by the law and some others may get hired on as full-time as a result. But there's little doubt that millions more would end up unemployed.
For example, Uber alone employs more than 1 million drivers in the U.S. It's nearly certain they would all lose their jobs underneath the PRO Act, because Uber already runs a loss of revenue, not a profit, and adding an independent contractor as a full employee counts roughly $3,625 per driver. Basic math tells you that most of these workers would end up being let go; Uber could even go under. After all, the California legislation nearly forced Uber and Lyft to shut down operations in the Golden State altogether until a last-minute ballot referendum modified what the law states.
Ugly Results of Policy Naivete
Uber is just one company and something example. But freelance workers for example journalists, photographers, florists, musicians and much more all lost work in California under legislation like the PRO Act.
\”Transcription allowed me to stay at home, be my own boss, and control my workflow and whom Sometimes with,\” 72-year-old transcriptionist Dori Lehner told the Independent Women's Forum. \”I only have one direct client now, and that i only get work when they have it. My income has dropped right down to a quarter of what it was before AB 5.\”
\”A mom-and-pop studio can't hire me and put me on payroll for a one or two hour lecture which i do once per month,\” part-time yoga instructor Jennifer O'Connell told IWF.
\”That's destroyed so much work,\” she added, explaining that she's lost roughly three-fourths of her freelance income.
The authors of AB 5 and also the PRO Act likely earnestly believed they were going to help workers like Lehner and O'Connell. However the ugly results of their policy naivete leaves many like them unemployed instead.
The Big Picture: Unintended Consequences Always Plague Big Government Regulation
The lesson here's clear. The Democrats' latest labor proposal is a case study in unintended consequences, which inevitably plague big-government interventions right into a vast and diverse economy.
\”Economic policies have to be analyzed in terms of the incentives they've created, rather than the hopes that inspired them,\” famed free-market economist Thomas Sowell once wrote. \”The programs that are being labeled for the poor, for the needy, almost always have effects precisely the opposite of those which their well-intentioned sponsors hope them to have.\”
\”It's not enough … to endorse legislation that has a nice title and offers to do something good,\” economist Robert P. Murphy similarly wrote for FEE. \”People have to think through the full consequences of the policy, because often it will result in a cure worse than the disease.\”
Nancy Pelosi and Chuck Schumer clearly haven't thought this through. If the PRO Act becomes law, it's not going to help independent workers – it'll eliminate their jobs or strip them from the flexibility that attracted them to the gig economy to begin with.
Brad Polumbo is a libertarian-conservative journalist and Opinion Editor at the Foundation for Economic Education.