No, the Government Can’t Reform the Gig-Economy

Photo by NeONBRAND on Unsplash

The year 2020 kicked off with California’s Assembly Bill 5 going into effect. The bill is designed to fight the mis-categorization of employees as independent contractors and ensure independent contractors receive the same benefits as employees. Sponsor Assemblywoman Lorena Gonzalez asserts the new law is “disrupting the status quo and taking a bold step forward to rebuild our middle class and reshape the future of workers as we know it.” The bill has already reshaped the future of  over 200 Vox Media bloggers who will have their employment ended due to the new legislation. Editor-in-Chief for Mavs Moneyball Rebecca Lawson, who is being forced out of employment by the bill, says she has (or had) “literally HUNDREDS of amazing colleagues all across our network who DO rely on this money to help, and who are going to have to replace that income somewhere else, somehow.” Considering the bill limits freelance journalists/writers to producing 35 submissions per year, that will doubtlessly be a daunting task.

What never fails to be overlooked in these sorts of initiatives is the essence of profit. Ludwig von Mises explains in Chapter 4.4 of Human Action:

Action is an attempt to substitute a more satisfactory state of affairs for a less satisfactory one…That which is abandoned is called the price paid for the attainment of the end sought… The difference between the value of the price paid (the costs incurred) and that of the goal attained is called gain or profit or net yield. Profit in this primary sense is purely subjective, it is an increase in the acting man’s happiness, it is a psychical phenomenon that can be neither measured nor weighed.

Considering the innate tendency for human beings to improve their well-being, profit seeking activities will always be present among the human species. There can be changes in the circumstances surrounding individuals but not the inborn motives upon which they act. Said motives will simply be manifested in differing forms depending on the situation.  

If hiring workers as employees instead of independent contractors proved disadvantageous for firms from the outset, then it would still be disadvantageous despite legislation that compels them to do so (ceteris paribus). All legislation does in this case is reduce the amount of options to subvert the government’s preferences. It does nothing to mitigate the incentives to subvert those preferences. If there is any alternative whatsoever that will improve the welfare of firms to a greater extent than succumbing to the intentions of the bill, then that alternative will be taken. Of course, the kind of alternative action taken can differ between firms. While Vox Media decided to release their freelancers en masse, other gig companies have started a petition to fight against Assembly Bill 5, and San Francisco’s Wonolo Inc. decided to leave California entirely.  

It is short sighted to believe legislation can foster unpropitious arrangements without the affected parties rebelling in some fashion to protect their welfare. So long as there is a desire to improve ones condition, unintended consequences will always emerge from do-gooder policies that attempt to revamp economically viable patterns.

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