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Gig worker protection law boosted overall earnings but dropped hourly pay
A 2020 California law designed to protect gig workers by classifying them as regular employees, rather than contractors, ended up increasing their earnings by about 8%. However, their hourly pay dropped by 1.6% as companies offset the higher costs of benefits. Workers’ increased earnings came from working longer hours in order to qualify for and reap benefits like employer tax sharing. These findings come from a study led by Liangfei Qiu, Ph.D., a professor in the University of Florida’s Warrington College of Business, which examined nearly 400,000 monthly work records from about 41,000 freelancers on Upwork, one of the world’s largest online labor platforms. That trove of data let the researchers ask what actually happened when the law, known as AB5, took effect. Qiu’s is the first study to reveal how AB5 affected workers’ income and comes as other states consider passing similar laws. Liangfei Qiu is an expert in social technology, including social media and social networks, as well as artificial intelligence. View his profile here “It highlights some unintended consequences,” Qiu said. “If the labor market competition is similar to what we observe in California, then you might get lower hourly rates for gig economy workers and longer working hours.” “But it’s nuanced. In surveys, gig workers said they were willing to work longer hours because they had better benefits. The outcome depends on how involved someone is in the gig economy,” Qiu added. AB5 was designed to correct what labor advocates saw as widespread misclassification of a company’s essential employees as independent contractors, who don’t typically earn any benefits. This classification gives companies a cheaper workforce, and provides maximum flexibility for workers, but doesn’t allow workers to earn any sick leave, vacation or health insurance. Self-employed contractors must also pay the full share of Social Security and Medicare taxes, which works out to about 15% of gross income. Gig economy companies fought back against the AB5 regulations. A company-sponsored ballot referendum, Prop 22, exempted well-known giants like Uber, Lyft and DoorDash from the law later in 2020. And the California legislature provided further carve outs for professions like doctors, lawyers and photographers. The law still applies to contractors used by delivery companies like FedEx, UPS or Amazon, home-service companies like Angi or Rover as well as online freelance platforms like TaskRabbit. The study is forthcoming in the journal Information Systems Research. Qiu collaborated on the analysis with researchers at Baylor University, Santa Clara University and Stony Brook University. Looking to know more about the 'gig economy' and how it impacts the workforce? Connect with Liangfei Qiu today and click is icon now to arrange a time to talk.
