A Stanford economics professor who was once an Uber driver says Uber and Lyft are not 'exploiting' drivers, so California's new AB5 law creates more problems than it solves

  • Uber and Lyft are still attempting to battle the new AB5 law in California which classifies rideshare drivers as employees, entitled to benefits such as health insurance and paid time off.
  • The companies say they want to create a new category of workers, gig workers, that allows them to pay workers cash for things like health insurance premiums.
  • But Stanford economics professor Paul Oyer tells Business Insider that neither the law nor the new category are very good ideas. 
  • Oyer is a labor economist who specializes in the gig workforce and who drove for Uber himself in 2018 as part of his research.
  • Visit Business Insider's homepage for more stories.

Uber and Lyft are facing what could be an existential crisis in California as they are obligated, under the new AB5 law, to classify hundreds of thousands of drivers as employees. 

The companies have been fighting the law on multiple fronts, including by proposing that a new, third classification be created to cover gig workers. This would allow the companies to create a cash fund that drivers could use to pay for health insurance or some time off, but wouldn't classify them as employees entitled to full benefits, Uber CEO Dara Khosrowshahi wrote in an OpEd in the New York Times last week.

The companies have also threatened to shut down service in California until at least November, when voters will be offered a ballot initiative that would exempt ride-sharing companies from the new law.

While no one, not even the companies themselves, questions the need for a better social safety net for drivers and other gig workers, the new AB5 law may cause more problems for workers than it solves, fears Stanford business professor Paul Oyer.

Oyer is a labor economist who specializes in the gig workforce. His research included spending time as a part-time driver for Uber in 2018.

"I'm not a huge fan of AB5, but I do understand the motivations of the people who wrote it, and I'm sympathetic with the goal," he told Business Insider.

But laws are best used to protect workers from being taken advantage of, he says, and gig economy platforms actually do the opposite, giving the labor force more opportunities, not less.

"What we really need to do is write public policy that protects workers from being exploited, and there are times and places where people are being exploited because they don't have other places that they can go work for. I think that a lot of these online platforms give people a chance to shop their services around," he says. 

For instance, many drivers are only moonlighting and driving a few hours a week in addition to a regular, full-time job that already pays them benefits. Some part-time drivers drive because they like meeting people, not because they need cash. Many drivers simultaneously work for multiple services, Lyft and Uber, for instance. Or they may do multiple gig jobs, like Uber Eats and Instacart, he points out. 

"Uber drivers have it tough, but I don't think you can make case they are being exploited, because there's so much competition for their time," Oyer says.

So he believes AB5 is taking too broad of an approach to a labor market full of variable needs.

"AB5 and other reforms are trying to treat drivers as one homogeneous group of workers, and they're not," he says, referring to proposals similar to AB5 pending in New York, New Jersey and Illinois.

That said, Oyer is also not a fan of creating a new category of gig worker, the idea being championed by Lyft and Uber.

"I am a little worried about creating new categories," he says, because a third option is likely to lead to more disputes, not less. Rather than having two choices to argue over — employee vs contractor — everyone will have three. 

The solution, Oyer says, is really the toughest thing of all: bold reforms to American's entire economic system that trains more people for better paying jobs.  And that's because someday even this enormous labor force of drivers is going to be automated out of their jobs when self-driving cars become commonplace.

"Working out AB5 laws is important but what's more important is, could we possibly do anything to fix the structural inequality in the labor market?," he says.

If we don't ensure that more people have access to the skilled jobs of tomorrow, laws like AB5 are "just manifestations of the fact that people who drive for Uber, and do things like that, the last 30-40 years, the American economy has been terrible for them," he adds.

Are you an Uber insider with insight to share? Contact Julie Bort via email at [email protected] or on encrypted chat app Signal at (970) 430-6112 (no PR inquiries, please). Open DMs on Twitter @Julie188.  

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