Making gig economy look like mainstream economy would be big mistake

IN NOVEMBER 2022,  voters will determine the future of the gig economy in Massachusetts, deciding two ballot measures  related to temporary or contract workers who seek to remain independent freelancers.

The first petition recently certified by the attorney general aims to “define and regulate the contract-based relationship between network companies and app-based drivers as independent contractors with required minimum compensation, benefits, and training standards that will operate uniformly throughout the Commonwealth, guaranteeing drivers the freedom and flexibility to choose when, where, how, and for whom they work.”  The second version, which also earned certification, doesn’t include a provision for mandatory safety training.

The stakes are particularly high with firms like Uber, Lyft, Postmates, and DoorDash facing off against an array of labor and public transit groups. A similar voter-approved measure passed in California last year only to be ruled unconstitutional earlier this year.  The ruling is now under appeal.

Ride-hailing firms are immensely popular —crushing indefensible monopolies such as the taxi cab industry that exploited consumers for far too long.  A few years ago, the city’s tourism industry — worried that lack of ride-share pick-ups at Logan Airport would tarnish the city’s reputation – finally caved in to consumer demands. The popularity of the gig economy is only increasing.  And while rideshare participation declined during the early days of the pandemic; consumers continue to place value on such services. While rideshare services are here to stay the question remains whether they will they be able to thrive in a regulatory environment that always pushes back.

Old rules and regulations die hard. The apps that drive the gig economy rely almost exclusively on the ability to draw independent contractors who are flexible and comfortable enough with the lack of conventional constraints on employers.  Gig workers enjoy flexibility and often work for different firms like Uber and Lyft at the same time or, as a second part-time job. Some may already work full-time or part-time at another job.

As with most maturing industries, gig companies need rules of the game that don’t stifle growth or consumer choice. Making the gig economy look like the mainstream economy would be a big mistake. Does anyone really want to return to the days of limited choices and convenience under taxi monopolies?

The two ballot questions seek to set up an alternate compensation system — contractors would be entitled to some benefits and a wage rate about 120 percent above the state’s “minimum wage” and select sick time pay.  Thus, gig companies are not averse to providing their own incentives.

Pushing against the disrupters are other workers, including several who would like to see Uber drivers join labor unions. They maintain that this proposed “alternative universe” is just a sophisticated way to skirt current labor laws, which in Massachusetts are comparatively strict. Penalties for relying on contract workers for an extended period of time are severe.

Special interests have been working the legislative angle to thwarting the gig economy. For example, the Legislature is considering a bill to grant gig workers the right to collectively bargain through unions. The unions have a leg up with Attorney General Maura Healey, no friend of independent contractors in Massachusetts and a close labor union ally. She’s already sued ride-hailing companies for “misclassifying” their workers.

Whether the ballot question, if approved, will be an existential threat to the rest of the state’s labor regime is another question. Fears about traditional jobs turning into gig jobs are overblown. In Massachusetts gig workers make up a small part of the labor force.

Flexible labor markets are key to keeping states like Massachusetts competitive. Gig workers help fill the gap and enable firms to reallocate resources to higher value efforts. Thanks to phone apps, gig firms keep transaction costs low and keep idle resources to a minimum.  They also provide consumer choices and convey information about the relative scarcity of resources. For all its criticism, surge pricing reflecting peak demand is a feature not a bug.

Gig firms and workers demonstrate the superiority of a market that thrives on innovation.  Opponents of the new gig paradigm would like nothing more than to diminish its growth. Opponents also seek to stifle the gains from trade between consenting agents that make everyone – firm, driver, and rider – better off.  Applications such as Uber and Lyft are exceedingly productive and thereby able to generate more with less.

Those opposed to the rideshare industry are placing the dead hand of government in the way of competitive markets that serve consumer welfare.

The current push against rideshare recalls another poor public policy choice from the past.

At the turn of the 20^th century, privately-owned automobiles were competing with street railways. Jitneys, as they were known, offered passengers faster service. But, like the Ubers and Lyfts of today, they posed a threat to local interests. Jitneys were eliminated – a measure that set back urban transportation.

In his new book on The Essential UCLA School of Economics, David Henderson recalls the work of researchers Ross Eckert and George Hilton who showed “that allowing free entry, while ensuring that jitney operators bore the full costs of their operations, including paying their share for street repairs, would have saved society decades of unsatisfactory experience with inefficient alternatives, including buses that operated in much the same way as street railways.

“The moral of this and similar stories is that regulators should not extinguish the incentives of market participants to create economic gains for themselves,” Henderson wrote. “Efforts by regulators to thwart the pursuit of those incentives perpetuate economic inefficiencies that make society as a whole poorer.”

The parallels to today’s debate are clear.

At some level, opponents hope that rideshares go the way of jitneys. That would be a loss for everyone.

Frank Conte is the director of external affairs for the Beacon Hill Institute for Public Policy.