With the recent ruling from the California Labor Commission declaring that Uber’s drivers must be treated as W-2 employees, California residents will have front-row seats to watch government ruin innovation and a thriving market. While many costs created by government go unnoticed, the inevitable hike in prices and decline in services will be an eye-opening experience for millions of Uber customers.
Uber’s rise in popularity is a textbook example of how free markets can improve society. For decades, citizens simply assumed expensive and elusive taxis were an inevitable way of life. This paradigm shifted in 2008 when two gentlemen, frustrated by a cab ride in Paris, envisioned something better. Fast forward to today and their idea is now one of the world’s most successful startups with valuations as high as $50 Billion.
While not much of a technical marvel, the creativity to envision the Uber system was brilliant and the benefits to society have been enormous. Billions of dollars have been saved by consumers. Over 160,000 jobs created. People can find vehicels quicker. Potential drunk drivers have cheaper alternatives for getting home. Drivers and passengers don’t require cash, reducing the risk of robbery for both parties.
All of this was achieved in a free market without government regulation.
This benefited everyone except taxi drivers, taxi unions, and bureaucrats tasked with issuing taxi medallions. Predictably, these entities have formed an unholy alliance to attack Uber with government force. As illustrated by this verdict, California’s ruling party seems all too eager to assist. Like insects descending on a flourishing farm, Sacramento Democrats see a thriving market as an opportunity to confiscate more revenue, justify more bureaucracy, and insert its inefficient business standards.
Personally, I have traveled thousands of miles via Uber (or Lyft). I have had plenty of interesting conversations with drivers. Not once has a driver complained that they wish they were a W-2 employee. The logic behind the ruling is puzzling if not non-existent — Uber drivers pick their own hours, don’t wear a uniform, and don’t use company cars. Yet when one remembers that this decision came from the LABOR Commission, which stands to inherit authority over the thousands of new W-2 employees (ultimately lining them up to be absorbed by unions), then this verdict makes complete sense. It’s business as usual in Sacramento as the Democrat machine continues to advance its authoritative influence with bad solutions to problems that never existed.
The decision will be appealed, but if California eventually requires all drivers be W-2 employees it would be a devastating ruling for Uber. Their future plans of competing as a delivery service would be in jeopardy. Their $50 billion valuation would take a painful, if not devastating hit. They would face more legal entanglements as labor unions began to mobilize against them. This tsunami of bureaucratic hurdles would create costs inevitably resulting in price increases for passengers.
Ironically Uber’s driving work force, those who purportedly need saving, would see undesirable results. Under the current structure with independent contract drivers, it makes sense for Uber to contract out as many drivers as possible, irrespective of how often they want to work. This creates a great opportunity for part-time work for those who wish to earn income when their schedule permits. Using W-2 employees, Uber would have a heavy incentive to get more value out of less drivers. This would compel Uber to reduce the number of drivers in their workforce to only those willing to work full-time or meet certain quotes. All of the part-time employees who also work as students, parents, or any other field would see their flexible job privileges disappear.
If there’s any sort of grim satisfaction in all of this it’s that Uber was founded literally on the streets of San Francisco, perhaps America’s most liberal city. Uber maintains a considerable base of drivers and passengers coming from the liberal political spectrum — especially graduate students. It’s conceivable that many of these supporters have also mindlessly supported the Democrat agenda of strict government regulations “to keep the evil free markets in check.” Perhaps as they watch their beloved market be town apart by state regulators, they will reconsider their open-invitation for government to intrude on voluntary trade. Demanding government force can be a dangerous request.