Legislation should help rather than hinder the gig economy

Now that British Columbians can finally hail a ride-share on their phone – a right Quebeckers only won last year – a new threat is emerging, this time from California.

Casual or “gig” work has been around a very long time, but the sharing economy has put freelancers in the spotlight. It’s especially important for workers who can only work part-time: single parents, college students, the elderly and seasonal workers. These groups have long counted on the ability to work flexible hours when they really need to, be they waiters, nannies, deliverymen or translators.

What has changed is the dramatic creation of new part-time jobs because of the internet and cellphone apps. These have expanded the range of services people are willing to hire for, and made it much easier both to work and to hire people for casual work. The sharing economy has created more than 60,000 Canadian jobs a year on average between 2005 and 2016. This has been fantastic for consumers, who can now easily hire someone to deliver the groceries, shovel the driveway, walk the dog, mow the lawn or walk them to their car safely at night. And, of course, now you can call a cab that actually comes on time.

So far, labour laws have helped by sheltering casual workers from the hassle of paperwork, and employers from the risks inherent in hiring permanent employees.

Unfortunately, regulators are becoming hostile to this new job creation. California Assembly Bill 5 (AB 5), which took effect on Jan. 1, effectively turns freelancers into employees. The goal was to improve conditions for gig workers, but in practice, it has meant the disappearance of their jobs. Mass layoffs of parttime and full-time freelance workers have occurred in the media and the film industry, with fears of more to come.

The experience of California illustrates why governments should avoid interfering in the sharing economy. Despite good intentions, forcing employers to provide benefits to contract workers risks pricing low-wage workers out of employment altogether. Studies have also shown that even when the company is paying for the benefits, the costs get directly passed along to the employees. So even workers who don’t lose their jobs end up paying for the mandated benefits through reduced wages.

Empirically, job losses from mandatory benefits disproportionately target low-income workers. A similar phenomenon occurred in Ontario, where a Montreal Economic Institute study estimated that 50,000 young workers lost their job in the wake of a hike in the minimum wage from $11.49 to $14 on Jan. 1, 2018.

Losing one’s job not only hurts the worker today, but can negatively affect future job prospects. One study found that the simple fact of having a part-time job reduces the odds of being unemployed a year later by more than 80 per cent – from 25 per cent for unemployed workers to just 4 per cent for part-time workers. Working part-time also considerably increases the chances of having the work situation you prefer a year later, whether full-time or part-time, from 41 per cent for those unemployed to 69 per cent for parttime workers. In other words, a great way to get the job you want is to work any job right now.

Flexibility is key to the sharing economy: to work, to hire, to buy and sell. Even those who do it for the money may only be able to work part-time because of school, or are semi-retired workers who prefer only working a few hours each week. Statistics Canada estimates that only one in four part-time workers (24 per cent) are led to work part-time for economic reasons. Nearly half (48 per cent) have to care for children or other family members, have a disability or are going to school, while 28 per cent have voluntarily chosen to work part-time. A poll conducted in the United States in August, 2018, showed that only 7 per cent of American contract workers would rather be considered as full employees.

The Canadian economy is already one of great upward mobility. A 2012 study of census data found that 83 per cent of Canadians in the bottom 20 per cent of income earners in 1990 had moved up to a higher income category 10 years later. In 2009, the percentage of those who had risen into a higher bracket was 87 per cent, with 40 per cent having even reached the two highest quintiles. However, temporary jobs at the bottom of the ladder are often a prerequisite for this phenomenon to endure.

Too often, lawmakers propose reforms that might sound good, but actually make the problem worse. Instead of making it harder to hire freelancers and parttime workers, lawmakers should be making it easier. The freedom to contract and work as one pleases is not only a fundamental right, it is among the most effective ways to help marginal workers who need that first rung on the ladder.

Peter St. Onge is Senior Economist at the MEI, Daniel Dufort, Senior Director of External Relations, Communications and Development at the MEI. They are the authors of “The Sharing Economy: Destroying Jobs Won’t Help Low-Income Workers” and the views reflected in this op-ed are their own.