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Uber and the Costs of Employment Regulation
Uber and its customers are rightly concerned over a recent ruling out of California that calls into question whether the company’s drivers can continue to be classified as independent contractors. As I note in my new column for Defining Ideas, however, the problem runs much deeper than just the application of California law. The entire legal framework is ill-equipped to deal with the complexities of modern labor markets:
The clear lesson to learn from this fiasco is that it is a hopeless task to apply traditional regulatory structures to modern arrangements, especially when they block the implementation of new business models. Indeed, it is necessary to go one step further: it makes no sense to apply these regulatory statutes to older businesses, too. Time after time, these statutes are drafted with some “typical” arrangement in mind, only for the drafters to discover that they must also try to apply the statutes to nonstandard transactions that do not fit within the mold. Rigidity is not just a problem today. It was a problem with the [Fair Labor Standards Act] and other New Deal labor statutes even when they were first passed.
This point is unfortunately lost on a lot of modern commentators who think that their real challenge is only to update the employment laws for the sharing economy, rather than scrap them altogether. For example, James Surowiecki, writing in the New Yorker, comes out in favor of “Gigs with Benefits,” a great title for a bad idea. He rightly notes the scads of critics who claim that Uber is disguising its employees as independent contractors are wrong, and he recognizes that calling Uber drivers employees could be the death knell for many of these gigs.