FILE - California Gig Economy

Independent contractor Colleen Keene, joined others at a rally in support of a measure to repeal a recently signed law that makes it harder for companies to label workers as independent contractors, in Sacramento, Calif., Tuesday, Jan. 28, 2020. 

(The Center Square) – A new report released this week details how renewed calls for regulating the gig economy hinders innovation and restricts people's ability to become entrepreneurs and provide for their families.

"The Small Business Gig" is the fourth paper in the Pacific Research Institute's (PRI) Breaking Down Barriers to Opportunity series which explores how the gig economy promotes small business growth and development. Previous reports by the free market think tank discussed how entrepreneurship can lift people out of poverty and alleviate America’s health care challenges.

Instead of enforcing bad laws, the report recommends California lawmakers repeal Assembly Bill 5, reform unnecessary gig worker regulations, and modernize benefit packages for independent contractors.

“The gig economy uses technology platforms to enable nontraditional, independent, short-term working relationships. These relationships are possible because gig economy firms create platforms that lower the transaction costs of a deal which creates beneficial exchanges that would not have occurred otherwise,” said Dr. Wayne Winegarden, PRI's senior fellow in business and economics and the study's author.

California enacted legislation known as AB5 in September 2019 that classified gig workers as employees and created a three-pronged test for companies to prove whether employees are actually independent contractors.

The report contends this legislation has harmed both consumers and small businesses, both of which need the flexibility provided by gig workers to control costs. 

"By using technology to create innovative new platforms bringing together buyers and sellers, the gig economy helps entrepreneurs prosper and lowers customer costs," Winegarden said.

The report also challenges two assertions levied against the gig economy. Namely, that exploitative employers force workers to be classified as independent contractors and that the economy needs tough regulations.

On the exploitation front, Winegarden cites a study by security provider ADP that shows over 70% of gig workers are independent contractors by choice. He also cites a study by the Gig Economy Data Hub that found over two-thirds of respondents were satisfied by their work.

“Since surveys find that large majorities of workers are satisfied with their gig economy arrangements, it is also difficult to argue that widespread exploitation is occurring. Instead, gig economy platforms offer gig economy workers with desired work opportunities and provide customers with preferred services delivered in a preferred manner,” the 24-page report said.

Winegarden also argues that over-regulating the gig economy “misunderstands the economics behind the gig economy platforms.”

"Government shouldn't be picking economic winners and losers through new restrictions that limit people's freedom to become entrepreneurs while preserving the old way of doing work," he added.