A California law designed to crack down on independent contractor misclassification lowered employment for self-employed workers as well as overall employment, according to a new report.
California passed the law, AB 5, in 2019. It provides an “ABC” test for determining whether a worker is either an independent contractor or an employee.
The Mercatus Center at George Mason University report, released Jan. 18, called AB 5 the strictest law in the nation when it comes to classifying workers as independent contractors but said the law actually reduced employment.
“We find no robust evidence that traditional employment increased post AB 5,” the report said. “These results suggest that AB 5 did not simply alter the composition of the workforce as intended by lawmakers. Instead, our findings suggest that AB 5 was associated with a significant decline in self-employment and overall employment in California.”
The report examines the effects of AB 5 on labor force participation, overall employment, traditional employment and self-employment. It found that self-employment fell by 10.5% on average, while overall employment fell by 4.4% on average. Occupations with more self-employed workers saw larger reductions in both self-employment and overall employment.
The AB 5 law has received several challenges since its passage. California voters in 2020 approved Proposition 22, which aims to allow gig economy companies to continue classifying drivers as independent contractors. However, battles over the law continue.
The bill was backed by former California Assembly member Lorna Gonzalez Fletcher, who is now executive secretary-treasurer of the California Labor Federation. SIA has reached out to the federation for comment.