Minimum Wage & Gig Economy: California Shows Problems of Current Worker Protections

An Uber pick-up location in San Diego, Calif. (Mike Blake/Reuters)

California reveals the dead end ahead for the current system of worker protections.

Of all the stories that dominated headlines leading up to this election, hot-button social issues and the pandemic have been the most prominent by far. The summer’s furor over police violence and outbreaks of protests and riots nationwide — when combined with a pandemic that has killed over 230,000 Americans and driven countless to the brink of destitution — is more than enough trouble for any country. But in Florida and California another problem was on the ballot — one that predates the coronavirus and Black Lives Matter and will remain well after they are gone. It is the challenge of securing middle-class lifestyles in an era of increasing automation.

For most of the past century, manufacturing provided many Americans with a comfortable standard of living. When the Industrial Revolution made family farming insolvent, Americans flocked to cities to work in factories or provide services to those who did. Particularly before World War I, most of these jobs were dirty, dangerous, and marked by long hours with low pay. State and local governments eventually imposed reforms — such as restricting child labor, standardizing an eight-hour workday, and establishing safety standards — that when combined with rising productivity gave many Americans access to stable, lifetime manufacturing jobs with good pay.

International and technological developments have largely eroded that pathway. In the decades after World War II, other countries caught up with the United States and learned how to produce first cheap goods and then complex products that were as reliable as those made in the U.S. Ford and GM could laugh off Japanese cars in the 1960s, but by 1980 over a quarter of the cars sold in the United States were imported. To many Americans, Donald Trump’s protectionist instincts sound like a good strategy to reverse the tide, cut imports, and bring back the good old days of American manufacturing.

Trade is only part of the picture though, and there is no way back to a factory-centric workforce. Technology has made production much more efficient and less manpower-intensive. Manufacturing accounted for roughly the same share of real GDP five years ago as it did after World War II, but instead of employing about one-third of the workforce, it now accounts for less than 10 percent. The steel industry employs a quarter of the Americans it did in 1953, but it only reduced output by 15 percent over that time period. Over 600,000 Americans worked for General Motors in 1979, when it was the most profitable company in the country. By 2008, its North American workforce had shrunk to a quarter of its former size while producing over twice as many cars per worker as in 1979.

For many Americans, this change has been devastating. Fifty years ago, many Americans could head over to the local plant after graduation and secure a steady, lifetime job that would empower them to buy a home and provide for their family. Although they still exist in some places, those jobs are less common now. Instead, more Americans have moved into service jobs that often provide less security and lower pay.

Since regulations on business improved workers’ lives back when manufacturing jobs were new and unpleasant, many have understandably wanted to dust off the old playbook to address this problem. Raising the minimum wage is a popular solution; the Democratic Party platform calls for a federal minimum wage of $15 an hour by 2026, but this election Florida just approved increasing its minimum wage to the same level by the same time in a referendum while also voting for Mr. Trump. Unfortunately, another ballot measure in California shows that there is only so much that this approach can put right.

Information technology has not just made automation more effective; it has also made part-time and contracted work more efficient. Employers can find freelancers or contract out work much more easily than before, and some companies such as Uber and Lyft have built huge businesses around their small armies of contracted workers. This “gig economy” gives companies, workers, and customers greater flexibility, but it has also devastated some industries, particularly taxi drivers.

In California, which already has a $15 minimum hourly wage, the legislature decided that the gig economy is inadequate for workers, so it extended employment regulations to cover contracted labor. This measure was aimed at the tech companies, but has impacted journalists, photographers, musicians, and members of other professions, too. The legislature has since added carveouts for some favored groups, but not tech companies. In response, Silicon Valley persuaded Californians to pass a referendum (Prop 22) exempting driver apps from the new rules. As a result, there is now one set of rules for powerful constituencies, and another for everyone else. Instead of reducing inequality, California has embedded it.

California reveals the dead end ahead for the current system of worker protections. Regulations that make workers more expensive create incentives for companies to automate their positions away. Legislatures can double down, but they cannot make bankrupt ideas profitable. To give the working class a chance in the future economy, we need a new strategy.

Mike Watson is the associate director of the Center for the Future of Liberal Society at the Hudson Institute.

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