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California’s AB5 Holding Back Recovery Nationally

There was some modest good news in the Labor Department’s report today on unemployment benefits, the falling numbers indicating that people are finding work despite COVID-19. The exception is, once again, California, thanks to the Golden State’s policies towards employment, most particularly the AB5 law.

The law, championed by Governor Gavin Newsom and Sacramento lawmakers, was intended as a way to get rideshare companies Uber and Lyft to come to heel and classify all their workers as employees rather than contractors. To do this, the state had to restrict contract work generally in order prevent loopholes for companies to wiggle through.

In the process, the law severely restricted the ability of most freelancers from being able to work. People who could ride out the virus by doing contract work from home such as translators, musicians, journalists and trainers, among others, couldn’t because AB5 limited the amount of work they could do as contractors. Companies didn’t want to hire them for fear of running afoul of the law.

State lawmakers recently approved a cleanup bill that adds numerous exemptions to AB5, a tacit admission that they overreached. But the law still restricts opportunities in numerous ways. For example, while a restriction in the original law that limited freelance journalists to no more than 35 articles a year for a single publication was removed, it was only lifted for written articles. Video reports are still limited.

“Many freelance writers are expected to be multimedia journalists, and it’s crucial for us to be able to legally record video for our clients,” Randy Dotinga, former president of the American Society of Journalists & Authors, told the San Francisco Chronicle.

Meanwhile the Golden State lags behind the nation on employment. New claims for jobless benefits fell by 130,000 nationally from the last month, but California saw its own claims surge by 40,000. While the total number of people collecting unemployment benefits fell nationally by 1.25 million to 13.3 million, California’s rose by 31,000 to 2.8 million.

The national unemployment rate is 10.2 percent, but Califiornia’s rate is 14.9 percent. State officials nevertheless touted that as good news! Unemployment had been at 16.4 percent earlier this summer. The state may yet take another hit. Uber and Lyft may pull out of the state altogether if they lose their bids to overturn the law at the ballot box and in court.

Granted, a state as large as California is going to lead in a lot of things nationally by virtue of size alone, but the state is running counter to the national trends. In fact, if it weren’t for California, the nation as a whole would be doing much better.

“Last week’s decrease is a catch up to the improvement that has been happening,” Aneta Markowska, chief economist at Jefferies LLC., told The Wall Street Journal regarding the national unemployment benefits numbers. “The labor market is healing, but the rate improvement is slowing and will continue to slow.”

The anchor that is slowing us down can be found on the West Coast.