Uber and Lyft Offer Drivers a $21 Minimum Wage. California Lawmakers Say It's Not Enough.

The state is set to pass a sweeping bill that would reclassify drivers as employees.

California is on the verge of passing a bill that would reclassify all "gig economy" workers—those who drive for Uber or Lyft, for example—as employees rather than contractors. Ride-sharing companies have responded by offering to pay drivers a minimum hourly wage of $21, but labor activists say the hike isn't enough.

The measure, known as AB 5, passed the California State Assembly in May and is expected to pass the state Senate next week. It will then head to Gov. Gavin Newsom, who has put his full support behind the bill.

Such a move would require gig economy companies to provide a wide array of benefits—including paid time off, worker's compensation, and reimbursement for expenses—to every employee, upending the flexible business model where drivers can choose their own hours, answer to themselves, and work for competing companies simultaneously. This would fly in the face of national practice: The Department of Labor and the National Labor Relations Board have ruled separately that gig economy workers are indeed contractors.

Uber and Lyft countered that they would provide a $21 minimum wage, which would apply both when driving a passenger and when en route to pick up a new one. Labor rights activists, including the ones behind AB 5, demurred at the offer. "The voters of California won't stand for billionaires allowing their workers less rights than Walmart employees," Assemblywoman Lorena Gonzalez (D–San Diego), who authored the bill, said in a statement.

But under AB 5, many of those workers would have less work, not more rights. Approximately 6,461 Lyft drivers in the assemblywoman's district alone would lose their jobs, according to an economic study by Beacon Economics LLC. As I wrote back in March:

Vulnerable populations stand to lose the most from reduced access to rideshare opportunities. In New York City, for instance, a staggering 90 percent of app-based drivers are first-generation immigrations who speak English as a second language. Uber's current driver qualifications—they must be 21 years of age, have a valid driver's license, and own a decent car—allow large swaths of people to get ahead on the ride-hailing app. But the barriers to entry would be much higher if the company were encumbered with such heavy costs per driver.

Consumers would pay a hefty price too—literally. Estimates currently indicate that the plan would raise prices by 20 to 30 percent, a big blow to the low-income Californians who have benefited from Uber and Lyft's accessible pricing. And fares aside, those in poorer areas would see fewer drivers willing to come their way, as app surge prices are more lucrative in bustling, more populous areas.

A $21 minimum wage would be a compromise, and a generous one at that. But California's lawmakers are instead opting for the more extreme option—one that might look nice on paper but would be terrible in practice.