As the California legislative session wrapped up, a new law was signed to provide exemptions for certain professions from AB5, while others have been pursuing relief in the court system.
Although some cases may still be heard by the U.S. Supreme Court, the controversial law continues to impact California’s economic recovery and population growth amid the COVID-19 pandemic.
“AB 5 makes it more difficult for people to engage in entrepreneurial ventures and side-hustle. This reduces incomes and opportunities for families in California,” Wayne Winegarden, PRI senior fellow in business and economics, told the Northern California Record by email. “It also makes it more difficult for people to control their own work-life balance, which is an important benefit created by the gig economy.”
The opaque nature of the exemption process and the ensuing ramifications have led to chilling affects across industries.
“There is no economically valid reason for choosing one profession to be exempted from AB 5 and others to be subject to these overly burdensome regulations – it is completely political,” Winegarden said. “Of course, every profession that is exempted creates another opportunity for people, so while ideally no professions would be subject to AB 5 and all people would be able to choose the types of work arrangements that best suit their needs and constraints, some exemptions are better than none.”
AB 5 has been affecting the middle class in California, with some moving out of the state in order to keep their livelihoods.
“Restricting people's ability to work to provide for themselves and their families does not create a welcoming environment,” said Winegarden, co-author with PRI’s Kerry Jackson of a new study, California Migrating.
“The outmigration from California is a multi-faceted problem; however, the adverse economic consequence from overly burdensome regulations is a constant theme,” Winegarden said. “California’s regulatory environment unnecessarily increases costs and decreases opportunities. When combined with the declining quality of life, that is driving people away from the Golden State.”
Numerous companies have also departed, including Tesla’s announcement last Thursday.
“I am not sure anything was surprising, unfortunately. But the key trends are that the migration problem is widespread across all income levels and all age groups (except the youngest adults who are still coming but at a significantly slower pace),” Winegarden said.
The population decline led to California losing a Congressional seat for the time.
“People who are trying to deny that a migration away from California is occurring will often point to the rising income levels as proof that California is doing just fine. And it is true that income levels are higher than the national average in California,” Winegarden said. “However, once you account for the higher tax burdens and higher cost of living, California’s income premium turns into a sizable income deficit. It simply has become a hard to place for many to live.”