Freedom From Work is Here

The unthinkable has happened. Millions of Americans have embraced freedom from work and have now reclaimed their lives from the dreaded grind of employment. So many have walked away that businesses can’t fill job openings. We did it! Freedom is in the air and so many people have the opportunity now to build that business, find that calling, or go bohemian.

There’s no longer a need for a blog called “Quit Your Job” these days. It’s already been done.

But back to reality. While the above sounds utopian, that’s not what is going on exactly. At the moment, unemployment is high…but companies are also struggling to hire anybody. A recent article from the New York Times titled “Unemployment is High. Why Are Businesses Struggling to Hire?” lays it out:

“…the data tables produced every month by the Bureau of Labor Statistics, which suggest a plentiful supply of would-be workers. The unemployment rate is 6 percent, representing 9.7 million Americans who say they are actively looking for work…[while] businesses, especially in the restaurant and other service industries, say they face a potentially catastrophic inability to hire.”

So we’ve got jobs and people looking for jobs, yet the jobs remain unfilled and the people remain unemployed. What gives? Recently, a McDonald’s in Florida is offering people $50 just to come in to interview for a job because they’re so short staffed and unable to hire. You read that correctly. McDonald’s — once the employer used as a threat for people who didn’t want to go to school or study (as in “You’ll end up working at McDonald’s”) — can’t even hire right now. McDonald’s is also offering a $400 signing bonus if you end up getting the job. The state of Montana is bribing citizens with $1,200 if they go back to work, “blaming an expansion of unemployment benefits for a labor shortage in the state.”

We’re through the looking glass here people.

Do people not need jobs anymore? Is work outmoded? When the pandemic started, millions of Americans were let go or furloughed, feeding huge unemployment numbers to all-time highs. American had staggering food lines not seen since the Great Depression in 2020.

Now states are reopening up, restrictions easing off, and businesses trying to return to normal. But the workers aren’t coming back. Is it because of COVID fears and aversion to risk being around people? Maybe that’s part of it. According to the Chicago Tribune, “A Census survey taken in late March shows that 6.3 million didn’t seek work because they had to care for a child, and 4.1 million said they feared contracting or spreading the virus.”

There’s also something else at work here. From the same Chicago Tribune article, entitled “Where Are the Workers?”:

The National Federation of Independent Business found in a March survey of its own members that 42% had job openings they couldn’t fill. Owners cited higher unemployment benefits as one factor. And a study released last month by the National Bureau of Economic Research found that a 10% increase in unemployment benefits during the pandemic led to a 3.6% drop in job applications.

“Unemployment benefits allow workers to be able to wait longer before they take a job, which can make hiring harder,” said Ioana Marinescu, a University of Pennsylvania professor who co-authored the study.”

Unemployment benefits, particularly Federal ones, have caused disruptions in the labor market. A ZeroHedge article, “Biden’s Trillions” Spark Historic Labor Shortage” puts it [perhaps oversimplified] as “trillions in Biden stimulus are now incentivizing potential workers not to seek gainful employment, but to sit back and collect the next stimmy check for doing absolutely nothing in what is becoming the world’s greatest “under the radar” experiment in Universal Basic Income.”

Universal Basic Income (or UBI) is an eventual topic I plan to cover in this blog.

As I was writing this post, the US Chamber of Commerce came out after a dismal April jobs report and suggested to the government to shut off the $300 in extra unemployment benefits: “Based on the Chamber’s analysis, the $300 benefit results in approximately one in four recipients taking home more in unemployment than they earned working.” [Emphasis mine] And just this morning in the local Dunkin Donuts drive-thru I saw a huge poster advertising a free car for getting hired in a management position (I’m assuming it’s a company car but the poster didn’t elaborate).

Between DD and McDonald’s, businesses are literally bribing people to come work for them. Gone are the days, it seems, where winning a job and earning an income were admirable achievements. I guess it comes down to if you can make $900 a week working a job, or $800 not leaving the house…why not take the $800? You don’t have to drive anywhere, do anything, change clothes, or actively participate in society.

Which makes having a blog called “Quit Your Job” all the more abstract.

So government altruism is disrupting the job market. How long can it go on? Businesses still need employees to function. Not having enough employees is also severely disrupting supply chains, causing shortages and empty shelves. Another article from Zerohedge, this one entitled “Biden’s Stimulus Checks ‘Wreck Labor Pool’ As People Get Paid to Stay Home,” quotes the Federal Reserve Bank of Kansas City: “It is very difficult to handle the increased business with supply chain issues across all materials and finding anyone who wants to work. The federal government has incentivized people to stay home and not be productive.” This, combined with extra cash being handed out by the government, is very inflationary (also a future topic on this blog).

As mentioned above, surely this can’t go on, right? Hopefully not. The Federal unemployment bonuses are scheduled to expire in September of this year. If the Federal unemployment benefits expire, people will be making below what employment would bring in, so it only makes sense to return to work. Employers need it. The supply chain needs it. Then again, if the supply chain disruptions cause shortages prices of things increase, which would offset the extra unemployment and people would need to return to work just to afford basics. The only thing that doesn’t make sense is to leave the Federal unemployment bonuses permanent, especially as the country continues to reopen.

Which is exactly what some lawmakers want.

The idea behind this blog and “Quit Your Job” is to build something — a business, skills, expertise, ultimately bettering yourself so you no longer need to work for someone else. Taking money from the government and choosing not to work is not bettering yourself. Choosing to do nothing over working is not in the essence of Quitting Your Job.

Just remember, there’s no such thing as a free lunch.

From Gig to Gone

Uber and Lyft Threaten to Leave California over AB5

Last September I wrote a blog post entitled “California and the Death of the Gig Economy” about California Assembly Bill 5 and the reclassification of contractors as employees. I had my concerns over how companies like Uber and Lyft would react to AB5 and the cost overloads of suddenly having a million new employees added to their balance sheet. Would Uber ramp up automation? Would fares go up? There was also the risk of them up and leaving. So how did it turn out?

Uber and Lyft initially fought back against AB5: The companies, along with DoorDash, filed paperwork in late 2019 for the Protect App-Based Drivers & Services Campaign, a California ballot measure that would create an exemption to AB5 for app-based driver contractors. In 2020, Uber altered its app in an attempt to circumvent the law, letting drives set their own payment rates.

Neither measure worked and this past May California sued the ride-sharing companies to make their contractor drivers into employees. Three days ago, on August 10, 2020, a California judge ruled that Uber and Lyft must comply with AB5 immediately.

So, to recap: A company developed an app and service to bring a lower cost service to consumers. People begin to work for the company to provide said service and were compensated for doing so. The same people now want more, so they go to their state representatives to pass law to force the company to give them more. As California Assemblywoman Lorena Gonzalez put it, “It makes sure that the one million independent contractors in California get the wages and benefits they deserve.” 

This was from my blog post last year:

From the first glance here it appears Assembly Bill 5 could have disastrous effects on personal income in the state of California. People working as contractors on their terms will be forced to conform as an employee or lose out on their former gig. Jobs could be lost to automation. Some companies may up and move, taking their jobs with them or choose to cut back because they can’t afford to take on these contractors as employees. 

And what happened?

Faced with the massive tidal wave of increased costs for operating in the state of California, Uber and Lyft announced that they’re leaving California. From The Verge:

Lyft said it would shut down operations in California if forced to classify drivers as employees, the company’s executives said in an earnings call with investors on Wednesday. Lyft joins Uber in threatening to pull out of one of its most important US markets over the question of drivers’ employment status…

Both companies have said they would appeal the ruling, which was stayed for 10 days.

But if their appeals fail, Lyft may join Uber in closing up shop in California, the company’s president John Zimmer said. “If our efforts here are not successful it would force us to suspend operations in California,” Zimmer said on a call announcing the second quarter earnings of 2020.

To some, it may look like a grumpy former startup is taking their ball and going home. This article from The Hill has comments full of vitriol toward the “greedy corporations” “extorting” California. Some in the comments call for revoking business licenses for Lyft and Uber — it’s a lot like saying “you can’t quit because you’re fired!”

It’s easy to see why Californians are mad. Scores of Lyft and Uber drivers thought they would suddenly get benefits, paid time off, and a minimum wage are now getting nothing at all if these companies shut down. Don’t forget: these companies have never had a quarter of profit! There’s also the unmentioned damage COVID-19 and the lockdown has done to their businesses. Lyft suffered a 61% revenue drop in the second quarter this year while Uber experienced only a 29% decrease, buoyed by Uber Eats delivery while people were stuck at home.

You can’t get blood from a turnip.

I just don’t see how adhering to AB5 could possibly work at this point. As of March 25, 2020 Uber had about $7 billion in debt (Lyft currently has none). With already not being profitable and suffering corona-related revenue drops, Uber would be forced to borrow more to cover the increased costs associated with converting contractors to employees in California. The choice here is essentially an existential one: Does a company with $7 billion in debt that’s never had a profitable quarter take on more debt to conform to California’s AB5 or do they cut the market loose and spare the debt load? If they take on increased debt to cover 2020’s employee expenses during a pandemic year where they most definitely won’t turn a profit, they’ll have to borrow more again next year to for 2021’s employee costs. They would go deeper into debt with larger debt-servicing payments cutting into yearly expenses against falling revenues.

Even without a current debt load, Lyft would likely have to do the same. After all, these are sudden costs for which money wasn’t previously allocated. Debt would have to be taken on to finance the costs. It becomes existential for Lyft as well. And what if the companies cave to California’s demand and it embolden’s other states to pass their own version of AB5?

The fallout from this will impact millions. All the Uber and Lyft drivers who drive or work for these companies will lose income if the companies shut down (or relocate). To continue to drive for Uber or Lyft these contractors would have to move to a state where they still operate. Less income means less taxes taken in locally and federally from these contractor’s yearly 1099s. This puts California deeper in the current tax revenue hole. Uber — publicly traded as of last year — stock has taken a hit on the ultimatum, reducing the value of retirement accounts and personal brokerage accounts that hold shares.

It will be interesting to see how this plays out, but it does not look good. I wonder if taxi drivers are the only ones celebrating here.