Employment fell for nonexempt occupations in California following the enactment of the state’s strict worker misclassification law, according to a new report.

California’s AB 5 took effect in January 2020. It codified a 2018 California Supreme Court decision that imposed a three-pronged test to determine a worker’s legal classification status and rendered most workers employees unless it could be proven that they are independent contractors. Eventually, over 100 occupations were exempted from the law, and California voters passed a ballot measure in late 2020 that additionally exempted drivers for app-based ride-hailing and delivery services.

Researchers from the Mercatus Center at George Mason University in Arlington, Va., examined how AB 5 affected the labor market by comparing the employment outcomes of occupations that were affected by the law in California to those same occupations in other states before and after AB 5 went into effect.

The study concluded that self-employment in California fell by 10.5 percent on average for nonexempt occupations, while overall employment in the state fell by 4.4 percent on average for nonexempt occupations. Occupations with a greater prevalence of self-employed workers saw greater reductions in both self-employment and overall employment, as businesses were perhaps less willing to work with independent contractors or freelancers for fear of running afoul of the law.

“Contrary to the goals of the lawmakers, we find no consistent...

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