Now, the macro environment is much more challenging for these companies. For one, higher rates mean that it's no longer economical to justify such investments which makes sense in a zero-rate world. Additionally, we have a tighter labor market which means that workers have more options, and there's an increasing awareness to provide 'gig workers' with some level of protection and benefits which undermines the profitability of companies like Uber and DoorDash which are reliant on these workers.
Now, the stocks of these companies are down more than 10% in a couple of sessions following the news that the Labor Department is looking at a way to reclassify gig workers as employees rather than employees.
The companies insist that they are offering flexible schedules to workers, although many contend that people would be better off in traditional jobs where there are benefits, a chance for upward mobility, and some legal, workplace protections. In contrast, gig workers' fates are determined by algorithms that often incentivize unsafe behavior.
In 2020, the California legislature passed a similar law but voters approved a referendum that exempted ride-hailing and delivery companies from the law in no part due to a massive lobbying and advertising effort from these companies.
The new proposal would change the classification of a worker as a contractor or employees based on whether the contractors are an 'integral' part of the business. Clearly, drivers and delivery drivers are essential for ride-sharing and food delivery.
Despite the steep losses in the stock price, it's still uncertain whether or not this proposal would actually go into effect. It's also likely that these companies would embark on a major advertising and lobbying blitz to neuter the effects of these rules. Still, it's a reminder for investors that these companies' business models are dependent on finding people willing to do 'gig work'.