Billionaire’s Dream: Uber’s New American Economy

Who gets the crumbs in the ironically named “Sharing Economy”?

By Fabius Maximus:

America responds efficiently to change, but the new opportunities don’t necessarily leave us better off than before our changed circumstances. A life raft does not replace the sunken ship. Our increasingly unequal society, with the 1% grabbing all the productivity gains, responds with the “sharing economy.” New tech lets us work more hours and rent our lives in a desperate attempt to be middle class.

Uber & the sharing economy

Data slowly emerges about the companies building the sharing economy, as in this excellent study sponsored by Uber: “An Analysis of the Labor Market for Uber’s Driver-Partners in the United States” by Jonathan Hall and Alan Krueger, 22 January 2015 — “This paper provides the first comprehensive analysis of Uber’s driver-partners, based on both survey data and anonymized, aggregated administrative data.”

They start with the most banal opening possible, at a high level of abstraction. We’re concerned with the future of people, of our society.

Over the last few years, there has been much speculation as to whether the so called “sharing economy” will positively or negatively impact the future of work.

Who are Uber’s drivers?

Characteristics of Uber's drivers

The greater representation of younger people among Uber’s driver-partners is probably a reflection of the fact that Uber is a new opportunity, and older workers are less likely to change jobs, but it may also reflect entry barriers into the taxi driver and chauffeur professions that make it more difficult for younger people to obtain such jobs. … 7% of Uber’s driver-partners are currently enrolled in school.

Fully 80% of driver-partners said they were working full- or part-time hours just before they started driving on the Uber platform, and two-thirds of these individuals reported that they had a full-time job. Eight percent of driver-partners said they were unemployed just prior to partnering with Uber. Among the remainder, 7% were students, 3% were retired, and 2% stay-at home parent.

What a demonstration of opportunity in America! You too can spend a fortune on 2, 4 or more years in college — in order to drive a taxi! With middle class jobs so scarce, Uber makes it easier to supplement your income with part-time work. And you feel good about yourself as a “driver-partner,” an upscale title for an independent contractor.

Does Uber hurt workers?

Although the U.S. labor market has undergone significant changes in the last few decades, with a dramatic trend toward rising inequality and stagnant wage growth for large segments of the workforce, an objective look at the data reveals little evidence that a rise in contingent or alternative work arrangements has played an important role in driving these momentous labor market shifts.

… Claims that contingent workers represent a much larger share of the workforce generally count part-time workers as contingent workers, even though part-time workers typically are employed in a traditional employment relationship.

All true, but misleading. First, the last data on contingent work is from a ten years ago, a BLS survey in February 2005. Much has happened since then.

Second, this is missing the point. The hammering of the US labor force is driven by many trends: stagnant wages, the shift from full-time to part-time work (i.e., people working part-time who cannot find full-time work), and from employees (usually with benefits and some job security) to “independent contractors” (who have neither). The authors do quite a bit of hand-waving to hide these trends. The result 7 years after the crash…

  1. The fraction of the labor force employed full time has finally risen back to the 30-year lows (i.e., of 1984-2007).
  2. The number working part-time for economic reasons jumped 1/3 (from 3 million to 4 million) during the 2000 recession, doubled (to 9 million) during the crash, and has slowly declined to almost 7 million.
  3. However the number of workers holding multiple jobs (a full-time and one or more part-time) has not risen, perhaps constrained by the availability of jobs.

This created the opportunity for Uber and the sharing economy. Uber did not create these conditions; they just benefit by helping people cope with these conditions.

Alan Krueger understands all this quite well. See his January 2012 presentation about inequality while Chairman of Obama’s Council of Economic Advisers. His slides tell the story, such as this one:

Alan Krueger: the shrinking middle-class

Misleading info about “the Uber economy”

Derek Thompson perpetuates a common myth about the income of Uber’s “driver-partners” in his article at The Atlantic. He compares the net earnings of employees in other businesses with the gross (revenue) of Uber drivers (both before taxes). Uber drivers have both operating and capital costs. Operating costs include insurance, gas, repairs, and increased maintenance of their car. Capital costs include increased depreciation of the car (i.e., it must be replaced more frequently). The repair costs are large in aggregate for drivers. Accidents are expensive, both to fix the vehicle and in the higher insurance costs that result.

The Uber economy and the law

Buzzfeed reported that Uber had suspended “at least a dozen drivers” who’d registered their newly bought Uber-financed cars as commercial vehicles in accordance with California law for vehicles that carry passengers for hire. But enforcement is lax, and most drivers ignore the law. Buzzfeed:

“We are showing your vehicle registration is actually a commercial vehicle registration,” a late-December email from an Uber representative to one suspended driver read. “We will need you to contact the DMV to have them update your vehicle registration to personal/automobile registration. We are unable to accept commercial registration on an uberX account.”

And if these drivers would want to drive for Uber again, they’d have to do what Uber told them to. Uber had its own explanation for this, according to Buzzfeed. But it fits neatly into the whole concept that the “sharing economy” gets part of its competitive advantage by conveniently violating regulations that everyone else has to follow.

Uber has succeeded in finding needs and filling them for both drivers and clients. People ask “Is Uber bad?” – with Americans’ traditional focus on moral questions, useless moral questions that distract from vital economic and political trends (which makes us easy to govern, a joy for the 1%). People ask if Uber is more efficient than taxi companies. Yes, but the 19th century economy was very efficient compared to prior economies, without labor, safety, and environmental laws — but a far less pleasant place to live.

Uber and Lyft let you more easily and effectively work longer hours. Airbnb lets you more easily and effectively rent out part of your home. Soon we’ll have aps to let you put your children to work, or sell your left kidney. The nifty technology should not mask the underlying desperation at work as the middle class crashes and burns, and as millennials find the ladder of opportunity runs like airlines — with First Class and Coach lanes.

It’s also the next wave of deregulation, evading a structure of laws built up over a century on the basis of hard-won experience.

The sharing economy shows the new America in stark clarity. The billionaire owners of these companies get rich; their workers sell more of what they have in order to stay afloat. But for the 1%, there is a silver lining inside the gold cloud: people busy working multiple jobs and renting their rooms are too busy for politics! By Fabius Maximus

And in the old economy, the one that pays real wages, the Atlanta Fed begins to fret. Read…  Hit by Oil-Price Plunge? Manufacturing in Southeast Worst Since Financial Crisis

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  14 comments for “Billionaire’s Dream: Uber’s New American Economy

  1. Michael Gorback says:

    “a structure of laws built up over a century on the basis of hard-won experience”

    What an interesting way of saying “the time-honored trafition of rent-seeking”. A NYC taxi medallion costs close to $900,000. In Chicago $300,000. In San Francisco $250,000.

    Uber neutralizes the barriers to entry, which would otherwise cost more than a college education.

    • Wolf Richter says:

      We as a society have agreed to drive on the right side of the road and stop at stop signs – because it allows us to get through town in a more or less safe manner. All regulations have a purpose. Some are to collect revenues that society decided to collect (e.g. medallions). Others keep us safe (regulations governing taxis). Some regulate competition because if you have too many taxis, all drivers starve….

      Someone comes along and drives on whatever side of the road is less crowded and goes around other rules, well, they may be more “efficient” in a sense, but it might turn to be a big problem for them and others.

      I swim in the Bay. Decades ago, untreated sewage from 9 million people ended up in it. Old-timers tell me it was terrible. Regulations put a stop to it. Well, mostly. Sure, it costs some money, but with so many people living so close together, you have to have some ground rules.

      You’re a doctor. The many years of education, training, and certification you went through are a big barrier to entry that allows you to charge a lot of money for your work (“rent seeking,” as you call it). A hair stylist isn’t allowed to do your work, for a food reason, thank god, but he would charge a lot less.

      Society decided to regulate taxis for the same reason.

      • pete says:

        Yeah Wolf…but please remember that those taxi medallions are huge barriers to entry that these new companies sideswipe, so to speak. And these barriers are all over the place, like for barbers & cosmetologists too.

        And, here in NYC the Hudson – like the Bay – is being restored and where I live in The Rockaways – just beyond JFK – first the bottlenose dolphins returned a few years back and now the humpbacks, as our offshore water has been resurrected. There’s a need and obligation to keep stuff sustainable, but there’s also a need and obligation to not obstruct

        Stay safe in The Bay!!!…PJS

        • Wolf Richter says:

          Agree. I just think everyone needs to play by the same rules. If the rules are bad, let’s change them for everyone. If the rules serve a purpose, everyone needs to stick to them (OK, that was a naive thing to say, seeing what’s going on in Congress and on Wall Street, but hey…)

    • Jim says:

      That Uber requires its drivers to break the law regarding the proper classification of their vehicles says everything. Uber is running – IN ACTUAL FACT – a taxi service, while demanding that the cars used to provide that service be registered as “personal” vehicles. One can argue that more registered taxis should be allowed on the streets, but that is a separate question. In the meantime, Uber management should be arrested in every city and state in which they operate an unlicensed taxi service, using vehicles that don’t have commercial coverage, with drivers lacking commercial licenses. Just because Uber’s techies came up with a cool “app” doesn’t change the reality. A taxi service is a taxi service. Uber’s drivers aren’t transporting family, friends, hitch-hikers, or co-workers in a car-pooling arrangement. Uber drivers pick up and transport complete strangers, in exchange for payment, with a hefty cut going to Uber ownership. That is a taxi service. Furthermore, since the only way the drivers obtain riders is through Uber’s control, the drivers should be recognized as Uber employees, with all the legal rights of employees, not “independent contractors.”

      This is yet another example of the complete illegality permitted the billionaire class, while regular working people face fines and/or prison for evading the law on a much lesser scale.

      Will it take a vehicular homicide, committed by an Uber “independent contractor” driving a fare-paying customer in a vehicle legally registered as “personal,” before either insurance companies and local elected officials bring down the hammer?

  2. Boyfromtottenham says:

    Hi from Oz. Interesting article about this disruptive and btw generally illegal business activity. I wonder how much per hour an Uber driver makes? And I believe that I read somewhere that under US law (correct me if I’m wrong, please!) US citizens cannot be extradited to another country for financial crimes. The reverse is rather different I would guess. Happy scamming, Yanks!

  3. Michael Gorback says:

    Some regulations may be useful but many are just barriers to entry. What useful purpose does Davis-Bacon serve?

    To use your example Wolf, I am not allowed to do a hairdresser’s work. You need a license just to braid hair in Texas. A federal court just ruled in favor of a woman who was fined for teaching hair braiding at a community center. The state said she needed a facility with 10 chairs and 5 sinks and all sorts of crap.

    Why should it cost several hundred thousand dollars to get a taxi medallion? A NYC medallion costs more than combined college and medical school tuition. Pretty much anyone with the money can buy one. How does that advance public healrh or safety? What legitimate purpose does it serve?

    Uber is possible because the cab industry made it possible.

    • NotSoSure says:

      I somewhat agree with this statement: “Uber is possible because the cab industry made it possible.” Over here in San Diego, taxi is just horrible. Rude drivers, etc, etc.
      That is the problem when an industry feels protected, they act as if they don’t need customers.

  4. Paulo says:

    Remember folks, in that race for the bottom and frantic search for all things too good to be true, you get what you pay for. Can’t afford a taxi? Take a bus. Uber is hitchhiking. I wonder what the whining will sound like when a uber driver gets knifed for a few bucks or stiffed on a fare? or, is all payment by phone through head office?

    It is nothing more than a wink wink criminal organization no different than paying cash for renos or for stolen goods. When some customer gets splatted on the way home via a ‘cheaper ride’, an insurance company will get into the act and shut it all down. Uber driver? Guess what, your insurance is not valid. Bye bye. gone. it is just a question of time.

  5. Petunia says:

    As a native New Yorker, who actually ventured out into the outer boroughs, I can tell you that Uber was long overdue. There are no yellow cabs outside of Manhattan. You must use private car service or gypsy cabs. For those who don’t know what a gypsy cab is, it is an unregistered private taxi. Gypsy cabs roam the streets in the outer boroughs and are the only taxis available. You take your life into your own hands every time you use one and millions of riders do. I was riding gypsy cabs as far back as the 70’s, regularly.

    Uber is offering a more secure and reliable cab ride. This is sooooo overdue in a city like NY that I cannot imagine the possibility that the city will be able to eliminate it. The medallions only want to service Manhattan the easy place to do business, they are not serving the entire city and never have. The medallions created the competition by not doing a good job and the future is now here.

  6. Vespa P200E says:

    Uber and other car “sharing jokester touts” are simply gypsy cabs.

    They need to comply with existing cab regulation including carrying commercial insurance, commercial license plate and comply with all local taxi regulations.

    Uber and airbnb in this joke sharing economy are all breaking the existing laws and unfair to regulated taxis and hotel/motel owners.

  7. Julian the Apostate says:

    What a fascinating debate. Back in college I drove cabs in Omaha. At the time Omaha was just an overgrown cow town. The city still had the Livestock Exchange and cattle pens and a few meatpacking plants. The feed lots stretched from 26th to 36th and from L St. to Q St. When I was a child the Q St. Side was Meatpacker’s Row. All gone now, except for the Livestock Exchange Building and Johnny’s Cafe, the latter seems to be in decline.
    We had no gangs or graffiti or drive by shootings, no armed guards patrolling the malls.
    What the East Coast calls gypsy cabs were called jitney cabs confined to the near north side, which once had a medallion cab company that went bust. Same logic as NYC it was hard to get a cab up there, particularly after the ’68 riots.
    While I see Wolf’s logic about needing rules to keep from stepping on toes I don’t see the point of the medallions. The way I see it if you wanted to start a cab company there should be minimum requirements for safe operation and insurance, nothing else. The medallions are a defacto Guild that keeps the upstarts out and eliminates competition. A lot of people fled to the New World to escape these Guilds…to where do we escape? The frontier should be colony worlds but that has been cut off and we are trapped here.

    • Jim says:

      Whether through a medallion system, or by some other method, there needs to be some regulation on the number of cabs operating in a given city. Wolf makes reference to this in his response above: otherwise, the drivers can’t earn a living.
      Several decades back, Seattle removed any limit after people complained of insufficient taxi availability. Within a few years, the city restored a limit, because no one could earn a living at it otherwise. In the past couple of years, Uber and Lyft busted into the Seattle market, completely illegally. The city attorney should have shut them down instantly, but did nothing, while the city council hemmed and hawed. Uber, Lyft, Sidecar all wanted absolutely no limit on the number of drivers. Their operations place virtually all risk on the drivers, who have no guarantee of hours, wages, benefits, anything at all, but must provide and maintain their own vehicles. Meanwhile, the employer benefits from flooding the market with more and more drivers. If ever there is an example of forcing workers to hustle for crumbs (or passengers) this is it.

      A few weeks back, there was an NPR story about Uber, in San Francisco. One of the drivers said that it was clearly “more of a hustle” than his previous gig, playing saxophone for Teatro Zinzanni. Where he formerly worked a set, four hour time slot, he now has to drive 10 hours a day, broken into two shifts, just to bring home the same money.

      What irks me most about Uber, and the rest of the preposterously-named “timesharing economy,” is it clearly take us back to the 1800’s. Workers are completely atomized, disorganized, helpless individuals facing massive concentrations of capital. It will be impossible for any but a lucky few trapped in this workforce to have any stability, or to earn enough to pay for housing and health care. Absolutely forget ever buying a house, for example. It’s the WalMart-ization of everything.

      Here’s an interesting take on Uber:

      There are a couple of things we could be looking at that would be much more progressive, in the interest of the larger majority. First, establish taxi coops, so the drivers can hold onto a much larger proportion of their earnings, instead of the medallion holders. Second: greatly increase public transit of all sorts. Of course this would require taxing wealth to a much greater extent than is done now. But we could have the transit we need, and generate living wages to the workers providing it. Instead, Uber and its ilk rake Billions off the top, while their employees (excuse me: “independent contractors”) drive straight back to the insecurity of the Gilded Age.

  8. Peter says:

    A very good discussion. But I agree with the comment that this is indicative of the race to the bottom – people desperate to make an income – people who despise paying more because of Government regulations. Wait until you see the Uber Liquor Delivery Driver bringing you spirits of all sorts to your front door, on command, and for cash.

    My friend Markus is a high level executive German national, residing in NJ and managing a huge international transport business owned by the Swiss. We discussed Uber. I had misgivings about no insurance. He said this to me: I don’t give a damn. You call. The driver shows up at the meeting point in 10 minutes. I have a photo of the driver and other identifiers. The cost is less. The service is exceptionally reliable. There you have it.

    For me, I don’t use cabs much in the Jersey suburbs. I have to get to JFK in 3 weeks for a flight to Buenos Aires. I can not take any risk of missing the flight. I will take my old local driving service. If I pay more, so what. I want assurance that I am getting picked up at my house on the given hour and delivered to the Terminal 2 hours before departure. The cost of missing the flight is many thousands.

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