Uber, Lyft, Postmates, and Deliveroo. These words are now part of our everyday lexicon.
With Lyft and Uber going public, we need to face facts about their business model
The gig economy has changed the world. I find it hard to remember when I didn’t see hundreds of delivery scooters zipping around the city near our office. Nor do I easily recall when it was unusual to see somebody happily getting into an unmarked car driven by someone they didn’t know. From Beijing to London to San Francisco, our cities are bisected 24 hours a day by the journeys of bicycle couriers, delivery mopeds, and taxi drivers.
I previously wrote that the explosion of the gig economy over the past decade has been primarily fueled by the money of venture capitalists (VCs) and the software written by skilled and highly compensated software engineers. There is a notable dichotomy between the job security and income of those who are creating this new economy and that of the gig workers who are generating the revenue, one delivery or ride-sharing trip at a time.
One could argue that the drawbacks of gig work far outweigh the benefits.
In the race to rapidly grow the companies that utilize gig work, huge net losses are generated, signifying high risk for future investors and workers. Gig economy platforms such as Lyft and Uber, in their sprint for market dominance, dramatically undercut traditional companies such as local taxi and courier firms. These tactics create new unicorns that grow and become immensely valuable for their founders and staff. The VCs and investors that propelled their growth receive significant returns on their money.
And while this furious competition is excellent for consumers, who get cheaper, faster, and more technologically advanced services, what becomes of the human beings who generate revenue by driving and biking day and night, come rain or shine? Are the workers an afterthought in this economy? One could argue that the drawbacks of gig work far outweigh the benefits. There is no job security. There is the stress of unpredictable income. There is a reliance on algorithms to get work. Ratings systems cast their judgment.
If labor laws change and these companies cannot operate as they currently do, or if cities and countries ban them altogether, gig workers may quickly find themselves out of a job with no safety net. Comparatively, the VCs expose themselves to little risk through their diverse portfolios. The software engineers can easily find high-paying jobs elsewhere in today’s buoyant job market.
The winners at both ends of the socioeconomic spectrum
We all know that gig workers want better conditions. There have been protests and strikes around the world for many years. A common — and privileged — response to complaints from gig workers over their conditions is that if they don’t like their jobs, they can quit. Nobody is forcing them to work at these companies. However, this misses important nuances about the diverse demographics who deliver your food and drive you to the airport.
We can partition those who are working in the gig economy into groups based on their motivation. A 2015 analysis published by Uber’s head of policy research found that 51% of drivers work one to 15 hours a week, 30% work 16 to 34 hours, 12% work 35 to 49 hours, and 7% work more than 50 hours. It could therefore be observed that a comparably small proportion of Uber drivers are responsible for a majority of rides.
Given that a worker chooses how many hours to drive, we can interpret that choice as an indicator of their needs. If we consider the gig economy as a whole, the Pew Research Center reported that 56% of surveyed gig workers were financially reliant on gig work, versus 42% who could live comfortably without the income. Given that 57 million people in the United States alone are taking part in the gig economy, the nearly 24 million people using it to earn supplemental income are clearly reaping the reward of additional, flexible work at the press of a button — work that didn’t exist until companies like Uber and Lyft were created.
Additional studies show that for some, gig work can be much better than the available alternatives. A 2018 study of Uber drivers in the United Kingdom showed that the vast majority of the U.K.’s drivers are “male immigrants primarily drawn from the bottom half of the London income distribution.” These immigrant workers moved into the gig economy from permanent part- or full-time jobs and reported higher life satisfaction than in their previous jobs. Although the drivers are still in a lower income bracket, many are earning more money through Uber than they were before and are able to do so on their terms. A similar U.S.-based study in 2017 reported that driving for Uber gave workers flexibility that was unmatched by other working arrangements and, often, greater pay.
One could posit that these two groups are at the higher and lower ends, respectively, of income distribution. Those who are not reliant on gig work and use it for supplemental income are likely well-off, at least comparatively. Those who find that it offers better flexibility and pay than other alternatives are presumably in a lower socioeconomic bracket and have fewer specialized and transferable skills, meaning gig work is their best overall option.
The unhappy middle
Anti-ride-sharing protests in Portland, 2015. Photo: Aaron Parecki via Flickr/CC BY 2.0
But despite the benefit of being able to open an app, jump in a vehicle, and immediately earn money, the rapid global proliferation of gig work has created widespread friction and controversy. From protests to sexual harassment to mental health issues to suicides, rarely a week has gone by without a media furor. Although many gig workers report some satisfaction with their arrangement, there are clearly problems, and workers are starting to take action.
The challenging side of gig economy conditions has inspired grassroots action through organizations such as the Independent Workers Union of Great Britain (IWGB). Its stance on the gig economy is that it unjustly classes individuals as “independent contractors” in order to deprive them of employment rights. Local branches of the IWGB, such as the Bristol Couriers Network, have organized targeted strikes against gig economy platforms such as Deliveroo, demanding minimum payment guarantees and a recruitment freeze to ensure that there is enough work for couriers to have a dependable income.
Despite our rebellious impulse to root for the underdog, our underdogs have now become the dominant players in the market.
There is a parallel with the controversy over so-called zero-hours contracts in the U.K. Also known as casual contracts, the employee is on call to work when the company needs them. They do not necessarily have to be given any work by the company, and they do not have to work when asked. On the surface, this seems like a similar situation to those who are doing gig work: It’s flexible work that is there for workers to take or leave.
However, the Trades Union Congress argues that these contracts exploit workers, stating that the flexibility they offer is good only for employers and not for the employees. Increasingly unstable economic conditions have seen workplaces replace traditional full-time or part-time staff with zero-hours contracts, meaning staff cannot guarantee their income or easily plan their working hours. The BBC reports that 2.4% of the working population in the U.K. are working zero-hours contracts, but two-thirds of those workers would prefer fixed hours.
According to the U.K. government, zero-hours contracts, despite offering unpredictable hours and, therefore, unpredictable income, must ensure that the national minimum wage is paid and that workers are entitled to statutory annual leave. Gig work is arguably even less secure, given that there is no guarantee of any income due to the arrangement’s casual nature and because the pool of available work is regulated by two uncontrollable forces: the demand for services and the number of other workers competing for jobs at any particular time.
Have we seen this before?
There have been numerous times in history in which workers were flocking to jobs with poor conditions. One notable period was the Industrial Revolution. Wages were low, and work was monotonous and unregulated. Poor conditions for workers led to backlash, protests, and attempts at unionization. However, the surplus of available work during the Industrial Revolution was continually filled by mass immigration to the U.K., ensuring that factory owners never had a staff shortage. This lessened the effect of labor unions since the effect of strikes and walkouts were minimal. Does that sound familiar? Perhaps we find ourselves in another transformational period for our economy and the nature of work.
Conditions during the Industrial Revolution gave birth to labor laws that underpin traditional employment today. The series of Factory Acts passed in the 1800s in the U.K. limited the minimum age of workers, the maximum hours per day they were legally allowed to work, and weekend working hours. Similar reform occurred in the United States, ultimately resulting in the Fair Labor Standards Act being passed in 1938, ensuring that workers had the right to a minimum wage, as well as overtime pay when working more than 40 hours a week.
In an article by Lee Fang for the Intercept, he argues that the race for Lyft, Uber, and their siblings to initial public offerings (IPOs) is partly driven by investors and founders looking to cash out at the highest possible valuation before labor laws catch up with them and potentially break the model that has given them their multibillion-dollar valuations. If Lyft really does lose $1.50 per ride, how much would it lose if it had to provide securities and benefits for its workers in line with those in permanent employment? In fact, when Uber filed for its IPO last week, its S-1 filing stated that “our business would be adversely affected if drivers were classified as employees instead of independent contractors.”
The rise and fall of medallions
Despite our rebellious impulse to root for the underdog, our underdogs have now become the dominant players in the market. For all our hatred of monopolies, the antiquated New York City taxi medallion system that Uber and Lyft has disrupted held a number of benefits for those who worked within it.
In 1937, New York City officials decided that owning or leasing a licensed taxi medallion — displayed on the hood of every working cab — was legally required in order to operate as a driver in the city. The medallion system was installed in response to the chaotic, unregulated taxi situation of the early 1930s. The city was flooded with cabs, congestion was rife, and driving was dangerous.
Rather than relying on legislation to curb and cap them, why can’t they lead the way with changes that benefit society?
The number of medallions was capped, which, in addition to reducing congestion, meant that medallions became very valuable: As recently as 2013, a medallion sold for $1.3 million at auction. Although a taxi driver’s income is moderate, the medallion system ensured that there was predictable income, since people in New York City always want cabs and the medallion cap limited the supply of cars. Purchasing a medallion was an investment, much in the same way that owning a property is. Upon reaching retirement, a taxi driver selling a medallion meant a secure future. But the disruption to New York City taxis by Uber and Lyft — these legal but unregulated and uncapped taxi companies — has driven down the price of medallions from the 2013 high of $1.3 million to a recent low of $160,000.
The regulated system had its flaws, especially for passengers, who often had to struggle to find available cabs during periods of peak demand, but it did provide some worker security. Now that taxi medallions are not as valuable as they once were, yellow cab drivers will have to work out whether keeping them remains financially viable over the long run or if they would be better off driving in the gig economy. In 2014, Uber stated that the median wage for an UberX driver working a 40-hour week in New York City was $90,766 a year, compared to around $30,000 for a yellow cab driver. However, these earnings have been disputed. More recently, the Economic Policy Institute released a report showing that drivers earn just $9.21 per hour once commission, fees, vehicle wear and tear, and a modest health insurance package are taken into account. In December, legislation passed to ensure that Uber drivers in New York City earn a minimum wage of $17.22 per hour after expenses.
Similar patterns are being repeated the world over. The surge and disruption of gig economy work all but forces those who are currently working in traditional regulated industries to join it. In doing so, they subject themselves to less protection from their employer and open themselves up to high risk if they are unable to keep working. Ten years ago, if a medallion-holding taxi driver became too sick to continue working, selling the medallion would be a reasonable way to exit with dignity. In the present day, our gig driver will have to hope they can find some other means of income.
The potential for a fairer future
Although this outlook could be considered dreary, I believe that within all disruption and chaos comes opportunity. There has been a tremendous amount of opportunity for new economies to be created, for companies to thrive, and for millions of workers around the world to find new ways of making an income for themselves and their families. No new and disruptive thing is ever entirely good, but I believe that, in the long term, the gig economy will be better for everyone involved — from the customer to the gig worker to the companies themselves.
The question is how we decide to arrive at this better future. In the past, change has come through legislation, such as the Factory Acts of the Industrial Revolution in the 1800s and the New York City taxi medallion system in the 1930s. We see similar legislative progress today, albeit at a pace that is probably too slow to make a meaningful difference. I believe the creators of gig economy platforms have a decision to make that can become a differentiator in how they grow their businesses over the next 10 years: How can they use their position of power to become a force for good? Rather than relying on legislation to curb and cap these industries, why can’t they lead the way with changes that benefit society?
Here is my challenge to the gig economy platforms: Which company is going to be the first to ensure the best possible deal for its workers?
Gig economy platforms are technology giants employing some of the world’s smartest people. They have global reach and vast, deep data sets describing the world’s lifestyle habits. Given that consumers are happy with the services provided, how can companies begin to turn their efforts toward creating the best possible experience for their workers?
Within the past year, major gig economy platforms, such as Deliveroo, have implemented insurance for their riders. Other platforms are following suit. But I believe there are more fundamental changes that could help workers thrive and thus attract customers to the services that have worker well-being in mind.
Allowing workers to identify as full-time and reliant on their income versus being part-time and earning a supplement could bias gig distribution in favor of those who need the money while still supporting the needs of both groups of workers. Additionally, the geographical data available within the system could prevent bicycle couriers from having to ride punishing uphill delivery routes or carry challenging and dangerous loads. Instead of fueling a subprime auto loan market, ride-hailing companies could offer better incentives to full-time workers to fund purchasing their own car with competitive loans, or perhaps partner with existing car rental networks to allow people to drive without needing to use their own vehicle.
In other industries, consumers are beginning to make more considered choices about where they spend their money. In the clothing industry, higher prices typically ensure that materials are ethically sourced and that workers in the supply chain are compensated fairly. The same is true for groceries: Higher-priced organic vegetables ensure that both the environment and the farmer get a good deal.
Here is my challenge to the gig economy platforms: Which company is going to be the first to ensure the best possible deal for its workers? Why should we wait for legislation to make things better? We as technologists should be trying to address these societal problems ourselves. I’d pay more per ride to ensure that I was properly supporting drivers who are reliant on the income. I’d wait longer for my meal to ensure that an appropriately suitable rider and a calm route are chosen. We’ve seen which companies have succeeded at being the biggest. Now it’s time to see which will succeed at being the best.