Gig Economy

What’s Wrong With The Attack On Gig Economy Pay

Drivers can’t make ends meet.

Given the median income of roughly $25,000 a year and the number of hours required behind the wheel to earn that, drivers’ wages fall well below the federal hourly minimum wage.

As independent contractors, drivers also have no benefits. After taking into account expenses like gas and insurance, there’s barely enough left over to meet their daily living expenses.

Drivers increasingly feel trapped, working for a company that keeps upping the percentage of their wages in exchange for picking up passengers and driving them from point A to point B. Adding insult to injury, the competition to get passengers into their vehicles is intensifying, making it even more of a challenge for drivers to keep even a modest income level at a steady state.

So went the narrative, which formed the central thesis of a study about the regulated taxi industry in the City of San Francisco, which was presented to then-mayor of San Francisco and now Governor of California Gavin Newsom.

In 2006.

Yet here we are 13 years later, with a taxi industry that remains structurally identical to what it was in 2006 – and even 50 years before that – with drivers who are truly struggling to make ends meet. And that’s before we even get to the medallion fiascos that have burdened some of them with onerous debt that they may never be able to repay.

And yet here we are with lawmakers apoplectic over Uber and Lyft creating platforms and business models that have revolutionized transportation all over the world – and created job opportunities with flexible work schedules for many.

It’s nuts.

Turning a Blind Eye

In 2006, four years before anyone ever Uber-ed their way across town, there were rising public and private sector concerns about the conditions facing taxi drivers in the regulated, monopolistic industry – particularly in big cities like San Francisco and New York. Then and now, the dynamics of the taxi industry are linked to the medallion system – the permits that give taxis a license to drive and pick up passengers on the street.

Taxi medallions have always been rationed, which drove up their prices in the good old days of the taxi monopoly. Drivers waited for 10 or 15 years to buy one, scraping together the $250,000 or even $1 million to buy their piece of the American dream, seeing it as a valuable asset that would feather their retirement nests and provide for their families in the meantime.

Drivers who couldn’t afford to buy a medallion of their own drove for taxi operators as independent contractors, with the companies dictating the terms of their deal. It was not uncommon for drivers to have to fork over as much as a third of their wages to the taxi company, as well as payment to lease the taxi and an additional 10 percent for any fares put on a credit card.

When taxis were the only way to get around town, this way of doing business was the only way to play that game.

Medallions were also the big prize that lured many taxi drivers into doing bad deals at about the same time competition from ride-hailing platforms was starting to emerge.

Many medallion owners, particularly in New York and California, found themselves at the mercy of unscrupulous lenders when financing their medallion purchases. When California decided to sell medallions in 2010 (they were previously assigned for free to those on a decade-plus waiting list), lenders offered interest-only loans to drivers who didn’t understand what they were signing. Those loans – and the competitive dynamics of the industry – have turned the economics of their deals, and their businesses, upside-down. Many medallion owners have been forced into bankruptcy, while still others, sadly, felt so overwhelmed that they took their own lives.

One San Franciscan cabbie who has driven a taxi for 20 years told SF Weekly in June of 2019 that he needs to earn $4,000 a month just to make the monthly payment on a $250,000 loan for a medallion that is worth far less today. How much less is unknown – there hasn’t been a medallion sold in San Francisco since 2016. And he has to make those ends meet in a city where the average number of trips for a taxi driver is down by about 65 percent.

A few months back, SF Weekly published an article whose title posed this rhetorical question: “Who’s Killing the Taxi Industry?”

To me, the answer seems quite clear.

It’s not Uber, and it’s not Lyft.

Unlike today’s ride-hailing platforms like Uber and Lyft, whose drivers are independent contractors and who use those platforms to earn money as a side gig when time permits, taxi drivers are self-employed small business owners driving taxis full-time. They are drivers who got behind the wheel and bought medallions — or worked for those who did — hoping to make enough money to raise their families and enjoy a middle-class lifestyle.

What’s really killing the taxi industry is the taxi industry itself, along with regulators and lawmakers who looked the other way and tolerated a regulatory nightmare where taxi drivers got a raw deal and passengers were driven around in unreliable and often disgustingly dirty vehicles. Whatever you think about the “bad bro” culture and shenanigans at Uber – and that was pretty bad – it’s nothing compared to what was going on in the taxi industry in big cities like New York, where lawmakers simply looked the other way.

So now, instead of focusing on making life better for their own drivers as well as the passengers in the back of those cabs, the industry – with lawmakers in tow – seems determined to hobble those who are using technology and better business models to make the transportation experience better and more efficient.

The Rise of the Gig Economy

Uber, when it launched in 2009, popularized a new label for the drivers it recruited for the supply side of its platform: gig workers. At the time, these gig workers were mainly black car drivers who could monetize their idle capacity via an app that connected them with would-be passengers who had places to go.

Years later, the platform expanded to provide different levels of service as long as drivers and their vehicles meet a specific Uber-set standard. Uber Black has upended the black car industry, while Uber X has, over time, largely displaced the taxicab.

The ride-hailing platform that Uber created – and that others like Lyft have since replicated – is a profound innovation that has revolutionized mobility for passengers and expanded income opportunities for drivers.

Passengers were liberated from the inconsistency and uncertainty of getting a taxi at the precise time one was needed.

Take New York.

For New Yorkers or anyone visiting the Big Apple, it almost seemed too good to be true at first. No longer did anyone have to watch dozens of yellow cabs zoom by with their off-duty light on at 4 p.m. on any given weekday in the mad scramble to catch a 6 p.m. flight home. Uber and Lyft solved for that friction, and the invisible payments experience that came along for the ride was just the cherry on top of that delightful passenger experience.

Ride-hailing platforms have also been a boon for employment in the transportation sector.

A Bureau of Labor study reported last year that the number of people who claim “taxi driver” as a full- or part-time profession has tripled over the last decade. This isn’t because more people are driving taxis in the traditional sense of the occupation, but because they are providing taxi services as part of a ride-hailing platform.

Many of these drivers use those ride-hailing platforms as side hustles.

A study done by Uber in 2016 reports that more than half of their drivers have full-time jobs, and another 14 percent have at least one other part-time job.

That’s consistent with the findings of the quarterly studies PYMNTS has done of 6,000 gig economy workers over the last several years. A small but growing fraction of consumers have reported that gig work is their full-time gig, so to speak. Those are mostly the workers we used to call “self-employed” or “freelancers” – the long tail of web designers, software engineers, tutors, copy editors, nurses and other caregivers, to name a few – who can now tap into gig economy platforms to string together enough work to equal a full-time job.

But the vast majority of gig workers do it as a way to pay bills or save for big purchases like a family vacation, down payment on a house, college tuition for their kids or the discretionary extras that their full-time employment doesn’t necessarily provide.

For workers living paycheck to paycheck who lack adequate savings, the ability to tap into a platform and, in the case of Uber or Lyft, get in the car and earn $50 or $100 to pay a bill or cover an unexpected expense is a lifeline they never had before.

Only a small fraction of those workers, based on our studies, want benefits – at least in the classic sense of the word. Given the rhetoric around gig platforms today, the finding came as a bit of a surprise to us at first, but makes sense upon further reflection.

Gig workers want benefits if they can’t access them from another source. Since the vast majority of gig workers have other employment that presumably provides what might be considered more traditional benefits, like healthcare or 401(k) plans, they don’t want or need those benefits from the platforms where they find their side hustles.

Gig workers, however, do want some help. They want tools to help track their expenses and manage tax payments for the work they perform. They want the option to be paid instantly as wages are earned. They want ready access to leads for the type of services they have the skills to provide or the equipment to perform. Platforms, recognizing this, have stepped in and stepped up to provide those services to remain competitive.

Perhaps the most important benefit is the flexibility to find work on demand. Gig platforms – and not just Uber and Lyft – make it easy for workers with a skill to find someone willing to pay for their services. The value of Uber and Lyft, and other gig platforms, lies in the ability of drivers to tap in and out of that experience at their convenience.

It’s a luxury that taxi drivers – or anyone trying to find part-time work – never had. And it’s a luxury that, if lawmakers keep pushing, gig workers using Uber, Lyft or any of the gig platforms will soon find they won’t have, either.

Follow the Money

Businesses have a responsibility to their shareholders – and their workforce – to make profits. Profits are how we measure the health of a business, and investors like putting money into companies that sell more than they spend to operate – or have a clear path to getting there.

Workers like the security of working for those kinds of businesses, too.

The pressures that lawmakers are putting on gig economy platforms like Uber and Lyft to operate more like a traditional business and treat workers more like traditional employees will only hurt those who need the platforms the most – the drivers who use them regularly to supplement their full-time or part-time incomes.

As profit-maximizing businesses, Uber and Lyft will figure out ways to protect the other side of their platform – the passenger – and manage the downside, a necessity to return value to their shareholders. They’ll do that by, among other things, limiting the times drivers can sign on and off, as well as their areas of service. Drivers who used to be able to punch in and out will no longer have that option.

Uber and Lyft will use years of data to manage the supply to meet passenger demand. That will make driving for Uber or Lyft just like any other part time job – tied to a schedule that drivers either like or they don’t like at times that are independent of how much money they might want to make and totally dependent on how long these platforms say they can spend behind the wheel and on the road. All to get benefits that the vast majority say they don’t want or need.

These platforms will revert to new models, like Uber is doing in Latin America with its recent acquisition of Cornershop, a delivery business that uses store employees to make deliveries. Say hello to new business models that change the driver/delivery/business dynamic – and bye-bye to the opportunities for entrepreneurs to buy a car and build their own on demand mobility services business.

Watch this space and this trend as Uber Eats and the ghost kitchens they are building to compete with U.S. restaurants gain traction.

Longer-term, of course, the investments that Uber, Lyft and others will make in autonomous vehicles will eliminate the need to have humans behind the wheel at all.

None of which helps the gig workers, most of whom really like the Uber experience and the flexibility it provides. Or the taxi drivers whose industry is too busy tearing everyone else down to help build them and their futures up.

The real irony though, and the hypocrisy of politicians who have piled on, is that the industry that Uber and Lyft is disrupting was based on independent contractors who drove a taxi full time and who didn’t have much in the way of benefits or fair pay. So, I wonder if the real debate here is truly about treating workers as employees versus independent contractors, providing a living wage and benefits vs. piece rates, as some are making it seem.

Or whether it’s simply part of the ongoing wave of bashing that is demonizing tech for providing services that disrupt the status quo and that consumers value and use.

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