Uber: Great For Riders, Not Drivers

Andrew Sullivan —  Oct 3 2014 @ 6:26pm

Justin Wolfers calls attention to a survey of leading economists, all of whom agree that ride-share services are a boon to consumers:

When asked whether “letting car services such as Uber or Lyft compete with taxi firms on equal footing regarding genuine safety and insurance requirements, but without restrictions on prices or routes, raises consumer welfare,” the responses varied only in the intensity with which they agreed. Of the 40 economists who responded, 60 percent “strongly agree,” 40 percent “agree,” and none chose “uncertain,” “disagree” and “strongly disagree.” On this issue at least, it’s time to retire the caricature of the two-handed economist.

But as Dylan Matthews notes, not all of them are gung-ho:

Chicago’s Michael Greenstone noted that “part of the gain in consumer welfare … comes from undermining property rights of taxi medallion owners.”

Chicago’s Richard Thaler argued that Uber “needs to be careful about surge pricing in emergencies” as “people care about fairness as much as efficiency.” Larry Samuelson at Yale wrote that Uber and Lyft “will not be a Pareto improvement for consumers” — that is, they will not benefit or leave the same all consumers; some will be left worse off. Samuelson’s reply didn’t get into why he thinks this will be the case.

It’s also worth remembering that the phrasing of the question elides the issue of whether Uber and Lyft really are on “equal footing regarding genuine safety and insurance requirements” with taxi companies. Taxi firms would argue that car-sharing services are, in practice, subject to laxer requirements in those areas.

Katie Benner also observes that the sharing economy has a big downside in terms of wages and labor protections:

Startups that connect service workers and customers have raised lots of venture capital based on the idea that low prices will democratize and popularize services that were once reserved for the rich. The viability of these enterprises is tied to scale. Once they are popular and ubiquitous enough, the argument goes, they’ll transform massive swaths of the service economy including transportation, retail and the workforce itself.

To become ubiquitous, these companies need lots and lots of cheap contract laborers to serve customers who want them to be available at the push of a smartphone button. But there’s a big vulnerability in all of these business models: They wouldn’t work if they had to offer full-time jobs with substantial benefits, and the reliance on contract workers to sustain this burgeoning market has become controversial. Kevin Roose recently noted in New York magazine that an emerging “1099 economy” explains how it’s “possible for a cash-flush tech start-up to have homeless workers.”

Avi Asher-Schapiro explores this problem in more depth:

From the very beginning, Uber attracted drivers with a bait-and-switch. Take the company’s launch in LA: In May 2013, Uber charged customers a fare of $2.75 per mile (with an additional 60¢ per minute under eleven mph). Drivers got to keep 80 percent of the fare. Working full time, drivers could make a living wage: between 15 and $20 an hour.

Drivers rushed to sign up, and thousands leased and bought cars just to work for Uber — especially immigrants and low-income people desperate for a well-paying job in a terrible economy. But over the last year, the company has faced stiff competition from its arch-rival, Lyft. To raise demand and push Lyft out of the LA market, Uber has cut UberX fares nearly in half: to $1.10 per mile, plus 21¢ a minute.

Uber drivers have no say in the pricing, yet they must carry their own insurance and foot the bill for gas and repairs — a cost of 56¢ per mile, according to IRS estimates. With Uber’s new pricing model, drivers are forced to work under razor-thin margins.