Institute For The Future

The Funky Labor Economics of Uber and Lyft

We as a society are used to the dichotomy of employed vs. unemployed. Sure, some jobs are part-time, some are full; some offer health insurance or other benefits, but in the end, a job is a job.  As long as it’s above table, being employed offered certain legal protections, such as minimum wage.  But there are so many ways to make money these days that aren’t even jobs. If you’re a Lyft driver or Uber driver, you don’t work for the company; you are an independent contractor.  This is the crux of things- the ‘contractor’ status comes with all the benefits of being your own boss, with none of the legal protections or benefits of conventional employment.  

And yet calling them ‘independent contractors’ isn’t accurate. Uber and Lyft drivers’ wages are set by a central authority (the company), and the company can change these wages instantly, without consulting or getting approval from drivers. Imagine being a house painter, but the amount you can charge for painting a house is set by the company that makes the paint. And then, to boot, on Tuesday, the company decides that on Wednesday the cost you can charge for painting a house will go down by 20%.  

Funky Economics

That’s the funky economics of sharing economy drivers. Of course, there are no perfect markets; the broader economic conditions of scarce work opportunities and growing economic inequality favor work platforms which offer fewer benefits but quick access to money.  These same big-picture economic factors are leading to work dynamics disfavorable to labor even in conventional temp and workforce development employment.   

Although drivers can operate on multiple platforms, Lyft and Uber are primarily competing with each-other, for riders. Their price reduction strategy means an underbidding process down to the lowest driver wage possible. In this market, drivers are literally a commodity. There is a supply and demand of drivers, and why pay a driver $25 an hour when you can afford to pay them $15 an hour? I’ve spoken with founders of similar startups who very knowingly operate their sharing economy platforms as a labor market, and very openly speak about how more workers on these platforms will inevitably bring down worker wages.

Humachines, and Labor in the Digital Age

These workers are what I’ve come to call “Humachines”. Humachines are the humans left working on the assembly line next to robots, because engineers are still building the robots to replace them. The whole process of ordering a vehicle to your location, as the Uber app does, is an intermediary stage before replacing human drivers with self-driving cars, as Uber CEO Travis Kalanik has stated. More to the point, you have no human boss. Past IFTF work on the future of coordination highlights the efficiencies of an algorithmically coordinated work situation, but it also has its downsides. There's no career ladder, no promotions, no upward mobility. Some startups in the space, like Gigwalk, do have tools to algorithmically evaluate workers to direct them to higher paying, more challenging tasks. Gigwalks' algorithmic promotions tool, called Moneyball, might be an indicator of how workers in humachine tasks will find sustainable work in the future.   

Of course, no company wants to call their contractors ‘Humachines’, but the company-contractor relationship is apparent in how it navigates labor disputes. There have been some Uber driver strikes, and there is now a union for app-based drivers.  There are pending class-action lawsuits alleging that drivers deserve sick leave and other benefits.  This is likely just the labor market finding an equilibrium. The explosive growth of AirBnB took advantage of non-existing zoning legislation (eg, loopholes), inevitably leading to lawsuits like the City of New York suing for owed hotel fees.  In startup culture, the phrase is "ask for forgiveness, not permission." No doubt some of the more questionable labor practices in ridesharing will be addressed as regulation catches up.

In such a rapidly changing technology landscape, one could argue that this distance between sharing economy startup HQs and their workforce is necessary for the company to remain nimble, competitive, and focused on the end consumer. The greater distance between the company and its contractors enables sharing economy platforms to be agile, without needing to get approval from the humans who use it for work. TaskRabbit’s interface and focus shift led to many tasker’s income streams immediately drying up.  It was, however, part of a long-term strategy for TaskRabbit to make it easier for end consumers to find help. 

For better or worse, workers in this context must rely on finding their own benefits and support structure. From the burgeoning freelancers union or the California App-based Drivers Association (CADA), a union attempting to organize ridesharing drivers.  There are also pending lawsuits exploring accident liability against Uber.  The Affordable Care Act (Obamacare) has been huge for Uber.  

The broader economic landscape of job scarcity hugely benefits ridesharing companies. But that alone does not mean that these companies are bad; it just means they have much more leverage in the company-employee dynamic than has historically been true. Prime example: Lyft redoing its payment screen to make tips more accessible was a design decision that made it easier for riders to tip drivers. Imagine a conventional cab company where a design team could turn tipping on or off.

In the end, these funky labor dynamics- of far greater worker freedom at the cost of any say in how these platforms operate- leave a lot in the air. It remains to be seen how regulation will catch up to Uber and Lyft, TaskRabbit, Gigwalk, and the whole field. I think nobody wants a future in which these kinds of jobs represent the majority of opportunities available to youth. But as our Youth Employment Report explains, unless major steps are taken, there will be fewer and fewer decent jobs for young people.  

To read more, check our our recent post on the impact of automation on the job market.