The same old scam, dressed up with a smartphone

At first blush, a ruling by the California Labor Commission that an Uber driver is an Uber employee, rather than an independent contractor, seems significant. The Slate story emphasizes, via a correction, that the ruling applies to only one driver,[1] but for that nuance to be significant, this particular driver would have to be shown to substantially different from other Uber drivers. So yes, this is likely an important ruling that I hope will ultimately affect the taxi business as well.

It is also more than a bit heartwarming to see in mainstream media a recognition that “[w]hen drivers are treated as contractors, they carry the bulk of the company’s operating costs.”[2] Setting aside the legalities, this is the real problem with much of the transportation business. No one drives cab or for these so-called ride-sharing services because they’re rich. “People are attracted to on-demand gigs because more solid full-time work is still hard to come by in a U.S. economy that has rebounded for everyone but average workers.”[3] But they absorb relatively high operating costs and most of the business risk.

To become ubiquitous, these [ride-sharing] 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.”[4]

Cab companies are only concerned about how many cabs they can lease out for, typically, fixed ten-hour shifts, and have little or no interest in how much business the drivers will have during those shifts. The lease arrangement creates a legal circumstance where the driver can be said to be supplying her or his own equipment, meeting an important criteria for independent contractor status. Moreover, the driver owes the lease fee, usually called a “gate,” regardless of how much money he or she earns.

“Uber drivers are required to pay out of pocket for everything from gas to insurance to routine car cleanings and maintenance.”[5] Cab companies include maintenance and insurance with the lease fee. But common to both cab companies and these so-called ride sharing services is that “[j]ust as importantly, drivers who are contractors, and not employees, also aren’t required to get benefits and other labor protections that employees are traditionally awarded.”[6]

Companies don’t just not care about their drivers’ true earnings. They misrepresent them. Slate’s Alison Griswold, who also wrote one of the stories I’ve been quoting from above, went searching for Uber’s vaunted median (which would mean that there must be a driver making a lot more) $90,000 a year driver in New York City. She couldn’t find one.[7]

[Lane Kasselman, Uber’s head of communications for the Americas] emphasizes that drivers on Uber’s app earn an average of $25.79 per hour in New York after Uber’s commission. . . . Kasselman refers me to the late-May [Uber] blog post, the one claiming that the median UberX driver in New York City was making an annual income of $90,766. That’s a lot of money. Even in New York City, those earnings alone would put you safely in the top 30 percent of households. I suggest to Kasselman that this figure seems unlikely to still be true, especially since the fare cuts kicked in. He reiterates that lower fares have increased ride volume so that drivers are now making more than ever. That said, even at $25.79, $90,000 is a tough mark to hit. You’d need to work 70 hours a week for 50 weeks a year.[8]

That’s a move similar to what I’ve seen in the taxi business. I remember once being told, “we don’t take a cut out of a trip to Santa Cruz,” as if such rides were common even from San Jose, but the company manager who said this to me was in Marin County, much, much, much farther away. And what’s particularly striking was that the the manager in question had the balls to say this to my face. In all the years I drove cab, the highest fare I ever charged was something over $300—I picked up Wavy Gravy in Mill Valley and drove him on a round trip with, as I recall, well over two hours wait time to the Redwood City Kaiser hospital to see Ram Dass, who had suffered a stroke. (I couldn’t tell at the time, except that I heard my passenger identify himself as ‘Wavy Gravy’ going to see ‘Ram Dass’ on a cell phone call, and then saw in the newspaper a couple days later that Ram Dass had indeed suffered a stroke.) Such fares are exceedingly rare, but cab company owners claim drivers get them all the time.

When the business arrangements that govern both ride-sharing service and taxi drivers shift risk and expense from company owners to drivers, they shift those risks and expenses to the very people who can afford them the least.

Boosters say that the on-demand economy is an innovative, hyperefficient way to deploy the workforce, while detractors say it’s more evidence that the tech industry is missing an empathy chip. Wherever you land in that analysis, there’s no question that the on-demand economy is an offshoot and a beneficiary of the fact that many U.S. workers are struggling.[9]

Uber and other ride-sharing services may be new, but they’re really running the same scam that taxi drivers have faced for decades.

  1. [1]Alison Griswold, “A California Labor Ruling Just Said An Uber Driver Is an Employee. That’s Uber’s Worst Nightmare,” Slate, June 17, 2015, http://www.slate.com/blogs/moneybox/2015/06/17/uber_drivers_ruled_employees_by_california_labor_commission.html
  2. [2]Alison Griswold, “A California Labor Ruling Just Said An Uber Driver Is an Employee. That’s Uber’s Worst Nightmare,” Slate, June 17, 2015, http://www.slate.com/blogs/moneybox/2015/06/17/uber_drivers_ruled_employees_by_california_labor_commission.html
  3. [3]Katie Benner, “A Secret of Uber’s Success: Struggling Workers,” Bloomberg, October 2, 2014, http://www.bloombergview.com/articles/2014-10-02/a-secret-of-uber-s-success-struggling-workers
  4. [4]Katie Benner, “A Secret of Uber’s Success: Struggling Workers,” Bloomberg, October 2, 2014, http://www.bloombergview.com/articles/2014-10-02/a-secret-of-uber-s-success-struggling-workers
  5. [5]Alison Griswold, “A California Labor Ruling Just Said An Uber Driver Is an Employee. That’s Uber’s Worst Nightmare,” Slate, June 17, 2015, http://www.slate.com/blogs/moneybox/2015/06/17/uber_drivers_ruled_employees_by_california_labor_commission.html
  6. [6]Alison Griswold, “A California Labor Ruling Just Said An Uber Driver Is an Employee. That’s Uber’s Worst Nightmare,” Slate, June 17, 2015, http://www.slate.com/blogs/moneybox/2015/06/17/uber_drivers_ruled_employees_by_california_labor_commission.html
  7. [7]Alison Griswold, “In Search of Uber’s Unicorn,” Slate, October 27, 2014, http://www.slate.com/articles/business/moneybox/2014/10/uber_driver_salary_the_ride_sharing_company_says_its_drivers_make_great.single.html
  8. [8]Alison Griswold, “In Search of Uber’s Unicorn,” Slate, October 27, 2014, http://www.slate.com/articles/business/moneybox/2014/10/uber_driver_salary_the_ride_sharing_company_says_its_drivers_make_great.single.html
  9. [9]Katie Benner, “A Secret of Uber’s Success: Struggling Workers,” Bloomberg, October 2, 2014, http://www.bloombergview.com/articles/2014-10-02/a-secret-of-uber-s-success-struggling-workers

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