Throwing Away the Real Power of the Gig Economy

California just passed legislation that will remake the “gig” economy. Uber is the most direct target of the new regulations which will force the company to make drivers full-time employees, increasing pay and benefits (they are contractors today). The goal is a noble one: to create more stability and living wage opportunities for workers.

I do not think this is the way to do it. And, my prediction is that once the law is in effect Uber drivers will agree.

There is little doubt that making a good living driving Uber is virtually impossible today—especially in a state like California where living costs are out of control. Despite the fact that hundreds of thousands have signed up to drive, many claim this is an example of big companies exploiting the little guy. But in the same state, starting software engineers are making six figures. These employees, like Uber drivers, have no union and are also negotiating employment terms with the biggest of the big—Google, Apple, and Facebook. But no one would claim these engineers are being exploited.

What’s the difference? Skills.

The simple fact is the job of driving a car is a low skill job. And with digital maps and increasing automation, it has required even less skill over time. The market pays for in-demand skills. There is literally no way to make driving an Uber a high skill, high paying job. There is no promotion path and little way to get more productivity from your time. Not even tenure and experience adds to your output. As the labor market tightens the wages could increase slightly, but given the low skill nature of the job, driver supply will come back quickly as the economy cools.

The only way to make Uber driving a great job is to regulate it as such—exactly the intent of the law. But, like all regulations, there are real trade-offs. Increased labor costs mean higher ride costs. As rideshare prices increase, demand will surely decrease and fewer drivers will be required to meet customer demand. Higher prices also hurt the most vulnerable who face increased transportation costs. The endgame could get us right back to the taxi system.

But, most importantly, employee status will ensure less flexibility for drivers. They will now need to commit to work for one company (80% of current rideshare drivers work for multiple companies). Drivers will also need to make greater commitments on hours, turning the job into a shift model (anyone can sign on and off as a driver at any time today).

And that’s the rub. The gig economy is also the “side hustle” economy. These jobs fill gaps—usually in pursuit of something bigger. For most people, it is not intended as a career but a step on the job path or an option to help temporarily. Going to school and need to pay rent? In between jobs? Changing your career and need to subsidize income for a while? Helping a spouse during a hard time? Uber fills these roles in a way no job ever has. What other job in history has allowed you to get hired instantly with no training and allows you to work as much or as little as you want 24-7?

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We should view these jobs as enablers to helping people on their path to building job skills (the only real path to meaningful income and wealth creation). Clearly most drivers use it this way already. Only 20-25% get “all or almost all of their income” from driving. But, let’s not pretend that there is a big career here for these folks. Let’s work on real policies to create better long term jobs for them. Why not subsidize more training so they can build a career path? How about a tax credit for taking a second job outside of Uber or Lyft—or earning a degree or trade certification? And if you want to get Uber to pay more, pressure them to build training programs and outplacement services for their drivers. On point, just today, Uber announced job boards for work outside their driving pool.

The California law is looking to do one thing—make it so full-time Uber drivers can make a good, stable wage. While noble, it helps the few and hurts the many. The unintended consequence will make skill development a lot harder for this majority who use Uber driving as a stepping stone and gap filler. In a recent poll, 79% of Uber drivers said they want to remain contractors. They love the total freedom and flexibility. Of course, they want more pay—but they can’t get it without major trade-offs. While activists cheered a big victory for workers when the bill passed, expect a revolt from drivers when the law becomes a reality.

We have to start dealing with the root cause of wage stagnation in our economy. Building more paths to skill development is the key. In no way am I suggesting we will turn every person into a coder or entrepreneur. But, jobs in retail, construction, manufacturing, healthcare and many more industries all present real training and a path of upward mobility. Driving an Uber does not. How do we design policies that encourage getting on these paths? How do we make it easier to get access to training, education, and jobs? How do we re-orient our education system to the skills in demand? These are the hard questions we have to answer. Policies that feel good but undermine the need to solve the real issues will only make things worse.

Good Reads - October 2019

  1. I love Arnold Kling’s short book The Three Languages of Politics. Russ Roberts does a nice review and adds his own 3 blindspots for the major political traditions—liberal, conservative and libertarian.

  2. Nina Teicholz breaks down the new report on beef and health…and the issues with most food studies.

  3. Women are crushing men in college achievement. Can’t help but think the long term impacts of this will be profound.

  4. More ethanol, more corn, more lunacy. A once good intention of the environmental movement has turned out to be an entrenched ill for the sake of politics.

  5. Where are we located in the Milky Way? Always shocking when reminded: our galaxy is one of hundreds of billions…and alone over 100,000 light years wide.

  6. Great overview of Peter Thiel, Rene Girard and Mimetic Theory. “Imitation draws people together. Then, it pulls them apart like an ocean riptide.”