Updated: Sep 11, 2019
"Late Tuesday night, as many California residents slept in their beds, the state legislature passed a bill that is expected to impact hundreds of thousands of independent contractors across the state."
"For months now, the state assembly has been debating controversial legislation seeking to redefine how companies classify independent contractors. Directed at the gig economy, which is comprised of mainly contractors, Assembly Bill 5 (AB5) proposed changing the status of workers within the state from freelancers to actual employees—completely changing the model of the burgeoning sector."
In the last few months, ride share drivers around the country have been striking in an effort to get minimum wages and the ability to unionize. Uber and Lyft both use the growing labor model characterized by a use of Independent Contractors, rather than traditional employees. As someone who has 5 years of Uber driving experience, I thought it would be nice to tackle some of the arguments laid out by the disgruntled workers.
Many strong proponents for the booming "gig economy" argue that the independent contractor classification is the basis for the rise of ride sharing. I would be in complete agreement with that sentiment. At this point in time, it's still very easy to become a driver for Uber or Lyft. A simple application followed by a criminal background check, and you can be on the road making money within a week. Drivers are not required to work any amount of hours, or any specific number of days. They are free to login and log out as they choose. Work zero hours this week, or work 100 hours this week, it's totally up to you.
It's the completely free nature of this "job" that has caused hundreds of thousands to flock to the platforms to earn extra money, sometimes making it their full-time gig. It's likewise the independent contractor classification that has allowed these companies to undercut their competition, the taxis. Except in cities with strong local governments, partly bought and paid for by taxi unions, taxis have become a thing of the past.
Why have taxis faded away?
Perhaps the best part of the model created by Uber and Lyft is the use of something created by a little company called Amazon.com in 1994: The ability to leave a rating and review of your driver, and for your driver to leave a rating and review for you.. It might not seem like much, but it's everything. Both companies let it be known to their drivers that dropping below a specified rating will result in an inability to receive rides. Likewise, if a customers rating is low, they are not banned, but they are less likely to get rides as easily as others. That's not a rule set by the companies by the way. That's just the free market of drivers choosing to deny rides to people with a less than stellar rating.
So what do all of these ratings do to help the business model? That question would be better answered by looking at what happens in the absence of such a system. That's a taxi. Dirty, rude, expensive, and unsafe. The rating system keeps people honest. It keeps people in the right mindset for interaction with one another. It was instrumental in the success of Amazon, and it has been instrumental in the success of Uber.
The other obvious reason for the demise of the taxi industry is price. Nine times out of ten, a ride with Uber is going to be cheaper. On top of that, you have the price before taking the ride. You aren't surprised by a massive bill at the end of a long haul.
How are the ride share companies able to stay so cheap? By using the independent contractor classification. They have no unions, no minimum wage, and nearly no regulations from government. These companies are an amazing example of the free market at work. To be honest, I've driven for both major companies quite extensively. I've found that in Nashville, I was able to make $22 an hour on average throughout the week. When taking into account the fact that you are free to come and go as you please, unlike almost any other form of employment on the market, it's well worth the money.
What's wrong with Independent Contractors?
When discussing whether or not Uber drivers should be classified as independent contractors, opponents often cite the rules imposed on drivers to stay on the platform- keeping a high rating being the biggest caveat. In addition, opponents argue that the drivers should be allowed to collectively bargain for better pricing. I see it differently.
Let's look at a contractor in the construction industry, something less likely to draw such harsh criticism. If you are looking for someone to do drywall in your house, who has the upper hand? Most would say that it's the home owner. A home owner can say, "I'm needing this done, and I'm willing to pay $20 per drywall board." The worker can accept that price, or seek other jobs at a higher price if $20 per board does not meet their needs.
Now pretend you’re booking contractors for a homeowner, but you are not doing the work. You've bid the job and presented the pricing to the homeowner, and now it's on you to find the workers. You can put the word out via advertising that you are willing to pay $20 per board, and by default anyone that responds to your ad is accepting the price previously determined. If a drywall company comes to your house and says they want $25 per board, but you are offering $20, are you required by law to give them the amount they are requesting? Of course not.
What an Uber driver does is really no different from a contractor on a job site
A customer has requested that work be done, and a company has stated that they will take the job. The company then puts the word out that they are paying $X for a service. The workers that respond to that word (accepting a trip) are by default accepting the terms put forth by the company that booked the job. If that worker wants to hold out for a better paying job, they have the complete freedom to do so, but that does not guarantee that no one will swoop in to take the work at the original price. That's just the free market at work. Notice in this scenario, the worker freely took the job because they needed the money, and the customer was provided with the service at the lowest price.
Uber is providing a service by finding the job, and facilitating the transaction- something that would be extraordinarily hard for any random individual to do. Can you imagine the ads you'd have to run to get 15-20 random strangers calling your phone for a ride on a daily basis? At the end of the day, everyone that drives for Uber is welcome to book their own rides with their own websites or business cards. If they want to find the person needing the ride, and haggle with them for the best price they are all free to do so. Right now, they are taking jobs that have been previously negotiated.
What about when you are taken off of the app against your will?
One of the best things ride share companies do is the removal of workers that have negative feedback, or major complaints from customers. I personally don't see the issue regarding this practice, or what makes it different from any other independent contractor in any industry.
If you are the drywaller in my example used above, you still have to keep the quality of your service high to maintain your ability to receive future jobs. If a general contractor hears that you are doing low quality work, they have every right to stop using you for jobs. That may seem like common sense, but since it isn't, we'll need to consider what would happen in the opposite scenario. If you've received a complaint from a previous customer, and the general contractor does not have the option to cease using your company, what would happen to the future customers? What is the incentive structure set up by giving the drywall company the "right" to still be considered for job, even if they've received a major complaint?
You have the right to treat your ride share driving as a business, and you should. What you do not have the right to do is say you are a business, and then completely depend on someone else to book all your work- speaking ill of them for not giving you everything you demand in the process.
If the government continues to up it's involvement in the ride share market, pretty soon we'll just have another cab company. If you think Uber is evil, get a cab. If you don't want a cab because Uber is obviously better, maybe it's about time you ask "why?"