Some thoughts on Uber, Shipt, the Gig Economy, and the Employee vs. Contractor debate

Last updated on: December 17, 2019 at 8:08 am by Jane the Actuary

Some thoughts on Uber, Shipt, the Gig Economy, and the Employee vs. Contractor debate 2019-12-17T08:08:46-06:00 Jane the Actuary

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Yesterday, I wrote at Forbes about a bill that aims to force “gig”-type companies to pay Social Security taxes on the workers’ total compensation — for providing taxi services, handyman services, grocery shopping, etc. I observed that it was flawed by its inability to differentiate between gross and net income. But in looking at some of the details, I came across an article saying that Uber was making some changes to its structure in order to bolster its claim that it is not subject to the sweeping California AB 5, which classifies workers as “employees” in a wide range of cases.

Here’s Vox, back in September:

But Uber and Lyft say they’re not worried. In fact, both ride-hailing companies say the new law doesn’t force them to make the costly change of turning their drivers into employees. That’s because to do so they would have to consider drivers as part of their “usual course” of business. Uber has said its drivers aren’t because the app is really a tech platform for “digital marketplaces” and not primarily an employer of drivers. . . .

Uber declined to expand on its legal reasoning to Recode, but it’s made this argument before. It goes something like this: Uber’s core business is providing technology that connects people to each other. Drivers are free to accept or decline rides as they please, so they are not employees of Uber but rather customers of its marketplace, just like the people who take rides.

And City Lab reported just a couple days ago that

Historically, ride-hail drivers have been able to see just the origin—not the destination—of a requested trip before deciding whether to accept it. Only when a trip begins will a driver know if a passenger wants to travel one mile or ten (longer trips are generally more lucrative), or whether the journey will end in a wealthy neighborhood or a low-income one. Although drivers have grumbled about their inability to know destinations ex ante, the status quo helped insulate ride-hailing companies from the accusations of discrimination that have dogged the taxi industry for decades. Because requested destinations are hidden, it’s been hard for a ride-hail driver to avoid servicing a particular neighborhood.

But Uber’s calculus shifted in September after California Governor Gavin Newsom signed the worker-rights bill AB5, which will make many gig workers and independent contractors eligible for benefits and force ride-hail companies to treat its drivers more like employees. Uber and Lyft vehemently oppose applying AB5 to their businesses, and they want to bolster their case as they challenge AB5 in courts and at the ballot box. (They’re also worried other states could follow California’s lead). But it’s been difficult for ride-hailing companies to claim that drivers are contractors making informed, independent workplace decisions when key information like passenger destination is being hidden from them.

Last week Uber changed its stance, announcing the changes in a blog post aimed at California drivers that referred obliquely to AB5: “With the passage of new laws, we’ve been carefully considering how we could further…enhance the flexibility and transparency of the Uber platform.” The company explained that California drivers will, for the first time, see a trip’s requested destination before they accept or decline it. What’s more, drivers can now decline as many requested trips as they like without losing access to rewards like discounted car repair—bonuses available through the Uber Pro program.

So I thought it would be worthwhile to add my two cents.

In the first place, I am not a fan of gig pseudo-employers underpaying workers by means of those workers failing to understand their true net income — getting excited at the cash money without recognizing that the expenses they pay mean their true income is much lower. (To the extent that they can take customers from taxi drivers because of investors willing to spend money on unprofitable companies seemingly without end, well, eh, I just hope that those aren’t pension funds doing the investing!)

But at the same time, I’ve thought that the concept of “surge pricing” made a lot of sense — getting more drivers driving when the demand is greater by means of higher rates. And for all the complaints that drivers make less in reality than on paper because of the periods of waiting for fares, well, in an ideal case, because the fares come in via an app, a driver who lives nearby can do chores around the house while waiting for a fare.

But at the same time, for Uber or others to claim they are a mere marketplace serving to connect drivers and riders — well, the City Lab article points out one way in this claim doesn’t hold water, if prior to this change, drivers must accept fares blindly. What’s more, “connecting drivers and riders” is more credible a claim if those drivers can build a book of business — handing a business card to a fare or scheduling recurring appointments, for example. (For many drivers and customers it wouldn’t matter – “just give me the next car” or “the next fare” is all that matters; but some would care.)

And it’s not just Uber. I’ve talked to someone who shops for Shipt. Her pay from the company isn’t spectacular, but where the real money comes from is from tips, and she gets those tips by building relationships with her customers. But those customers can’t select her to do their “shops” — the only workaround is for them to place their orders at predictable times, and for her to see that those orders have been placed, and accept the order.

So on the one hand, it seems clear to me that for companies such as this to credibly claim, “our business is connecting workers and their clients” they need to provide more transparency and make the whole process more useful to both types of users. In addition to features enabling drivers to build a book of business and customers to have a regular driver for appointments (or food- or grocery-deliverer) or instance, it also seems to me that adding functionality that enables drivers to track their expenses directly on the app, both for tax purposes and to understand their true net income would be useful to drivers, even if the company isn’t so happy to have this as visible.

But at the same time, yes, as City Lab point out, the moment this rider/driver matching becomes transparent, it enables discrimination. Drivers can refuse to take fares to neighborhoods they deem unsafe. Shoppers can refuse to deliver to those areas — and might well justify it out of concerns of safety, since they depend on tips that are earned by bringing the groceries inside and helping the customer.

And what about the other side of the coin? Would it be so bad if these companies were forced to treat the contractors as employees? They’d have to work out an hourly wage that’s the equivalent to the rates they’re paying out now, but inclusive of FICA, worker’s comp, and the like. Presumably they’d hiring 29-hour workers to avoid classification as full-time. Is it indeed the case that this would boost their payroll expenses because at present contractors are willing to accept pay that’s less than the minimum wage, when they have that choice? Like it or not, there are plenty of other ways in which people participate in the economy while earning less than minimum wage by means of being self-employed — how much do you think your typical etsy crafter makes?

But of course the other wrinkle is this: many cities and states are now mandating “predictability pay” — requiring that employers fix a schedule in advance and keep to it, rather than provide schedules at the last minute or sending workers home or calling them in unexpectedly. Could a company with scheduled employee-drivers work their way through surges and slow periods? Maybe — for dates that are predictable, they could schedule more of their workforce and for unexpectedly busy periods, predictability-pay laws do offer (I think) the ability to ask workers to come in voluntarily by offering them higher wages. But these ultimately come across as attempts to mimic the better-mousetrap of independent contractors setting their own schedule based on the pay on offer.

So those are my jumbled thoughts. What do you think – is gig work a problem we need to solve or an innovation making lives better?

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Gig Economy

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