Monday, November 24, 2014

Uber. On "New" Alternatives To Traditional Worker-Employer Arrangements

Uber, one of the alternatives to traditional taxicab companies, has been in the news for all sorts of reasons, including its founders apparent sexism.  Those are all negative news, but  Uber and other companies of similar ilk are obviously doing quite well, and there are objective reasons for that:

They can fill gaps in markets where taxi medallions are monopolistically awarded by increasing the number of cars-for-hire, they can offer extra income for students and others who own a car and some extra spare time for driving, and they can even reduce a certain kind of racism, the kind where a cab will not stop to pick up a passenger who is black, say.

But on one level Uber doesn't look like a traditional corporation at all:  It looks more like a marketplace.  Note that it doesn't provide the workers with cars, it doesn't maintain the cars, and it most likely does not offer the drivers retirement benefits or health insurance.  Its main task is to match buyers of driving services with the sellers of driving services, and that sounds more like a market than a firm, though the Uber app itself is also a form of capital which belongs to the firm.

The reason I put the "new" in the title of this post between two raised sets of fingers is that the arrangement is not really new.  Indeed, in Victorian England poor seamstresses had to provide their own scissors, thread and needles before they could be paid for sewing work, organized by larger entities which looked like corporations.  The seamstresses were entrepreneurs in the sense that they carried the risk if the needles broke or rusted or if the thread turned out to be of low quality and useless for the job:  When that happened their earnings were much reduced.  The entity which hired them for work, on the other hand, only paid for the finished work some constant sum.  That moved some risk away from the presumed real entrepreneur and to the workers themselves.

It's that aspect of who-bears-the-risk that I find most interesting here, as an example of economic theory.  The usual econo-babble argument is that firms make profits partly because they bear the risks:  Many entrepreneurs go under while others thrive, and that's because of the risk game.   You lose some, you win some, and in a way it is the risk-bearing aspect of entrepreneurship which most appeals to our ethical antennas and reassures them of the rightness of those extra profits for the winners.

But what happens when the workers are all independent entrepreneurs?  Can the average Uber driver figure out the replacement costs of the car in his or her profit calculations?  That there is an actual per-mile cost of wear and tear and gasoline consumption when driving customers around?  Has that average Uber driver looked into the question of car insurance?  Will the company which insures the car accept claims which come from a professional use of a car that was insured for family use?

As far as I know, Uber insures the customers of the Uber cars, not the cars or their drivers.

Uber is not alone among the "new" arrangements of risk-sharing in labor markets.  In a sense the giant eBay is nothing but an app for getting buyers and sellers together, but it has also contributed to the slow death of the bricks-and-mortar antique and second-hand stores and increased the atomization of the market on the seller side.  It has made the transactions more invisible, because we no longer really know who we are trading with, whether the buyer will pay or send back a flawed specimen of the same product, demanding full repayment or whether a fraudulent seller simply disappears, to pop up shortly under a different name.  Even though eBay is clearly a roaring success, it also contributes to a certain amount of risk juggling downstream.

Or take this example of FedEx drivers: FedEx argues that its drivers are not employees, entitled to all sorts of employee benefits, but independent contractors.  The courts will decide if that works, but here's the reason why firms pursue that avenue:

Treating workers as independent contractors can save companies as much as 30 percent of payroll costs, including payroll tax, unemployment insurance, workers’ compensation, and state taxes, according to the National Employment Law Project (NELP), a workers’ rights group. Using independent contractors offers companies advantages, says James Baron, a management professor at Yale. “[It’s] driven in part by uncertainty about demand, and about future conditions, and a feeling that the firm has more flexibility with respect to scaling up and scaling down,” he says.*
Because independent contractors aren’t covered by wage and hour rules, they don’t have to be paid overtime, and they can be required to pay for uniforms and truck maintenance. Contractors don’t have the right to unionize and aren’t covered by employment protections in the Civil Rights Act, so they can’t use those provisions to sue over sexual harassment or discrimination.

I have bolded the last sentence because it suggests an additional problem for women and/or people of color in these arrangements.

This post was caused by something I read today, about Uber facilitating subprime car loans for its drivers:

Uber is reportedly facilitating subprime auto loans to its drivers. According to a report by tech blog Valleywag, the car share company is hooking up drivers with loans through Santander Consumer USA that can be paid off through Uber paychecks. The company is specifically marketing these loans to drivers with bad credit saying, "Even if you have bad credit or no credit at all, we can help you get behind the wheel in a week." Uber contends that these loans are low-risk, but others think that this is indicative of a larger auto-loan bubble in the U.S.
Fascinating stuff!  Once you have a loan like that, your incentive to keep on driving for Uber is strengthened.  But it's you, the driver, who bears the risk of default, not Uber, the company.

*Translate that part into ordinary speech and it says that risk will be transferred downstream..