Editor’s Note: Lawrence Mishel is a distinguished fellow at the Economic Policy Institute and served as its president from 2002 to 2017. In the more than three decades he has been with EPI, Mishel has helped build it into a premier research organization focused on US living standards and labor markets. The opinions expressed in this commentary are his own.
Whether Uber and Lyft drivers and other gig workers should be treated as independent contractors or regular workers, with full rights, is now front and center, especially in California.
The two ridesharing companies have launched a campaign to fight legislation that would require them to treat drivers as full-time employees. The legislation, which has become known as AB5 and is currently being debated in California’s state Senate, would mean the drivers would get paid as employees (with guaranteed minimum wage and overtime protections) and gain government protections regarding gender and race discrimination, as well as collective bargaining rights. They would also be covered by unemployment insurance, workers compensation and Social Security.
In an op-ed in the San Francisco Chronicle last month, the CEO of Uber, Dara Khosrowshahi, and the cofounders of Lyft, Logan Green and John Zimmer, wrote that being required to classify drivers as employees instead of independent contractors would “pose a risk to their businesses,” but then failed to outline what those risks might be.
Uber and Lyft leave the false impression that independent contracting is essential to deliver services because otherwise they could not provide the flexibility many of its drivers desire. “First, most drivers prefer freedom and flexibility to the forced schedules and rigid hourly shifts of traditional employment; and second, many drivers are supplementing income from other work,” they wrote.
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These firms are labeling their workforce “independent workers,” as if they should be considered self-employed, something I’m sure their workers would laugh at, as we all should.
That is what a London Tribunal did in 2016:
“The notion that Uber in London is a mosaic of 30,000 small businesses linked by a common ‘platform’ is to our minds faintly ridiculous…. [Uber representative] Ms Bertram spoke of Uber assisting the drivers to ‘grow’ their businesses, but no driver is in a position to do anything of the kind, unless growing his business simply means spending more hours at the wheel.”
Exactly. To be fairly considered an independent contractor — someone running their own business — that person should be able to control their business, including how to operate it and how to expand it. That’s not the case for drivers at the ridesharing companies.
Drivers have essentially no options to expand their revenue because Uber and Lyft call the shots.
Take Uber, for example. Uber unilaterally sets and repeatedly alters the fares passengers pay, what drivers are paid, and the commissions it takes. Drivers cannot build a customer base since Uber prohibits collecting rider information. The rider also cannot select a particular driver through the Uber app.
Drivers are denied the basic entrepreneurial right to decide who they sell to and for how much. This is because drivers are not shown the passenger’s destination or how much they could earn on the fare before being asked to provide a ride.
Learning to do the job better has only a limited impact on a driver’s earnings. A recent academic study found that experience, after accounting for learning “strategic rejecting and canceling, and when/where to drive” raises earnings by 4.6% for full-time drivers between the end of the first month (300 trips) and the 2,500th trip, or about eight months in. But drivers see little further improvement with more experience. There is a pretty low and fixed ceiling on driver earnings.
Nor do drivers have much flexibility on how they deliver services, even the route they choose to take: Uber reserves the right to retroactively adjust the fares if it determines that an inefficient route was taken, for example.
Do drivers’ earnings reflect what we normally consider small business activity? Hardly. Hourly earnings are very low. Our research found that once you deduct Uber’s commissions (a third or more of a passenger’s fare), vehicle expenses, extra self-employment Social Security/Medicare taxes (7.15%) and an allowance for a modest benefits package, an Uber driver earns a “wage” of $9 to $10 an hour. This is lower than 90% of all wage earners and below the minimum wage in many major cities. Uber confirms this as its IPO compares drivers to those in “retail, wholesale, or restaurant services or other similar work,” some of our lowest-wage sectors.
Most drivers work very limited hours, typically to supplement earnings from other jobs. Uber, in fact, advertises for new drivers by offering the job as a “side hustle,” and reported “nearly 60 percent of US drivers use Uber less than 10 hours a week.” This does not appear to be a business opportunity where people are growing remunerative small businesses or calling their own shots.
Uber and Lyft do propose some changes for drivers. In their op-ed, the ridesharing executives suggested creating a new driver’s association that would work in tandem with state lawmakers and labor organizations to represent drivers and determine the types of benefits and protections they need.
They also addressed the issue of pay: “We can work with the California Legislature to establish a commitment to driver pay and earnings transparency for the work performed between accepting a ride and dropping off a passenger after accounting for reasonable expenses,” they wrote.
This, however, is putting lipstick on a pig, providing some minimal due process and potentially some benefits for drivers. At its core, these proposals are to solve Uber and Lyft’s problems of high turnover and enable them to do things for drivers they cannot legally do now. It maintains drivers’ status as independent contractors and does not solve their lack of access to social benefits (workers’ compensation, unemployment insurance), full labor protections (anti discrimination suits) or full collective bargaining, including the right to strike.
Uber and Lyft can operate with employee drivers and still provide flexible schedules. It will cost them more, as it should. It is time for California to convert many of those in the gig economy from misidentified independent contractors to employees with corresponding legal protections and the social safety net we provide all workers.