| Why California Forcing Uber Drivers to Become Employees May Hurt Many Drivers |
September 4, 2019
Apparently California is close to a new law mandating that Uber drivers (and other "gig" economy workers) be treated as employees rather than independent contractors. Progressives are cheering this as a victory for the drivers:
Billionaires who say they can’t pay minimum wages to their workers say they will spend tens of millions to avoid labor laws. Just pay your damn workers! t.co
— Lorena (@LorenaSGonzalez) August 29, 2019
I have explained before why this will likely kill Uber (e.g. here) but let me summarize quickly the argument of why this is bad for most drivers (self-plagiarized from a Twitter thread). The key issues are driver productivity and driver agency.
Let's define worker productivity as far as Uber is concerned as the amount of customer revenue a driver brings in per paid hour. In the current model, this is not a real concern for Uber as they are only paying Uber drivers when they are actually driving customers. Essentially, Uber drivers and Uber have a revenue share agreement to split customer revenue. Uber has set the share low enough to maximize its revenue (of course) but high enough to still attract drivers. It tweaks this formula fairly frequently. Uber driver productivity as we have defined it is essentially locked in by the formulas in this revenue share agreement.
Given this arrangement, note what Uber does NOT have to worry about. It does not have to worry that drivers are working hard enough or are positioning themselves in productive locations and productive times of day. Uber drivers can drive anywhere they want at any time they want. An Uber driver currently can turn on the app at 4am in the suburbs of Peoria and Uber does not care, even if this positioning is unlikely to get many rides. Why? Because Uber only pays if there is a ride. It doesn't care if the driver is sitting around unproductively, because it is not paying the driver for that time.
So today, it is left up to the driver to make trade-offs between the most productive time & positioning and the demands of their own personal schedule & life choices. This sort of flexibility has real value to many drivers. It is agency that many hourly workers don't have, and that has attracted many people to become Uber drivers. My neighbor, for example, sits in his living room all day with the app on and runs out to the car whenever he accepts a ride (and then turns the app off so he can come back home). He gets few rides in our area but he is happy with the lifestyle and the little bit of extra money he makes from Uber.
But this all changes if drivers must be Uber employees and subject to wage and hour laws. The key difference under such wage and hour laws is that Uber would have to pay drivers whether they have a passenger or not, as long as the app is turned on. Suddenly, forced to pay for labor whether the labor is working or not, Uber is going to get real interested in driver productivity.
If Uber pays by the hour, my neighbor's preferred way to drive is a dead loser for the company. In fact, if I am a driver and paid by the hour, I could go find a library in an out of the way place at an odd time of day and sit and read and collect hourly paychecks -- All without having to drive much. Now, instead of productivity choices being in the driver's hands because it's the driver that makes more or less money with greater or lesser productivity, these choices now land in Uber's lap. Uber can no longer allow so much driver agency.
If making Uber drivers hourly workers does not kill Uber altogether, then Uber is going to be forced to monitor driver productivity and do one or both of two things:
Interestingly, like a lot of labor regulation, this one will benefit the middle while hurting the lower-paid drivers.
- Establish productivity rules, such as driving time windows and allowed geographic ranges and/or
- Set a minimum productivity threshold below which Uber will have to let those drivers go
A better way to characterize this law is that it will greatly reduce the flexibility many Uber drivers love, while causing the lowest paid drivers not to make more, but to lose their driving gig altogether.
- Top drivers will be unaffected, because they already make the minimum
- Middle drivers may get a small boost
- Lower-earning drivers will lose their driving jobs entirely
I wrote a great deal more about how much of labor regulation actually hurts the lowest rungs of unskilled workers in an article here for Regulation Magazine.