Uber co-founder Travis Kalanick has resigned as the ridesharing app’s CEO, after mounting pressure from shareholders following a series of public controversies and embarrassments. From allegations of workplace sexual harassment to a federal inquiry over the “Greyball” scheme to the recent high stakes lawsuit with Waymo, the company’s public relations challenges have been numerous.
Some on the left have sought to take advantage of Uber’s struggles. In a recent speech, Sen. Elizabeth Warren, D-Mass., alleged that transportation network companies such as Uber and Lyft are “dependent on extremely low wages” and resist giving drivers a fair share of the revenue generated by their work. She argues that, while these services offer robust benefits to consumers (short wait times, cheap transportation) and greater flexibility and access for workers, drivers are exploited by an unequal power dynamic. Former Labor Secretary Robert Reich echoes Warren’s view, arguing that a life contingent upon sharing-economy work “is unpredictable, doesn’t pay very well, and is terribly insecure.”
What the critics overlook is that ridesharing drivers typically make more than taxi drivers and chauffeurs, even after fuel and wear and tear costs. They also ignore the fact that, despite the best efforts of regulators to restrict supply and inflate prices artificially through taxi medallions and licensing mandates, the pre-Uber days of for-hire transportation were not a golden era of worker security. In most cases, driving a taxi does not result in a comfortable middle class salary with good benefits. According to the U.S. Bureau of Labor Statistics, the median annual salaryfor taxi drivers and chauffeurs is just $24,000.
There is still the complaint that transportation network companies have too much leverage over their drivers. The 25 percent of each fare that Uber takes is nontrivial and, until recently, drivers could not accept tips. Other tensions between drivers and corporate management suggest there may be a market niche for more driver-friendly firms.
Indeed, such firms already have emerged. Most notably, Uber’s chief rival Lyft has capitalized on its rival’s public missteps and seen a substantial increase in its market share. There also are a number of smaller and regional competitors, who often can offer drivers better opportunities and put market pressure on the top dogs to behave.
But lawmakers who want to punish Uber with heavy-handed regulations should bear in mind the strong potential that they may actually end up insulating it from this incipient competition. Warren and Reich, for example, argue that ridesharing companies should be legally obligated to classify drivers as employees instead of contractors, who are not legally entitled to certain employee benefits.
A company with Uber’s market capitalization might be able to afford to comply, but it would be crushing for upstart competitors. Saint Louis University law professor Miriam Cherry and Duke economist Michael Munger estimate that mandating employee benefits would cost Uber $20,423 for a driver earning $50,000 annually. Another study estimates a 40 percent operational cost increase in California for ridesharing services.
Massive increases in costs represent hefty barriers to entry for local firms trying to challenge Uber in pockets of the country. Fasten—deployed in Boston, Massachusetts in 2015—is now available in Austin, Texas. The company charges just $1 per trip to drivers, instead of the standard 25 percent commission. Safr, a ridesharing company “exclusively for women,” launched early this year in Boston and reserved 50 percent of its common stock to be awarded to drivers. Gett, active in more than 100 cities globally, launched in New York in 2013 and claims on its website: “If you treat drivers better, they will treat riders better.” Gett offers a 10 percent commission, allows drivers to keep their tips and offers 24/7 driver support.
The long-term viability of these firms is unclear, but if politicians impose a 40 percent rise in their costs, they will almost certainly flounder. Until the imminent wave of autonomous ridesharing fleets renders this dispute obsolete, any meaningful competition to the top transportation network companies likely will be region or niche-specific. Regulators should be cautious not to repeat the mistakes that created the taxi cartels in the first place: onerous mandates that enshrine incumbent market leaders and crowd out startups.
Uber is already suffering from its missteps and may lose market share to its competitors as a result. Rather than pushing for more regulation, we should lower the barriers to let the competition in.
Image by MikeDotta