Uber Isn’t the Problem

It’s not the company’s fault that driving a car—and coughing up steep commissions—is an attractive option for so many Americans.

An Uber application is shown as cars drive by in Washington, DC on March 25, 2015.
Don’t hate the player, hate the game.

Photo by Andrew Caballero-Reynolds/AFP/Getty Images

Uber has become the company that sophisticated thinkers on the left love to hate, with some calling for the startup, currently valued somewhere around $50 billion, to be socialized. One of the nicer things I’ve seen written about Uber by a lefty is Cory Doctorow’s recent Boing Boing observation that while “Uber may be rapacious, exploitative corporate scum,” it is better in at least some respects than the crooked taxi medallion markets it is replacing—hardly a ringing endorsement. Labor activists are rallying around a lawsuit that would force Uber and Lyft, its closest competitor, to treat drivers who use their car-hailing apps not as independent contractors but as employees, a seemingly small change that would have enormous implications for the companies’ business models. Granted, libertarians and conservatives tend to celebrate Uber as lustily as their lefty counterparts condemn it. But given that Uber has to win over regulators in monolithically liberal cities, that is small consolation.

Not surprisingly, Uber has recently brought on a slew of politically savvy professionals like David Plouffe, the strategist who led Barack Obama’s 2008 presidential campaign, and Rachel Whetstone, who served as the global head of public policy and communications for Google, to make the case that Uber is a force for good. My guess is that neither Plouffe nor Whetstone will make the most compelling case for Uber, which is that service jobs are often pretty terrible and that even if driving on the Uber platform is terrible too, it is, at the very least, less terrible. That is not a very sexy slogan. Yet it happens to be true. What critics of Uber need to understand is that their real gripe is not with Uber. It’s with larger forces that are making it extremely hard for service workers to make a good living, whether they’re driving cabs, washing dishes, mowing lawns, keeping offices and homes neat and clean, or doing clerical work.

Uber is not run by saints; it’s a business, out to make a profit. I can see why some critics would prefer a world in which Uber took a back seat to worker-owned cooperatives. But if driving on the Uber platform weren’t a more attractive option for those who choose to do it than some other way of making money (driving for an old-school taxi company or babysitting, or who knows what else), they’d be doing that other thing. And in that case, Uber would have no choice but to offer all of its drivers more favorable terms.

Instead, Uber has been doing something quite different. It has been experimenting with jacking up the commission it charges casual drivers who use the car-hailing app. Early on, Uber charged a straightforward 20 percent commission, a cut that strikes many observers as scandalously high, given that Uber could easily remain profitable by charging much less. In the years since, Uber has lowered its commission in some markets, to attract new drivers, and then raised it, as new passengers have flocked to the service and Uber could credibly claim that existing drivers would still make the same amount even with the higher commission. Now Uber is testing a new fee structure in San Francisco and San Diego in which it takes a 30 percent commission for the first 20 rides, a 25 percent commission for the next 20 rides, and a 20 percent commission for every ride after that. Essentially, the company is trying to extract more from casual drivers, who pick up a few rides here and there to supplement their income, while rewarding workhorses who drive around the clock. Uber hasn’t gone as far in this regard as its rival Lyft, which charges Stakhanovites who drive more than 50 hours a week precisely nothing, but it’s moving in the same general direction.

To Uber’s critics, this decision to encourage drivers to become full-timers is yet another sign that these drivers aren’t really independent contractors. Another way of looking at it, however, is that there are so many people who’d like to supplement their incomes by moonlighting as Uber drivers that Uber can charge them more and not worry all that much about having enough cars on the road.

And why are there so many people who are eager to make a few extra dollars? The first and most obvious reason is that there are many people who’d prefer not to work a traditional 9-to-5 job, perhaps because they want to care for a child or an aging parent, or because they want to devote themselves to some other more fulfilling pursuit than working for the man. The second reason is that, as the economist James Bessen illustrates in his new book Learning by Doing, rapid innovation in many sectors has led to wage stagnation for ordinary workers.

Take graphic designers, one of Bessen’s more vivid examples. Because the technology designers use is constantly changing, designers have to learn new skills all the time. One day you’re designing for print. Next you’re designing for the Web, and then for mobile. The workplace is organized and reorganized every few years, if not every few months. This constant churn means that designers constantly have to upgrade their skills, even when they don’t know if this or that new software platform will still be around in a year or two. Employers aren’t willing to invest in the training of designers, as they’re afraid that the best of their newly trained employees will jump ship. The result of all this change and uncertainty is that, according to Bessen, the median designer in 2007 was earning only a dollar more per hour than the median typographer in 1976. To be sure, there are designers who are making far more money. They’re the ones who master the new technologies first, on their own time, and who then parachute in to solve tricky design problems for the clients willing to pay a premium. But the average designer feels like she’s running just to stay in place. As she ages, and as her consumption needs grow as she has to provide for a family, she might find that she has to turn to, say, Uber to earn supplementary income. I realize that you might not think of moonlighting designers as your typical part-time Uber driver, but an Uber-funded study co-authored by Princeton University economist Alan Krueger found that driver-partners were more likely to have at least a college degree (47.7 percent) than workers as a whole (41.1 percent), and far more likely than taxi drivers and chauffeurs (18.8 percent).

Uber appears to have determined that in many markets, the terms they offer part-time drivers are if anything too attractive, which would explain why it’s tweaking its formula: It wants to see how far it can go before college kids, parents, starving artists, and other people who can’t or won’t drive full time on the Uber platform decide that Uber is no longer a good deal for them. Of course, there is a more benign interpretation of Uber’s new approach. If Uber charged a 5 percent commission or no commission at all for even the most lackadaisical occasional drivers, you would assume that there would be many more drivers on the platform and that average driver incomes would start to fall. Or it could be that Uber believes that full-timers are just better at the job than part-timers and that they leave their customers happier. I don’t know for sure. What I do know is that Uber is meeting a need not just for passengers but also for thousands of Americans who could stand to earn a bit more money.

Is it Uber’s fault that wage growth is sluggish and that legions of workers are looking to boost their incomes? Should Uber be blamed if it turns out that at least some workers prize flexibility so much that they’re willing to pay a hefty commission to access Uber customers for just a few hours a week? Say we require that Uber and Lyft—and Instacart, TaskRabbit, and all of the other startups that make use of contingent labor—abandon the notion (some would say the pretense) that they are marketplaces that connect people who want to sell their labor to people who want to buy it. Will this suddenly make the workers who are currently taking advantage of these platforms more attractive to other employers? Will it increase employment opportunities rather than shrink them? I doubt it.

So where does that leave us? If drivers on the Uber platform had better options available to them, if there were jobs that offered them higher wages and better working conditions, they’d presumably have already taken them. That means that if you’re appalled by Uber, your real problem is with every other option that the drivers who use it have for earning a living—which is entirely fair. But despair over the fact that many American workers aren’t commanding the wages and working conditions we’d want for them in an ideal world doesn’t seem like a sound reason for shutting Uber down, or regulating it out of existence.

Funnily enough, there is at least one Democratic politician who seems to understand this landscape. In a recent interview with Recode, Massachusetts Sen. Elizabeth Warren argued that instead of railing against Uber for creating employment opportunities for drivers, policymakers should invest in education and infrastructure. Though I can’t imagine I agree with Warren on the particulars, she deserves credit for seeing the bigger picture.