Recent worldwide bans and regulations on Uber have reignited the debate surrounding the ride service in the United States. Most prominently, critics continue to decry the supposed mistreatment of Uber workers, which sparked a national Uber strike weekend in October. The company is also facing a class-action lawsuit in California by drivers challenging its business model and seeking to be treated like employees.
Opponents argue that Uber harms both the welfare of the welfare of taxi drivers and its own workers. The taxi drivers are supposedly harmed because they are losing customers to Uber. And Uber drivers are supposedly harmed because the company does not treat them like real employees. Neither of these arguments holds ground.
If people care about the welfare of drivers, they should support a competitive labor industry for them. When only a few employers control an industry, it can lead to the abuse of employees because they have fewer exit options given their relevant skills. Most people are aware of the dangers of monopolies where there is a single seller, yet few extend the same analysis into monopsonies, in which there is a “single buyer.” In the labor market, employees are harmed when there is a single “buyer” for a specific job. More companies competing for employees usually results in better wages, benefits and treatment of workers.
Take for example drivers in New York City. About 82 percent of taxi drivers in New York City are immigrants who have limited employment options but have cultivated one major skill: driving in the city. Knowing this, large taxi fleets are notorious for abusing and mistreating their drivers. Drivers pay $75 to $130 a day to lease medallion rights and end up driving 12 hour shifts in the hopes of recouping their cost and making some profit. On some days, they lose money.
The owners also abuse the drivers by adding on miscellaneous fees, such as for “new models” and “new drivers.” Further, drivers have to bribe dispatchers or else they’ll get bad shifts or no shifts at all. An undercover exposé revealed that this phenomenon occurs in cities beyond New York as well.
Before Uber and Lyft, if owners or dispatchers abused cab drivers, the cabbies didn’t have many other choices but to put up with it. With new companies entering the market, if cab drivers suffer abuse and high fees, they can merely switch to Uber or Lyft and not have to bribe dispatchers or pay outrageous fees.
This is precisely what’s happening. Drivers have been switching to Uber and Lyft and creating a graveyard of taxi cabs. One worker at the taxi dispatch company McGuiness explained: “Business is getting so bad that people are just dropping their cabs off here. Everyone is going to Uber, where they don't have to pay a lease, and they don't have to deal with a dispatch.”
And these Uber drivers are getting paid better, too. A study of Los Angeles cab drivers found that, on average, they worked on 72 hours a week for a wage of $8.39 an hour. Uber drivers, on average, worked less than 35 hours a week for $19 an hour.
While it may be true that Uber drivers aren’t working in heavenly conditions, these jobs are far superior to the alternative, and there is much hope for driver conditions improving even more as Lyft and Sidecar gain popularity. With new companies competing for drivers, this could put pressure on Uber to offer better benefits. Those who advocate better conditions for drivers should support new companies entering the market and offering more employment options.
— Liya Palagashvili is an assistant professor of economics at SUNY-Purchase and an affiliated scholar with the Mercatus Center at George Mason University. Nawaphon Sittisawassakul is an economics student at SUNY-Purchase.
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