The Gig Economy and the State of the American Worker

Yesterday I posted this short New Yorker article on Lyft which prompted a discussion about the American worker, his/her financial health, and her/his odds for a livable retirement (SPOILER ALERT: not good).  I wanted to expand on that discussion today.  Emphases added mine throughout.

Lyft, like many participants in the "gig economy," has tried to make egregious labor conditions sound hip and fun.  The NYer article begins with the story of a Chicago Lyft driver, Mary, who goes into labor but decides to pick up a ride en route to the hospital.  Lyft spins this as Mary being a plucky can-do kind of gal:

Mary’s story looks different to different people. Within the ghoulishly cheerful Lyft public-relations machinery, Mary is an exemplar of hard work and dedication—the latter being, perhaps, hard to come by in a company that refuses to classify its drivers as employees. Mary’s entrepreneurial spirit—taking ride requests while she was in labor!—is an “exciting” example of how seamless and flexible app-based employment can be. Look at that hustle! You can make a quick buck with Lyft anytime, even when your cervix is dilating.  (New Yorker)

The reality is likely far more grim:

Lyft does not provide its drivers paid maternity leave or health insurance. (It offers to connect drivers with an insurance broker, and helpfully notes that “the Affordable Care Act offers many choices to make sure you’re covered.”) A third-party platform called SherpaShare, which some drivers use to track their earnings, found, in 2015, that Lyft drivers in Chicago net about eleven dollars per trip. Perhaps, as Lyft suggests, Mary kept accepting riders while experiencing contractions because “she was still a week away from her due date,” or “she didn’t believe she was going into labor yet.” Or maybe Mary kept accepting riders because the gig economy has further normalized the circumstances in which earning an extra eleven dollars can feel more important than seeking out the urgent medical care that these quasi-employers do not sponsor. In the other version of Mary’s story, she’s an unprotected worker in precarious circumstances. “I can’t pretend to know Mary’s economic situation,” Bryan Menegus at Gizmodo wrote, when the story first appeared. “Maybe she’s an heiress who happens to love the freedom of chauffeuring strangers from place to place on her own schedule. But that Lyft, for some reason, thought that this would reflect kindly on them is perhaps the most horrifying part.” (New Yorker)

Lyft is not the only company to engage in this doublespeak.  Uber got this ride-sharing ball rolling in the first place.  Uber's hostility to labor is at the core of its very existence.  Uber classifies full-time workers as independent contractors, so as to avoid paying them benefits.  It's worth $100 million to Uber to keep this reality-denying arrangement in place.  Uber stands against solidarity with taxi drivers, which makes sense, because Uber's very raison d'etre is to assault taxi drivers' livelihoods.

Being a taxi driver will earn you between $30-40k per year, depending on your location.  That's double the annual salary for a minimum wage worker (which is, itself, highly inadequate to live on).  Being an UberX driver, by contrast, will earn you much, much more money, potentially, in New York City - but nowhere other than New York City.  Outside of New York City, being an Uber driver will earn you far less than being a cabbie.  This Ridester article breaks down the numbers (it's a very good and thorough article - important to note than most Uber drivers do not take home their entire fare, more like eighty cents to every dollar of their fare).  The takeaway is that outside of NYC, most Uber drivers earn less than minimum wage.

I can hire one half of the working class to kill the other half.  Never forget that quote. It's by 19th century railroad magnate Jay Gould and it's as good today as it was then.  The benefits-less, underpaid Uber driver has been pitted against the lower-middle class cabbie.  Lyft is part of this class war as well.  These companies are not massively profitable dominant because they've invented some groundbreaking technology - they're massively profitable dominant because they've radically reduced the costs of labor.  But they've done a fine job exploiting the basic lack of sympathy for your fellow working man and woman that most of us exhibit in this day and age. 

As the gig economy edges out the old economy - the mythic Make America Great Again economy - the women who are working until they literally must give birth, and their male counterparts, decreasingly have a dime to their name.  Nearly six in ten American workers wouldn't be able to cover a $500 emergency bill.   Think about that - a sizable majority of Americans couldn't come up with five hundred bucks.  

What direction have we been going in as a country for the past forty years?  Almost without exception, we have accepted that "the market" is almost always right and "the government" is almost always wrong.  Ronald Reagan and Bill Clinton basically agreed on this point, and so have their successors.  How has that worked for us?  Most of us can't come up with five hundred bucks.  That's pathetic.

Our retirement savings are a joke as well.  In part, that is because we've come to rely so completely on the 401(k).  The inventor of the 401(k) himself, Ted Benna, now refers to his invention as "a monster":

The plans had grown so overcomplicated and so fraught with hidden fees and opportunities for bad decisions that they were better at enriching the financial industry than the actual savers — precisely the abuses that nearly drove [Benna] out of the business and to the Christian college back in 1980, he said. (Marketwatch.com)

Our private retirement plans are similar to our private health insurance plans in that much of the money we put into them is wasted on administrative overhead and other "skimming" fees and costs.  Medicaid - a government run program - is far most cost efficient than private insurance, with only about 2% of its cost going to administrative overhead, compared to 12-14% for private plans.  Think about that.  That's a lot of wasted money.  Your money.

(Naturally, Secretary of Labor nominee Alexander Acosta thinks that a rule which requires brokers offering retirement investment advice to put their clients' interest first is overly burdensome.)

Because we have poured so much of our money into 401(k)s over the years, we have not committed the financial resources would might have otherwise to Social Security.  As such, it's more or less impossible to live solely on Social Security in retirement.  Perhaps if we, collectively, had not decided to put so much of our salaries into 401(k)s but had, instead, voted for higher taxes to ensure more generous Social Security payments in old age, retirement for folks today would be a less grim proposition.

Of course, the usual candidates would like to take what few Social Security funds we can enjoy and do away with them, on the grounds that Social Security faces a funding "crisis".  The premise that Social Security is insolvent or due to become insolvent is - pardon my language - total bullshit, as Dean Baker makes clear here.  I don't think I can improve on this article which dispels key myths / fear-mongering regarding Social Security, so just read it, please.

The time has come for us to admit as a society that the market does not always have the answer to prosperity; in fact, the market is often the enemy of prosperity.  We, the People, owe it to ourselves to demand that things be made right, and that requires more government as often it is requires less.  The alternative is not some new-fangled miracle; it is cruel and fatal.

At the root of this is the American obsession with self-reliance, which makes it more acceptable to applaud an individual for working himself to death than to argue that an individual working himself to death is evidence of a flawed economic system. The contrast between the gig economy’s rhetoric (everyone is always connecting, having fun, and killing it!) and the conditions that allow it to exist (a lack of dependable employment that pays a living wage) makes this kink in our thinking especially clear.  (New Yorker)

UPDATE: reader Miles Kennedy corrects me on the use of the term "profit," which you can see in my stricken-out text above, and he is right to do so.  He gave me permission to quote him verbatim, and here's what he said - please read:

I agree with most of what you've said here about the pitfalls of the gig economy (especially as a former freelancer for 15+ years), it's a huge human cost and corporations are exploiting this idea in a very cynical way. But there are some major accounting errors in your statement today, which is quite unlike you. First off - neither Uber nor Lyft are profitable by any stretch of the imagination. An average Uber fare only covers 40% of the cost of the ride - meaning they are losing 60% on EVERY SINGLE RIDE. Obviously they are leveraging their billions in VC debt and "network" for a potential huge IPO (aka the modern american dream) - but once the company actually has to make money and regulators finally catch up with them, you'll likely see a 300% or more fare increase, just to break even! That is, if they still hire drivers at all, because of their heavy investments in driverless tech. On the bright side, traditional taxi companies ARE catching up with apps and on demand services (in LA at least) but still can't compete on 2/3 rds discounted price. However, they are playing the long game and betting that uber will be going away once the VC money dries up. My opinion is that these "disruptors" will not be around long enough to make a real change in labor, other than their invention of a fancy way to call a cab.

Miles' points are well made.  What I should have said is that the exploitation of labor (not fancy new technologies) have made the CEOs of Uber and Lyft tremendously rich - but it's true, the companies are not profitable in the traditional corporate sense!  This is the case with many a start-up (Venture Capital's a topic for another post). I stand by what I wrote above, but I definitely misused "profit" which was quite sloppy of me.

The only bit of Miles' quote I'm not sure I agree with is his opinion at the end - I feel like there will be a good deal of incentive to keep labor cheap and disposable, whatever happens to Uber and Lyft, and that once damage is done of this sort of tends to stay done.  However, I'll definitely revisit this topic at some point, and in the meantime, consider reading this Jalopnik article which argues that Uber is more or less doomed.