“If you use (as a customer), work for, and/or invest in firms like Uber and AirBnB, you are making an affirmative and free market choice to help (succeed) companies whose core business model is less about technology and more about using technology to destroy traditional, often bureaucratic work rules and regulations that have resulted in huge inefficiencies, poor service, and higher costs for a variety of consumer products and services…
…Hurray!!! You are supporting personal choice/liberty, free-market competition and democratic capitalism. P.S. Fascinating and hypocrtical that California is willing to take the billions in capital gains tax revenues that firms like Uber generate on the one hand and then actively work to destroy their business model (by ruling their drivers are employees) on the other.”, Mike Perry
In an Uber World, Fortune Favors the Freelancer
By TYLER COWEN
With the rise of companies like Uber, entrepreneurs in a variety of fields are extending the concept of connecting customers and workers in what is sometimes called the new sharing economy. There are now online services for private tutors, dog walkers and delivery of packages and groceries, among numerous other options, and it is likely that these ventures will expand.
Many taxi drivers dislike the competition from Uber, but we need to think more systematically about the winners and losers as these new institutions develop. The greater convenience they provide consumers is obvious, but is this generally a good or bad thing for people on the other side of the market, the workers? One recent study, by Jonathan V. Hall of Uber and Alan B. Krueger, a professor of economics at Princeton, supported by Uber, suggested that Uber drivers earned more than typical taxi drivers and chauffeurs. A study of Airbnb by the economist Gene Sperling, in conjunction with Airbnb, found that the service helped supplement middle-class incomes.
In New York, a demonstration in support of Uber outside the offices of the Taxi & Limousine Commission in Lower Manhattan. Credit Michael Appleton for The New York Times
Recently the California Labor Commissioner’s Office ruled that one Uber driver was an employee rather than an independent contractor. Uber is appealing the ruling, and it has prevailed in some other states. We don’t yet know how the laws surrounding these services will develop, but the economic efficiencies of institutions like Uber and Airbnb appear to be robust.
Such services are likely to continue to spread. If they do, what else is there to say about their broader implications? In the absence of a lot of systematic data, how might economists think through the effects of these new developments?
On the positive side, the so-called sharing economy allows workers to use their time more flexibly. Drivers can earn money without working full time, and without having to wait around at taxi stands for the next passenger. The workers can use their newly acquired spare time for other purposes, including studying for college, teaching themselves programming or simultaneously offering themselves out for different sharing services: If no one wants a ride, go help someone with repairs around the house.
In short, these developments benefit those workers who are willing and able to turn their spare time to productive uses. These workers tend to be self-starters and people who are good at shifting roles quickly. Think of them as disciplined and ambitious task switchers. That describes a lot of people, but of course, it isn’t everybody.
That’s where some of the problems come in. Uber drivers are much more likely to have a college degree than are taxi drivers or chauffeurs, according to the Hall and Krueger study. It found striking differences between the two groups: 48 percent of Uber drivers have a college degree or higher, whereas that figure is only 18 percent for taxi drivers and chauffeurs.
Only some workers benefit when each hour, or each 15-minute gap, is up for sale. One way to put the general principle is this: The more efficient market technologies become, the more important are human capabilities and backgrounds in determining who prospers and who does not.
To get a better handle on how some workers might lose, consider a hypothetical situation in which such services — and all freelancing and outsourcing services — do not exist. Let’s say a software company receives periodic contracts to execute projects, but it has to rely entirely on current full-time staff. The company then must train its workers to handle a wide variety of possible projects, and so the amount and cost of corporate in-house education go up. But all things being equal, because this training costs something to the company, worker wages will be lower.
In this case, those workers who benefit will be those who need that push from the in-house education to acquire new knowledge. But some self-starting workers might have learned the material on their own anyway. Those workers receive more in-house education than they need, which, in turn, means they are paid lower wages and might well be worse off than they would have been in an economy that encourages self-training and freelance opportunities. One implication is that if the Uber idea spreads, it could discourage corporate training and may require that workers have stronger educational backgrounds. Ideally, formal education should refocus to prepare people for subsequent self-instruction and retraining.
Workers are likely to be evaluated in different ways, too. The Uber driver, who can be rated by customers on the web after a ride, without face-to-face interaction, has a stronger incentive to be nicer, and to offer a clean vehicle and bottles of water, compared with a traditional cabdriver.
At the moment, one problem with many online ratings is that the information isn’t all publicly useful; for instance, a good Uber rating remains within Uber and cannot easily be exported to market a driver for other jobs or opportunities. Perhaps in the future workers might have the option of being certified by Uber or other services in a more general and publicly verifiable manner. That could make such services useful for upward mobility, and it might make their credentials competitive with those of some lower-tier colleges and universities.
Even if we don’t know how important all of the new services will be, it’s already clear that many consumers like them. It’s also evident that at least some workers can benefit from the new arrangements, although the effect on the less educated workers seems to be an important issue.
Still, we shouldn’t be trying to turn back the clock, but rather figuring out how to make the best of this fascinating but sometimes unsettling new world. We are just getting started.
A version of this article appears in print on June 28, 2015, on page BU6 of the New York edition with the headline: In an Uber World, Fortune Favors the Freelancer