Ridesharing, that scourge of the taxi industry, is getting an upgrade, union-style. On December 14, the Seattle City Council voted 8-0 to authorize union organizing of independent drivers for Uber, Lyft and similar livery services. The ordinance, the result of pressure from a Teamster local and several rideshare drivers, would require such businesses to hand over lists of drivers to a union. Labor activists argue that drivers, though classified as contractors, are treated as employees and thus should be able to collectively bargain. Yet this view ignores the features of ridesharing that make it so attractive to customers and drivers alike. Uber and Lyft, meanwhile, say the measure violates federal labor and antitrust laws.
The rise of ridesharing as an alternative to taxicabs and other modes of urban transportation has been one of the remarkable trends of this young century. Ridesharing is based on the premise that booking a ride should not involve long waits or high costs; a person, in other words, ought to be able to schedule a ride as quickly as ordering a book or a compact disk online. Driver and customer interactions take place via smart phone. And customers, via map app, can track the location of the vehicle scheduled to arrive. The leader of this fledgling industry is Uber. Founded in 2009 and backed with venture capital from such sources as Microsoft, Goldman Sachs, Google and Amazon multibillionaire Jeff Bezos, the San Francisco-based company now operates in more than 250 cities around the world and by the end of last year had amassed a valuation of $62.5 billion – higher than that of General Motors. Uber, along with its main competitor, Lyft (also San Francisco-based), are veritable job machines. Uber alone contracts with 400,000 part- and full-time drivers (“partners”) in America and another 700,000 in other countries – and those numbers are growing by the month.
Central to the ridesharing business model is its loose employment structure. Drivers formally are contractors, not employees. In this way, they can set their own hours and operate within preferred territory. They also are allowed to drive for more than one company. And they can keep most of their fares; in Uber’s case, the figure is about 80 percent. Drivers tend to be satisfied. In January 2015, Uber released the results of a survey of its drivers. According to the report, authored by Princeton University economist Alan Krueger (who until August 2013 had been a top Treasury Department official and then an Obama White House adviser) and Uber policy research director Jonathan Hall, 78 percent of the roughly 600 respondents were “satisfied” with their job situation; 71 percent reported increases in their incomes; and 73 percent preferred the Uber employment model of “a job where you choose your own schedule and be your own boss” over “a steady 9-to-5 job with some benefits and a set salary.”
It isn’t just drivers who benefit. Rideshare companies like the arrangement because they can avoid complying with wage, overtime, health care and other federal mandates. And they don’t have to contribute to Social Security, Medicare, worker’s compensation or unemployment insurance. Riders, for their part, generally enjoy shorter waiting times and reasonable prices. While they pay extra during “surge” pricing periods, they at least have advance knowledge of what a ride will cost. And regardless of the time of day, they don’t have to leave a tip.
Ridesharing, unfortunately, is a source of economic insecurity for those behind the steering wheel. Drivers have to provide their own vehicle. They also must pay for their own gasoline, maintenance and insurance. As a result, they may have little to show for their efforts. Moreover, as their numbers proliferate in a given city, revenues per driver eventually fall, a tendency recently accelerated by price cuts. In Washington, D.C., Uber has reduced prices of its basic service, UberX, by 15 percent, making it 30 percent cheaper than a D.C. taxi. In Seattle, around 100 UberX drivers in August quit in protest of fare reductions. And in Los Angeles, according to Uber driver John Billington, fares in that city, which not too long ago were $2.50 per mile and 35 cents per minute, are now $1 per mile and 18 cents per minute. As a result, his weekly net revenues have declined from the $1,500-$2,000 range to the $700-$800 range. “They treat us like employees, but we get none of the benefits,” remarks Billington. “They’re telling us what rides we have to pick up. They dictate fares. We don’t get a say in what the fares will be. They keep close track on your ratings, and they threaten to deactivate you over various things.”
This is where organized labor comes in. Unions believe Uber and similar firms have a traditional employer-employee relationship all but in name. Their drivers may be classified as “contractors,” but for all intents and purposes they do the same things that taxi drivers do: pick up riders; collect fares at preset rates; and turn in their receipts. The designation of contractor status, charge labor officials, is a subterfuge for worker exploitation; companies are fully aware that the National Labor Relations Act covers employees, but not contractors. “I think of them as robber barons,” San Francisco Cab Drivers Association President Barry Korengold says of Uber. “They started off by operating illegally, without following any of the regulations and unfairly competing. And that’s how they became big. They had enough money to ignore the rules.”
Organized labor sees opportunities. That’s especially true in progressive Seattle, which in 2014 became the first major U.S. city to enact a $15 per hour minimum wage law. Leonard Smith, chief organizer for International Brotherhood of Teamsters Local 117, for the last couple years has led a campaign to organize ridesharing drivers in that city. Though federal labor law exempts contract employment from coverage, he notes, the scope of state and local law is open to interpretation. And support for unionization among rideshare drivers, while far from overwhelming, is there. Smith notes that earnings for an Uber or Lyft driver often amount to less the federal minimum wage after deducting for gasoline, insurance, maintenance, repairs and depreciation. Wilma Liebman, a member of the National Labor Relations Board during 1997-2011 (which she chaired starting in 2009) and a Teamster lawyer during the Eighties, is a supporter of the campaign. “We haven’t significantly changed our labor laws since 1947 and there’s no national consensus on how to change them, so workers and their advocates are turning to local governments to innovate,” she said in November. “People are experimenting, and Seattle is a leader.”
Having established Seattle as organizing turf, Teamster organizers still needed a rideshare driver who could dramatize their case. They found such a person in Takele Gobena, a young Ethiopian immigrant who had left his job at nearby Sea-Tac Airport to drive for Uber and other companies. Dissatisfied with his net income, he wanted union representation. Along with Teamster handlers, he and other drivers took their case to the Seattle City Council. They discovered they had an ally in Council Member Mike O’Brien, who would sponsor a bill authorizing collective bargaining for contract workers in the city. “We’re trying to balance the playing field,” O’Brien said last November. “We have this multi-billion dollar company trying to monopolize the taxi industry around the world, and then we have drivers making less than minimum wage.” Though initially skeptical – two other council members had sent a letter to the Federal Trade Commission in late October asking whether the proposed ordinance would be in violation of antitrust laws – eventually the council was won over. On December 14, members approved the measure by 8-0.
Similar movement is occurring elsewhere. On the federal level, Sen. Mark Warner, D-Va., these last several months has been advocating the creation of a new employment category, a hybrid of employee and contractor. In this way, rideshare drivers and other contract workers can be protected from employer exploitation while maintaining independence. A tech entrepreneur and venture capitalist himself prior to entering politics, Warner explains his position: “Right now you are either a W-2 or 1099. I don’t believe in the future that it’s just going to be a binary choice. There may need to be a third classification.” Meanwhile, on the West Coast, three Uber drivers have sued the company in San Francisco federal court to gain recognition as employees. On September 1, U.S. District Judge Edwin Chen granted the group class-action status. He added, however, that Uber drivers who began their work after May 2014 must opt out of an arbitration agreement in order to join the suit, a move ensuring that only a small portion of all California drivers.
Taxicab companies and their drivers are union de facto allies. They see ridesharing as a threat to their livelihood and to public safety. Trevor Johnson, a director for the San Francisco Cab Drivers Association, put it this way a couple of years ago: “Would you feel comfortable if you had a 21-year-old daughter living alone in the city, using a smartphone app to get into a vehicle for hire, and that vehicle ends up being a 2001 Chevy Astro van with 300,000 miles on it? I’ve made it my personal mission to make it as difficult as possible for these guys (Uber) to operate.” Another opponent of ridesharing, Steven Hill, a senior fellow with the New America Foundation and the author of the new book, Raw Deal: How the Uber Economy and Runaway Capitalism Are Screwing American Workers, is just as determined. He writes: “Employers and employees used to be married to each other, and there was a sense of commitment and a joined destiny. Now, employers just want a bunch of one-night stands.” Travis Kalanick, co-founder and CEO of Uber has heard it all before. He dismisses such statements as products of fear. The taxicab industry, he says, is “a protectionist scheme” whose participants “prefer not to compete at all and like things the way they are.” David Autor, an economics professor at MIT, argues that the taxi industry is “characterized by high prices, low service, and no accountability…ripe for entry [by startups] because everybody hates it.”
It would be hard to disagree with the latter pair of observations. Taxi commissions in major cities long have restricted employment entry as a way of keeping fares high. Even in cities where the population has substantially increased, such as San Francisco, local government has capped the number of active taxi medallions (i.e., operating permits). And the price of medallions amounts to legalized extortion. In New York City, an individual medallion in 2014 cost $805,000 (which actually was less than the corporate fee). And that’s down from the 2013 all-time high of $1.05 million. In Boston, the figure was around $500,000 for 2014, down from $700,000. And in Chicago, it was almost $300,000. If anyone fits the term “robber barons,” it would seem to be the taxi companies, not to mention local governments that protect their interests. Ironically, these sums have a lot more dropping to do in order to attract takers. Taxi commissions and affiliated brokers these days are finding themselves unable to sell medallions. Ridesharing is what explains this. Bhairavi Desai, president of the National Taxi Workers Alliance, cites aggressive solicitations by Uber drivers for big-ticket rides, especially to and from airports, as a major reason behind declining rides per cab.
Pro-union political leaders are trying to stem the tide. Hillary Clinton, while on the presidential campaign trail last July, stated: “This ‘on demand’ or so-called gig economy is creating exciting opportunities and unleashing innovation, but it’s also raising hard questions about workplace protections and what a good job will look like in the future.” New York City Mayor Bill de Blasio has done more than raise questions. Last summer he floated a proposal to cap the number of vehicles that Uber operates in the city, which by that time had grown to 63,000. The response from the company and supporters alike was an aggressive ad, robocall and e-mail protest campaign. In short order, De Blasio withdrew his proposal before the City Council could vote on the bill. Yet as he backed away, he also ordered a full review of the ridesharing industry and its impact on local transportation patterns. He also got in some choice words. “Uber is a multibillion-dollar corporation, and they’re acting like one,” he told reporters.
Some local governments have done more than talk. The cities of Miami and Austin recently passed laws to block Uber from operating, though the company, in defiance, continued to operate in each city following the announcements. In other cases, cities have been targets of taxi operator lawsuits. In Boston and Chicago, taxicab companies and/or their employees have sued the local government for allowing contract driver companies to operate. Inaction, argued the plaintiffs, has amounted to a denial of constitutional rights. The Boston suit, which seeks unspecified monetary damages, states: “The City has…permitted the de facto taxi companies to flout the law with open impunity by deploying an invasion of unlicensed cars with no requirement of any medallion” or other city taxi regulations. The Chicago suit likewise claims that the City’s failure to ban Uber and Lyft vehicles from the streets, constitutes a violation of the right of cabbies to make a living and also devalues the $2.38 billion in nearly 7,000 medallions. Here’s a thought: Make medallions free.
Things actually may be worse abroad. In France, the government recently announced that Uber did not have the authority to operate in their country. The company eventually suspended operations there following the arrest of its top official there. The government might have been swayed by protesting taxi drivers, who on various occasions have slashed tires and smashed windows of Uber vehicles, and in Paris at least, blocked traffic thoroughfares and airport exits. The Italian and Spanish governments also are trying to remove Uber from their jurisdictions. And South Korea last March charged CEO Travis Kalanick and 28 other Uber officials with running an unlicensed taxi service. When in doubt, criminalize.
Such actions are dismaying, of course. Yet they are to be expected. Anytime a “disruptive” business model supplants an existing one, in the process reducing inefficiencies and winning customers, it encounters resistance from entrenched interests. It is a process as old as the Industrial Revolution. Unions and their allies, to use a common colloquialism of the Left, are on “the wrong side of history.” Workplace relations these last several decades increasingly have leaned toward employee flexibility with respect to such issues as compensation, scheduling, family leave and grievance procedure. Firms in the “crowdsharing” sector of the economy, such as Airbnb (lodging), Luxe (parking), TaskRabbit (odd jobs) and Washio (dry cleaning), are speeding up this process. And ridesharing companies are a major part of this. What Uber and Lyft are doing is no more sinister than providing customers with better service at lower prices. Opponents retort that these companies are trying to minimize compensation and downsize their work forces. The response to such an accusation should be that labor attrition in such situations is a sign of improved productivity. Consumers, which include cabbies, are the ultimate winners. Job displacement long has been a fact of life. It’s what drove, for example, the exodus from farms to cities during the late-19th and early-20th centuries. Are we worse off as a result?
This isn’t necessarily a “Left vs. Right” debate. During the New York City ridesharing brouhaha, New York Democratic Governor Andrew Cuomo, not normally given to making free-market pronouncements, sided with Uber. In a radio interview, he called Uber “one of the great inventions of this new economy,” adding: “I don’t think government should be in the business of trying to restrict job growth.” Uber’s senior vice president for policy and strategy, in fact, is David Plouffe, Barack Obama’s 2008 presidential campaign manager. “Platforms like Uber,” Plouffe declares, “are boosting the incomes of millions of American families. They’re helping people who are struggling to pay the bills, earn a little extra spending money or transitioning between jobs.”
The power of the union-government-taxi operator triumvirate shouldn’t be underestimated. Their actions played a major part in knocking another San Francisco-based rideshare startup, Sidecar, out of business; the company ceased operations on December 31. These protectionists despise the ridesharing app model and will go the extra mile to bring its firms under the same regulations which taxi drivers operate. Contracting is not necessarily a superior approach than formal employment, but that choice ought to remain the prerogative of the rideshare firm. It’s not the job of government, or allied unions and taxi operators, to make that decision. Uber and Lyft are growing for very good reasons, none of which deserve to be criminalized.