Wall Street Journal, November 3, 2015
By Josh Zumbrun
With the flick of fingers across a phone, people can now summon a driver, rent an apartment for the night or hire a handyman. The companies that make this possible–behind, say, the ride-hailing app Uber or the short-term rental app Airbnb–are some of the most valuable startups in the U.S.
Not everyone, to put it mildly, is a fan.
Like Steven Hill, a senior fellow at the left-leaning New America Foundation, and the author of a new book, “Raw Deal: How the ‘Uber Economy’ and Runaway Capitalism Are Screwing American Workers,” who sees these companies as tearing apart cities and putting workers on increasingly shaky ground.
He spoke to Real Time Economics about where he thinks the economy has gone off the rails and what he’d like to do about it.
Q: The book is subtitled “how the ‘Uber economy’ and runaway capitalism are screwing American workers,” so I don’t think I’m giving away spoilers by saying that you’re a critic. What is it that got you fired up about these companies?
A: I live in San Francisco, so we were hearing more about the companies and their impacts a lot earlier than other parts of the country. Being there you just steep in the Silicon Valley ethos: disruption and all these types of things. That’s all well and good until you realize there’s real people being hurt by this.
With Airbnb, for example, many people are complaining about being evicted by landlords and property managers who want to clear their building and turn them into Airbnb hotels. But Airbnb is putting forward as the face of its business model so-called regular people renting out spare rooms. I don’t think anyone has a problem with that.
So seeing that gap between what Airbnb is saying it is, and what the actual impact is to many people—that, to me, was the first clue that there’s a lot more here we need to look into.
Q: So in San Francisco you have 18 or 20 million tourists who want to visit every year. And the region has 2.5 million jobs and part of the problem in San Francisco is a lot of these jobs are really good jobs with really high wages. It seems like the pressure on housing is kind of driven by this. If you take Airbnb out of the picture, it seems like there’s still going to be a lot of pressure to build hotels instead of affordable housing in San Francisco.
A: There’s a lot of forces contributing to the housing situation in a city like San Francisco. But it’s also true that you’ve suddenly changed the rules that everyone has been living by. It used to be if you were a tourist coming to San Francisco, you had to pay a high amount for a hotel room. Or you might have to stay outside the city. That’s the situation tourists had to deal with.
But by doing that you preserve the housing stock for local residents. What Airbnb has done is rip open a loophole for professional landlords and property managers to offer the housing they have control over to tourists instead of local residents. You’re pitting the needs of tourists against local residents. That can’t help but have a huge impact on your city.
This happens at the margins. Let’s say you have a certain number of vacancies, like in San Francisco, the vacancy rate is about 2%, which is very low. Before that was being offered to whatever local residents lived there. But now a huge chunk of that is being eaten up by Airbnb, VRBO and these other short-term rental agencies. The actual vacancy available to San Francisco residents is less than it was.
Q: Of all the sharing-economy companies, are you most critical of Airbnb?
A: No, I’m also very critical of Uber, TaskRabbit, of Elance-Upwork. I’m critical of them not in that they’re bad or evil companies, but their business model is truly disruptive. They love that word “disruptive.” They say it as a badge of honor. I see it as something that’s really upending a lot of people’s lives.
Q: So take Uber. If a driver wants to earn money this way, in what sense are they better off not having that opportunity?
A: Drivers are telling us what they think of Uber with their feet. Uber’s own numbers show this is a part-time and temporary job.
People say, “I asked my Uber driver and he said he really likes it.” I say, “Ask them how long he’s been driving.” For those who are newcomers and just trying it out and making a few extra dollars, it’s OK. But even those, a lot of them, after a year, they leave.
You have to take Uber’s numbers with a great deal of skepticism. They put out the Alan Krueger report.
That report completely refuted the boast that drivers were making nearly $100,000 a year. When you look at the hourly wage, depending on the city, it was anywhere from $17 to $30 an hour. They’d have to be driving 15 hours a day, 365 days a year to make that kind of money.
Q: $17 to $30 an hour is quite a bit better than, say, minimum wage.
A: It depends on the city. That report did not take into account driver’s expenses. They weren’t subtracted from that. And driver’s expenses are considerable when you’re driving your own car for a job. You have gasoline, car insurance, payments for your car, parking tickets, tolls, whatever. If you’re driving a lot of hours in your car you’re paying anywhere from $7,000 to $10,000 a year for these type of expenses. If you’re savvy enough you can deduct some of that from your taxes.
Here’s the thing that’s remarkable. The data for that report was gathered in October 2014. The report was issued in January of 2015. Two weeks after that report was released, Uber chopped [the] driver’s wage in 40 cities. The data used in that report was immediately irrelevant because it’s no longer what drivers were making.
Q: The book is critical of Uber flooding the streets with cars and also of surge pricing, the way that Uber raises prices when there are more requests for rides than there are drivers to deliver them. If the streets are flooded, the price is low. But if there are fewer cars the price rises. Isn’t this the solution you want to see? The passenger pays more, the driver earns more.
A: There are two problems with surge pricing. We’ve seen some of the outrageous situations. Like Hurricane Sandy and the price went up and caused the attorney general to go after Uber for price gouging. Or in Australia, there was the horrible situation where a killer went into a café and took hostages and people were fleeing a shooting and the price went up eight times. Uber can fix that if they want. That’s easily solvable.
Q: Is that easily solvable? If you have 500 people who want to take an Uber or taxi and you only have 20 or 30 drivers on the street, what’s the easy solution there?
A: In a crisis, the city itself should bring buses close and bus people out. In terms of what Uber should do, Uber should say to drivers, “There’s an emergency situation. We will pay you to go down there and pick people up.” If they want to be a good corporate citizen, that’s what Uber could do, instead of let the people go to eight times regular price.
Q: A terrorist attack is one thing. What about it’s December in Chicago and there’s a lot of snow? What we’re mostly talking about with surge pricing–the most common times that it happens—bad but not life-threatening weather, holidays, rush hour, bar close on a Friday night.
A: If they want to use some sort of price surge that’s capped at a certain amount, I think that’s fine. The complaint from passengers has been they didn’t realize what the surge actually meant. They take an Uber from point A to point B. They pay $15 for that Uber. They want to take the Uber back later in the night and surge pricing is in effect and someone may or may not know what that means.
Q: You propose in the book a piece of legislation that would be called the Maria Fernandes Act. Maria Fernandes was a young woman from New Jersey who worked three part-time jobs. And her schedule was so hectic that she often slept in her car. One time, she fell asleep with an overturned gas container in her car and died while sleeping. It’s a really horrifying story about what this economy is like for people. But her three jobs were at Dunkin’ Donuts. They weren’t “gig economy” jobs.
A: The book is about much more than simply Uber, Airbnb and the gig economy. It’s about what’s happening to the workforce and jobs as a result of technology. That ranges from the gig economy apps that make it so easy to hire and fire workers, to the technology used for just-in-time scheduling, that allows managers to precisely plan when they need part-time employees there, so they don’t give them schedules in advance.
And then also I go a little into things like automation and robots and artificial intelligence. Although there’s other books [that speak] much more comprehensively on those topics. But I’m trying to give a much broader picture of how technology is influencing jobs.
Q: This Pandora’s box has been opened. This technology is out there now. We have these companies. So what do you think should be done in terms of policy?
A: I don’t try to suggest we should ban these technologies. So how do we allow the new economy to go forward so workers aren’t hurt and in fact benefit? We’re going to need different regulations, different policies.
The primary one I argue for in the book is individual security accounts for each worker. The traditional model, you work for a single employer and that’s where the employee got their safety-net benefits. Now we’re moving into a world that’s multiemployer-based. Here’s what I’ve proposed: Every employee would have an individual security account attached to his or her Social Security number. Every business that worker works for, whether it’s a 1099 worker or a regular employee, that business would pay into this individual security account. They’d pay a certain amount above the wage for the hours they work. So if you work part-time in a hardware store, they pay into that account. If that worker supplements as an Uber driver, or Taskrabbit or Dunkin’ Donuts, then they’d pay a certain amount.
The amount comes out to only about $2 an hour above what the employer pays for these workers. It’s not a lot of money for a safety net that includes Social Security, Medicare, injured worker, unemployment, five days of paid sick leave and paid vacation and includes health care.