The Achilles Heel of the Gig Economy is that Workers Can’t Make Enough Money

New Orleans   Uber is the canary in the coal mine. After years of listening to the reports that held up Uber as the herald of the future, creating a new business model where an application would substitute for an employer, the accounting is finally coming due. Its drivers were touted as the vanguard of the gig economy, complete with claims that this was what the “new” worker really wanted from employment. Now it turns out Uber may be the canary dying in that coal mine because the Achilles heel of the gig economy is increasingly revealed: it’s not sustainable. No matter what Uber and others want to call them, they depend on workers, and workers are voting with their feet that they can’t make it on temporary work, so they have to keep moving, and that means working for another company. The gig economy doesn’t work when people can’t make a living on Uber and similar gigs.

Uber has lost $4 billion over the past 18 months for lots of reasons, but largely because it can’t make its workforce either happy or stable. They are like a bait-and-switch operation offering incentives, prizes, tips, and extra bonuses, but increasingly hitting the brick wall where their drivers are realizing they still are barely making minimum wages per hour. In fact the Wall Street Journal reported that Uber cooperated with a study done by a New York University professor that,

“found that no matter which directions fares go, drivers invariably take home about the same earnings over time…[because] When there is a fare cut, drivers’ pay per trip falls but riders flood the service, offering more business. A price rise eventually lures more drivers than Uber needs and scares away riders. The changes are short-lived as an equilibrium is reached after about eight weeks, and drivers’ average pay comes out the same.”

This means that Uber, the harbinger of the future, “must lean heavily on pricey incentive payments – cash for completely a certain number of rides a week, say – to bring driver earnings above what typically amounts to around minimum wage.”

Wow! I’ll guarantee you, because I know many once upon a time Uber and Lyft drivers that join on the promise of higher wages, and they leave when they finally realize that paying for gas, their car, insurance, and then looking at their pay, it just doesn’t add up. Uber is stuck on a business model that is based on exploitation of workers, that business model, like most of the vaunted “gig economy” is unsustainable, because workers fooled at first, are not fooled forever when it comes to the empty pay envelope.

Uber and the rest of these companies are not a new model, but an old one. They are labor contractors trying to sweat workers with a new tool, but an old scam. This is a piece rate scheme. Some workers can make it, but most can’t. Worse, all of these companies are pushing off their responsibilities as employers to provide social security, unemployment and even bare bones benefits, but making the workers who are their lifeblood into subcontract labor. In Europe and some US cities, that part of the hustle is also falling apart as Uber is increasingly declared an employer.

Workers are being gigged by this model. The canary is dying in red ink. A business model that depends on exploiting workers is doomed, even if it takes some time to die.

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And, if You Make it Through the Mortgage Maze, then There’s Insurance

Indianapolis  Saving money on the ticket I was flying out of Indianapolis and that meant joining the truck drivers and precious few others on the interstates and US highways in the middle of the night linking Detroit and Indianapolis, so I could beat the rain and make the plane.

In one of our last meetings we had met with the directors of Detroit Action Commonwealth at their offices to discuss some collaborations on our organizing programs and staffing to move the ACORN Home Savers Campaign forward along with their anti-eviction and housing work. I got an email adding another mountain to climb for families trying to rebuild their neighborhoods and achieve home ownership in Detroit: insurance.

The message started out as a success story for one of their members being able to buy their house in Detroit, but then it turned dark. When they had to get insurance in order to maintain the mortgage, which is a fairly standard requirement, the only companies that would touch them wanted to charge an annual premium that would be equal to one-sixth of the total value of the property. On a home worth even as little as $30,000, that would mean paying $5000 annually for insurance. The math is fairly simple to follow. If worth, $60,000, insurance would be $1000 per month or $12,000 per year. At $100,000 it would be $16,666.67, although I would bet that at that point it starts to go down, because this predatory pricing to rip off lower income families likely doesn’t extend her up the income scale. Ridiculous! What risk is the insurance supposed to be covering?

Of course if car insurance routinely costs $400 or $500 a month, maybe this all looks like some ol’, same ol’ to both the embattled people in the neighborhood and something that the insurance folks think they can defend, and the big banks can hide behind with their precious few mortgages in the city. Here’s my question. Given the disaster in the Detroit neighborhoods, why aren’t homeowners able to avail themselves of the same governmental insurance pools that are available to cover people in Louisiana and Florida where insurers are unwilling to stand against the risks of hurricanes and flooding? Deindustrialization is a disaster in these neighborhoods, too! Sure, it’s not cheap and, given the federal government’s willful refusal to ignore the consequences of climate change, it’s also somewhat precarious, but since I pay it myself along with most people in live in New Orleans, I can guarantee you its not one-sixth of a home’s appraisal. It’s more in the 3% range. That’s not cheap, but it’s more of a low rise hill to climb, than a Mount Everest of a mountain to scale for homeowners.

But, I understood the message from our colleagues at DAC, no matter what a real solution might be, it would involve the powers that be actually caring about urban America and in the case of Detroit, not walking out of the room every time the city and the problems of its people come up for discussion. Detroiters can’t afford insurance, and it seems they can’t buy a break either.

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