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.


Pre-Emption of City Home Rule Rights is a Problem of Power

Screen Shot 2016-06-01 at 11.12.38 AMNew Orleans   Alabama, Arizona, and North Carolina have all passed pre-emption bills in 2016 in order to ban cities in their states with “home rule” rights from increasing wages or sick leave provisions within their boundaries. According to the Wall Street Journal another half-dozen states, controlled lock, stock, and barrel by Republican legislators, have pending bills to rein their cities in before they become too democratic and concerned for their people. The biggest surprise to me was that I thought these states had passed such pre-emption legislation years ago when many others did so. Unbelievably, the window was left wide open and we didn’t’ crawl through earlier when we had a chance. Darned!

A similar wave of such pre-emption legislation was passed between 1996 and 2000 in many states in reaction to living wage initiatives originally placed on the ballot first in Houston and then subsequently in Denver and then New Orleans. Local 100 with ACORN was able to get the proposition on the ballot in Houston for over $7 per hour, and ACORN joined with others to do the same thing in Denver later that year. In Houston the opposition, led by fast food companies came in hard over the last two weeks of the campaign with a “they mean well, but they’re hurting the people they trying to help” misdirection pitch trying to argue that the higher wages would lead to job reductions, a proposition that has now been thoroughly discredited by numerous economic studies at this point. In Denver a little later it was just straight hardball, with hotels and fast food companies spending over a million dollars, as estimated by political observers to swamp us in the media.

In both cities, we lost badly since we were proposing almost double the federal minimum wage at the time, somewhat analogous to the problem of jumping from $7.25 to $15.00 now in current campaigns. Our efforts built the organization in those cities though because the voting was almost rigidly by class, racial, and ethnic lines. We won our people overwhelmingly in low-and-moderate income wards and precincts while losing badly everywhere else. In former President George H.W. Bush’s River Oaks neighborhood there was only one vote for our increase, and more than 260 against us! I’ve often joked that almost twenty years later they are still looking for that one freedom fighter. Denver was the same.

In New Orleans, after first petitioning for over $7.00 per hour, we learned from the first two soirees and came back with a second petition at $1 over the federal minimum wage with an automatic increase if the federal level went up. We won that election solidly, but while going to the ballot the National Restaurant Association and the federation of independent businesses teamed up to get a pre-emption bill passed. We later lost our victory before the Louisiana Supreme Court when the majority allowed the pre-emption to stand. Similar pre-emption bills in one form or another were quickly passed in Texas, Florida, and Colorado among other states. We switched our strategy to winning increases at the state level in order to best that problem, later winning across the board increases in Arizona, Florida, Ohio, Missouri, and many other states.

As long as Republicans are controlling redistricting in state legislatures after recent census counts and gerrymandering wildly, so that they can try to legislate away demographic realities that could cripple them, we are going to see more and more authority moved to the state and away from the cities where voters’ will can be more easily exercised on local officials. The pendulum will swing back again, but we need to avoid the temptation to retain pre-emption because local actions often best reflect democracy. Reacting to pre-emption many businesses, self-servingly, say they would be alright with federal action on wages and sick leave, but the patchwork quilt is something they can’t handle. Such a position is gratuitous these days, knowing that there’s no relief coming in this area from Congress, where all good things that help people now go to die.


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