New York pauses ride hailing expansion - the gig economy glow fading?

Profile picture for user gonzodaddy By Dennis Howlett August 9, 2018
Summary:
The proposed cap on the number of ride hailing licenses issued by New York City accompanied by a hike in driver wages divides opinion.

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In a landmark set of local law proposals, New York City has put a temporary one year hold on further expansion by ride hailing businesses, which includes Uber and Lyft, both of which defeated past similar moves. More important, the set of bills includes provision to increase the amount drivers receive. According to estimates the rise of 22.5% will mean drivers receive$17.22 per hour after expenses.

New York City Mayor Bill de Blasio was jubilant, saying that he would sign off on the bills as soon as they land on his desk. Blasio and Corey Johnson, the City Council speaker, spin this as a way to curtail the worsening traffic on New York's streets and improve low driver wages while not reducing overall services.

In the two week run up to the passing of the new laws, both Uber and Lyft mounted big ad spending campaigns. Unlike on previous occasions, neither company had the time to mobilize enough users and drivers to protest the move sufficiently to carry the day. Last time this was mooted by New York's Mayor, the companies had a month to campaign, this time it was only two weeks.

This time, the City Council packaged a series of measures including a provision to run a year long study to determine the impact that Uber, Lyft and others have on the environment as well as looking at ways to improve conditions for drivers. During the campaign ride hailing companies said they welcomed the study but fought hard over the 'pause.'

Ride hailing companies protest

As expected, Lyft and Uber were 'disappointed.' In a statement, Uber said:

The City’s 12-month pause on new vehicle licenses will threaten one of the few reliable transportation options while doing nothing to fix the subways or ease congestion

Uber also warned this move could lead to a lack of availability and higher prices.

For its part, Joseph Okpaku VP public policy at Lyft said:

These sweeping cuts to transportation will bring New Yorkers back to an era of struggling to get a ride, particularly for communities of color and in the outer boroughs.

Uber in particular has faced a number of high profile battles in some major US cities along with mass protests in Spain, a crushing defeat in the EU courts in a case brought by France while earlier losing the 'worker' argument in the UK.

Studies share a dismal picture

Uber likes to promote the idea that the Uber app provides drivers with an additional, flexible income. This is something that I have heard drivers local to my area value, but it is not universal.

A report jointly authored by Center for New York City Affairs and the Center on Wage and Employment Dynamics at the University of Berkeley California and upon which New York City Council based its new proposed laws found that:

Paying for a vehicle entirely by driving for hire, as over two-thirds of New York City’s app drivers try to do, is only possible by working full-time. For the 60 percent-plus of all New York City drivers who are full-time drivers—and who provide 80 percent of all rides—work hours are not flexible.

Ninety percent of New York City’s app-based drivers are immigrants, and only one out of every six has a four-year college degree. Driving is their only job for two thirds of the drivers. Eighty percent acquired their vehicle to enter the industry and would risk losing their investment if they switched to working in another industry.

Half of the drivers support children and provide the bulk of their family’s income. Forty percent of drivers have incomes so low they qualify for Medicaid and another 16 percent have no health insurance; 18 percent qualify for federal supplemental nutrition assistance (nearly twice the rate for New York City workers overall).

Those findings paint a very different picture to the one Uber et al likes to spin. In an op-ed in the New York Times, Gina Bellafante said of the payy rise element:

But this figure must be considered within the context of the broader economics of a city where just to live affordably (which is to say, spending a third of your income on rent) in any of its five cheapest neighborhoods — all of them in the Bronx, all of them with median listed rents of $1,500 to $1,600 a month — you need to earn between $54,000 and $58,000 a year. The minimum wage does not get you there.

Bellafante goes on to opine that the measures are 'tepid' and do nothing to ease city congestion or alleviate poverty.

In another oped, Johana Bhuiyan at recode viewed this from the ride hailing company perspective:

But the real trouble is that this may set a precedent for other cities looking to regulate Uber. While Uber and Lyft may be able to stomach a pause in what is Uber’s largest market in the U.S., attempts to replicate these bills in other places may prove to be much more overbearing or sweeping than those passed today in New York.

Is that a net good?

Where does this leave the gig economy?

We have long held to the view that innovation is vital for progress but we question whether the expansion of the gig economy, often characterized by low wages and poor conditions, is a net social good. If anything, this author is of the view that except in certain conditions, the gig economy is a step back.

I can, for example, understand why Uber drivers local to me consider that service as better than driving for the local taxis firms where long hours, threats of violence, robbery and favoritism in the cab office make lives a misery. On the other hand, this set of legislative proposals when set in the context of New York City, while clearly welcome by drivers may yet see unintended consequences on both sides. You can for example bet that the ride hailing companies will pass on the increased costs to the end customer rather than suck it up. That will hit the final strike price should Uber and Lyft go public.

You can also bet that Uber in particular will fight tooth and nail to ensure that the 'pause' is just that and will not lead to a permanent injunction against further expansion. The problem as I see it is that while Uber's CEO is on record saying the company needs to be more human in its treatment of its drivers, it has done little to remove Uber's tarnished image as a greedy business that exploits the vulnerable.

The ride hailing business is but one element of the broader gig economy. There are many others and it will be interesting to see if other business sectors that make extensive use of gig labor are faced with similar moves.

Image credit - Photo by Sammy Schuckert on Unsplash and Jon Tyson Unsplash

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