By Saumya Jain
In the past few weeks, Uber and Lyft drivers protesting unfair pay, poor working conditions, and lack of transparency have generated headlines across all media platforms. It has also surfaced that rideshare drivers have been manipulating the apps to prompt surge pricing, an attempt to combat low-wages. There have been mixed responses to the strike and few have called out the ridesharing companies for their labor practices. A recent article published in the American Affairs Journal explains the reason behind Uber’s labor practices and claims that Uber is neither “innovative” nor “disruptive,” and has not solved the problems that have always been present in the taxi industry.
The article outlines Uber’s “seemingly” rapid growth over the last few years and explains how their “growth at all costs” strategy is based on massively subsidized fares and service levels. The author says that the fares from the very beginning were unrealistically low, which initially helped in driving out competition, but has also resulted in annual losses of billions of dollars for the company. To compensate for these losses, Uber eliminated most of its driver incentives in 2015 and reduced driver compensation by raising the company share of passenger fares from 20 to 25-30 percent.
Almost all of Uber’s margin improvement since 2015 is explained by this reduction of driver compensation down to minimum wage levels, not by improved efficiency. These unilateral compensation cuts resulted in a direct wealth transfer from labor to capital of over $3 billion. Comparable cuts at Lyft resulted in a labor-capital wealth transfer of $1 billion.
According to the author, the losses and unsustainable nature of the company’s economy has been kept under covers through manufactured narratives and their strong media image as heroic innovators. Unfortunately, this strategy has been working for the company and they are actively attracting investors. Uber, Lyft, and their fellow transportation network companies are already disrupting transportation patterns and worsening urban congestion, now they may be setting a new model for labor and work compensation patterns, as well. The author believes this is not for the common good, but only time will tell.
Saumya Jain is a Senior Associate at SSTI.