A Strong Job Market and the “Gig” Economy

The two don’t go together very well.

It wasn’t so long ago that the so-called “gig” economy was all the rage. In the early 2010s, with a sizable portion of companies being skittish to commit to hiring full-time workers due to fresh memories of the economic downturn, many workers found opportunities to make money through various different gig economy service firms — companies like Uber, Lift, Postmates and others.

What those jobs offered workers were flexible schedules, reasonably decent pay, and the ability to cobble together a livelihood based on holding several such positions (while still being able to hunt around for full-time employment).

For employers, it was the ability to build a workforce for which they didn’t have to cover things like office expenses and various employee benefits — not to mentioning paying for payroll taxes like the employer social security contribution.

In the past few years, the environment has changed dramatically. With national unemployment hovering around 3.5% — and lower still in many larger urban areas — “gig” companies have found it more difficult to find workers.

What’s more, those workers who are hired are churning through the companies more even more quickly than before — many staying with these jobs for just a few months.

Tis is driving up worker recruitment costs to their highest levels ever.

In a May 2019 interview with The Wall Street Journal, Micah Rowland, COO of Fountain, a company that helps gig companies acquire new workers by streamlining the hiring process, puts it this way:

“It [strikes] me that in some of these markets, they’re processing thousands of job applicants every month — and these are not large cities.”

In Rowland’s view, gig companies in some markets may be burning through the entire available labor market of people willing to work in roles of this kind.

It isn’t as though turnover rates aren’t high in other service sectors in the more “traditional” economy. In the fast-food industry, for example, turnover is running as much as 150% annually these days. But in the case of gig employment markets, it’s even higher — sometimes dramatically so.

With the tight labor market showing little sign of loosening anytime soon, it may be that we see some firms looking at “regularizing” employment for at least some of their workers. If it makes economic sense to hire some actual employees in order to curb recruitment costs, some will likely go that route .

There’s another factor at work as well. More of these gig economy workers are becoming more vocal about pushing back on pay and working conditions. Noteworthy examples have been recent protests by rideshare company workers in cities like Los Angeles and San Francisco.  Others have done the envelope math and have determined that once driver-owned vehicle costs of gasoline and depreciation are calculated against declining fares that have dropped below $1 per mile in some markets like Los Angeles and Minneapolis-St. Paul, workers’ effective wages are significantly less than even $10 per hour.

Picking up on these worker concerns, a number of activist groups are making gig economy companies like Lyft and Uber into a “cause célèbre” (not in a good way), but loud, polarizing detractors such as these tend to muddy the water rather than bring fresh new insights to the debate.

As well, one wonders if the activism is even needed; I suspect what we’re seeing now is a pendulum swing which happens so often in economics — where an equilibrium is re-established as things come back into balance after going a bit too far in one direction. In the case of the gig economy, the low unemployment rate in many regions of the country appears to be helping that along.

Uber über alles? Ride-hailing services are coming on stronger than ever.

Business travelers have spoken with their wallets.

Uber logoIt looks as if a major milestone has been reached in the battle between “old world taxis” and “new world Uber.” An expense report study covering the second quarter of 2015 is showing that Uber and other ride-hailing services have overtaken the use of taxis – at least when it comes to business travelers.

The quarterly report was released by Certify, an expense management system provider. It reveals that Uber accounted for ~55% of ground transportation receipts, whereas taxi services accounted for only ~43% of receipts.

That’s a big jump from previous quarters; taxi services long dominated, staying well above 50% as recently as the first quarter of this year.

And this report isn’t based on some small data set, either. Certify’s stats are derived from millions of trip receipts submitted by its North American client base – nearly 30 million receipts over the course of a single year.

Clearly, Uber and other services that connect travelers through smartphone apps have succeeded beyond many people’s expectations.

But not everyone is pleased – beginning with taxicab services and their political allies.  Understandably, they’re frightened by the prospects of seeing the most fundamental tenets of their “business protection plan” melt away before their very eyes.

Depending on how people come down on the issue, opinions can be particularly passionate. Consider these responses prompted by a recent AP article on the topic published by ABC News:

Pro-Taxi Reader: Uber is breaking laws and evading taxes and municipal dues on a mass scale. How do you “adapt” to that? How to adapt to this unfairness and criminality? I personally suggest stop paying taxes, or start a strike like they did in Paris. It seems that in [the] U.S., Uber’s lobbyists and endless BS-PR campaigns control the country.

Pro-Uber Reader: Is it really “fair” for a city to charge one million dollars to have a taxi license (New York City)? Most of the taxi BS is from mafia-run business[es] who have fought for the last 70 years to keep competition out.

Another Pro-Uber Reader: The current system of licensing taxis should be reconsidered.  This system smacks of monopolies, with barriers to entry that are impossible.  There is no free market when you can’t get a license to operate.

Certain national politicians are even getting into the game, finding fodder for campaign rhetoric aimed at constituents who are frightened by the implications of the new work paradigm.

Here’s an excerpt from a speech by Hillary Clinton:

“Many Americans are making extra money renting out a small room, designing websites, selling products they design themselves at home, or even driving their own car. … This on-demand, or so-called ‘gig economy,’ is creating exciting opportunities and unleashing innovation. But it’s also raising hard questions about workplace protections and what a good job will look like in the future.”

These are good points to raise, and it’s certainly fine to weigh the pros and cons of the so-called “new economy.”

At the same time, it’s pretty ironic to see how people supporting a candidate who questions ride-hailing services are so “onboard” with Uber – at least in practice if not in their rhetoric.

To illustrate, take a look at these Federal Election Commission filings from the Ready PAC (the pro-Clinton SuperPAC formerly known as Ready for Hillary PAC) here and here and here.  There’s a “whole lotta Uber” going on!

Getting back to the real world of business travel, in nearly every city, Uber is offering better pricing than taxi services – at least when it comes to services like UberX which typically involve transport in smaller cars like a Honda Civic or Toyota Camry.

SUVs and limo cars are pricier, of course, and may not represent a major cost improvement. And Uber’s prices charged also rise during periods of “surge” usage.

taxi cabBut considering the comparative cost as well as the quality of service, in some markets Uber beats out taxis by a city mile.

How else to explain results in the most recent quarter where ~60% of rides in Dallas expensed through Certify were for Uber vehicles rather than taxis. In San Francisco, Uber’s share was even higher:  nearly 80%.

No wonder taxi services are running off to local elected officials, boards and commissioners to try to shore up their faltering business model.

It’s worth noting that some employers harbor reservations about ride-hailing services — particularly concerns about lack of regulation, safety and liability. But even in non-regulated locations, protections exist. Uber as well as Lyft, another industry participant, provide driver insurance during paid rides, and they require drivers to carry their own personal auto insurance as well.

It would be interesting to hear the views of people who have used Uber or other ride-hailing services. Do you see them as the wave of the future? Or are there drawbacks? Please share your experiences and observations with other readers here.