The Downside of Uber

The rise of ‘car sharing’ services like Uber and Lyft have greatly increased convenience and lowered prices for consumers while providing a nice income supplement for drivers. It has, alas, had a devastating effect on taxi drivers.

NYT (“A Driver’s Suicide Reveals the Dark Side of the Gig Economy“):

The economic hardship that Uber and its competitors had inflicted on conventional drivers in New York and London and other cities had become overwhelming. For decades there had been no more than approximately 12,000 to 13,000 taxis in New York but now there were myriad new ways to avoid public transportation, in some cases with ride-hailing services like Via that charged little more than $5 to travel in Manhattan. In 2013, there were 47,000 for-hire vehicles in the city. Now there were more than 100,000, approximately two-thirds of them affiliated with Uber.

While Uber has sold that “disruption” as positive for riders, for many taxi workers, it has been devastating. Between 2013 and 2016, the gross annual bookings of full-time yellow-taxi drivers in New York, working during the day when fares are typically highest, fell from $88,000 a year to just over $69,000. Medallions, which grant the right to operate a taxi in New York City, were now depreciating assets and drivers who had borrowed money to pay for them, once a sound investment strategy, were deeply in debt. Ms. Desai was routinely seeing grown men cry and she had become increasingly concerned about the possibility that they would begin taking their lives.

On Monday morning, Doug Schifter, a livery driver in his early 60s, killed himself with a shotgun in front of City Hall in Lower Manhattan, having written a lengthy Facebook post several hours earlier laying out the structural cruelties that had left him in such dire circumstance. He was now sometimes forced to work more than 100 hours a week to survive, he said; when he had started out in the 1980s, a 40-hour week was fairly typical. He blamed politicians — mayors Michael R. Bloomberg and Bill de Blasio, Gov. Andrew M. Cuomo — and their acquiescence to the rich for permitting so many cars to flood the streets. He blamed the Taxi Commission for the fines and hassles it imposed.

He had lost his health insurance and accrued credit card debt and he would no longer work for “chump change,” preferring, he said, to die in the hope that his sacrifice would draw attention to what drivers, too often unable to feed their families now, were enduring. He had forecast all of this doom in columns he had written for a trade publication called Black Car News, he wrote, but few had listened to him.

Implicit in his testament was the anger he felt over the de-professionalization of his life’s work. Mr. Schifter had driven more than five million miles throughout his tenure, through five hurricanes and 50 snowstorms. He had chauffeured celebrities and worn a suit. He was not driving a car to supplement the income he was getting from his crepe business and he was not trying to make a little extra money for massage. He was not a participant in the gig economy; he was a casualty of it.

On the macro scale, it’s hard to feel sorry for an industry that provided often-substandard service at grossly inflated prices because they were granted monopoly status through rent-seeking. New York City is a massive metropolis with millions of people who don’t bother to own cars, given the sheer expense of operating them in a big city and the availability of public transit. The current 100,000 cab-like vehicles makes far, far more economic sense than the previous 12,000 to 13,000.

On a human scale, though, this is tragedy. Throughout history, improvements in technology have disrupted previously-burgeoning sectors, putting whole swaths of people out of work or vastly decreasing demand for their services. While many will see their lives improved as they shift to other sectors, many others—especially those who are on the older side—never will. That’s a steep price for progress and we haven’t done enough as a society to deal with that. And the pace of this change is much more rapid than it used to be.

The taxi industry is a special case, though, in that cab and limousine owners and drivers made economic decisions based on rules set by the government. While the medallion system is outrageous and I’m happy to see it disrupted, the fact of the matter is that it was the norm for generations. People saved up or took big risks in borrowing to bid on them based on guarantees from their municipal government. They have every right to expect that same government to either enforce the law against illegal competition or compensate them in some way for the broken contract.

The phenomenon of the “side gig” is interesting to me, too, since I’m a participant. The rise of blogging and other social media has given a platform to many of us who would not have had one in the days where magazines, newspapers, and broadcast outlets were the gatekeeper of opinion-mongering. The fact that millions of us are spouting our views on the Internets for free has certainly devalued professional punditry. There are almost always unintended negative consequences for advances.

FILED UNDER: Economics and Business, James Joyner
James Joyner
About James Joyner
James Joyner is the publisher of Outside the Beltway, an associate professor of security studies at the Command and Staff College, Marine Corps University, and a nonresident senior fellow at the Brent Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. He earned a PhD in political science from The University of Alabama. Views expressed here are his own. Follow James on Twitter.

Comments

  1. I’m sympathetic to what happened to this particular man in this particular case, but it’s not the fault of Uber, Lyft, or the fact that the existence of companies such as this have had an impact on the artificial monopolies that taxi services have enjoyed for a long period of time.

    In particular, though, I’m troubled by the implicit tone of the article quoted above that appears to somehow blame technological development for this man’s suicide. Suicide is due to mental illness such as depression and the perceived inability to cope with the world and to blame it solely or principally on societal change is mistaken, in my opinion. If there’s a tragedy here, it’s the tragedy that this man either didn’t reach out for help when he needed it or didn’t have the support system that anyone in his situation needs to deal with the world around him. I don’t know if he reached out for help or not, but it wouldn’t be surprised if he didn’t because we still live in a world where seeking treatment for mental illness is seen as a sign of weakness at the same time that people go to a doctor when they have something as insignificant as the common cold.

    The development of the automobile itself was disruptive to the horse and buggy industry, and the lightbulb was disruptive for candle and lantern makers. There may well have been individual tragic outcomes in those instances like this one. But, in the end, that’s not a reason to resist the new technology, or to protect industries that are going through long-needed changes.

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  2. Gustopher says:

    Another aspect to the disruption that you are missing: Uber and its ilk are only available to the people with smart phones — making them not an option for the poorest Americans, not even in an emergency. The variable pricing is also going to limit acces.

    Taxis and traditional car services are also part of the overall transportation policy for most cities. They are heavily regulated to ensure that cars are available in all neighborhoods, at all times, rather than just the wealthier areas. Nearly every regulation has come about as a reaction to abuse.

    The regulations also ensure that drivers make a reasonable income. Without that, in many cities, the taxi industry had gone through massive boom and bust cycles where the public was poorly served. Remember, taxis are part of the transportation plan, along with mass transit.

    In the case of NY, the 12000 yellow taxis are also just the most visible part of the car service industry. There are also a large number of car services which are not hailable and are also regulated to only pick up passengers in certain zones. So, the 12,000 yellow cabs is a red herring.

    Uber also pays less and less to drivers — they are cutting the percentage that drivers get to keep. Uber also looses money on every ride.

    Uber also enters every market by just ignoring local laws. Laws are for little people. They provide a service for the upper middle class, and then court that upper middle class to get the laws changed.

    Disrupting the taxi industry means simultaneously disrupting the transportation plan, hurting taxi drivers, putting car hailing services out of reach of the poor, and losing money in the process. It’s all around awesome.

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  3. KM says:

    @Doug:
    Agreed. While I do think it’s unfair that cabs are subject to some regulations that ride-sharing is not, I find it hard to be sympathetic to the industry that’s refusing to change with the times. We claim to be a capitalist society but boy do we scream bloody murder when the market doesn’t favor our chosen ways. We don’t want to change or adapt but cling to what we were. Nobody said you have to be a taxi driver for the rest of your life – you can get another job. Yes, I know it’s hard but taxi drivers are no different then coal miners who refuse to admit their time’s almost up. Look into other lines of work or just become an Uber driver yourself.

    America is trying to hold back the clock instead of learning how to incorporate these new advances into our way of life. Once driverless cars become the norm, Uber will go bye-bye too and the circle will be complete.

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  4. grumpy realist says:

    A driver in England just died because he didn’t dare take time off from work to get his diabetes symptoms looked at. They have fines in parts of the gig economy, you see, if you don’t work X many hours a week.

    We really are going back, both in England and in the US, to a pre-Victorian setup.

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  5. Gustopher says:

    He was not driving a car to supplement the income he was getting from his crepe business and he was not trying to make a little extra money for massage. He was not a participant in the gig economy; he was a casualty of it.

    This is another one of those things that people get wrong — there are a lot of Uber drivers for whom driving is a living. An increasingly poorly paid living with a large up front cost, so a living for people sliding down from middle class to working poor.

    On a per-ride basis, the majority of Uber rides are by full time drivers.

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  6. TM 01 says:

    I certainly feel bad for this guy, but these things happen all the time in every industry.

    The medallion system should have been ended ages ago. Actually, never started in the first place.

    But yes, disruptive technologies, or any paradigm shift, always cause hardships in the short term.

    Lightbulbs. Refrigerators. Cars. CAD software. Cell service. The internet itself and the online marketplace.

    This NYT article is actually calling for economic and technological stagnation.

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  7. Gustopher says:

    Finally, every software engineer that I’ve known who is a complete asshole has gone to work for Uber. They are an insufferable bunch, and we should all be rooting for their failure.

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  8. @KM:

    America is trying to hold back the clock instead of learning how to incorporate these new advances into our way of life. Once driverless cars become the norm, Uber will go bye-bye too and the circle will be complete.

    Either that or Uber or services like it will be folded into the self-driving car industry. Indeed, the idea of self-driving cars promises to be perhaps one of the biggest disruptors in transportation that we’ve seen since the advent of the automobile itself. If you can summon a driverless car with an app (or whatever we might be using by that time) to take you where you want to go, why do you even need to own a car at all?

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  9. Kathy says:

    The big problem I see with Uber is that it shifted most of the costs of operating a car service to the employees, while avoiding wages and benefits for their employees.

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  10. MarkedMan says:

    @KM:

    Once driverless cars become the norm, Uber will go bye-bye

    Surprisingly, Uber is investing very heavily in driverless car technology. They know their business model is unsustainable. They don’t charge enough to turn a profit, but know if they charge more their ridership will drop off, so they are burning through investors cash. They are losing billions of dollars a year. They depend on drivers who own their own car, but the drivers can’t make enough to buy and maintain cars that would accrue 50-75K miles/year, if they drove full time. So being an Uber driver is a temporary thing where the driver depreciates the capital they own for cash that won’t be enough to earn them a living AND replace the capital at the same time.

    Uber is pitching a driverless car future as the turning point that will finally make them money. I would be surprised if that was true. Although I can believe driverless cars will someday take over the for-hire market, I don’t think Uber is the company to pull it off. They would need to set up billions and billions of dollars of physical infrastructure in terms of places to park and service and clean (and clean and clean and clean) the cars, in addition to the huge capital outlay for the cars themselves. Today they are a software company, and an untrustworthy one at that. That’s a heck of a transition to pull off.

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  11. drj says:

    Throughout history, improvements in technology have disrupted previously-burgeoning sectors, putting whole swaths of people out of work or vastly decreasing demand for their services.

    This may be true, but Uber can hardly be classified as an improvement in technology.

    The company loses staggering amounts of money with rider fares only covering roughly 40 percent of a ride, with the remainder subsidized by venture capitalists.

    After accounting for costs (car maintenance, fuel, etc.), drivers often end making less than minimum wage. Which, of course, means that other workers, through the taxes they are paying (i.e., you and me), are ultimately on the hook for the costs associated with the medical care, social security, etc. for Uber “contractors.”

    Last but not least, online firms can often be profitable because the costs associated with scaling up their business in the online world tend to be close to negligible. But car maintenance and fuel costs have no such scalability as they take place in a physical environment. Capturing more market share will thus not solve Uber problems.

    In other words, Uber is a terrible idea that needs to die ASAP. Fortunately, we can be pretty sure that it will.

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  12. michael reynolds says:

    @TM 01:

    This NYT article is actually calling for economic and technological stagnation.

    And how would you characterize quitting international treaties, eliminating environmental protections and walking away from national investments in new energy tech all so Trump can collect a few votes by promising a new coal bonanza?

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  13. MarkedMan says:

    @drj:

    Uber is a terrible idea that needs to die ASAP

    Uber is a terrible company, yes, but the idea is great. In fact if my memory is correct a NYC taxi company tried to bring the essential idea (use an app and GPS to match a rider to a nearby taxi) to market 2-3 years before Uber did, but the rest of the taxi companies successfully lobbied the NYC taxi commission to ban it. I first experienced the basic Uber concept in Singapore, before Uber and utilizing the existing taxi infrastructure, and it was a revelation. So, so much better for both the driver and passenger. So the good part of the “Uber” concept (which wasn’t their concept to begin with) is very good. The bad part is really just a variation of Amway’s “recruit suckers to burn through their own money and friends in order to enrich the company”. It’s essentially, “Recruit suckers to drive their $30K into the ground in two years while struggling to make minimum wage and having people puke in your car, in order to enrich the company.”

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  14. michael reynolds says:

    I use Lyft rather than Uber because Uber’s leadership has been just a wee bit, um, trumpy-rapey.

    Like @Doug Mataconis I feel pity for the individuals but not for the cab companies or the municipalities/airports that have mismanaged their taxi system. NYC is not the worst for cabs, try to find an LA cab that isn’t utterly filthy. Worse yet, try to find a taxi in a suburban or rural area. Uber and Lyft cars are always clean, the drivers are occasionally surly but don’t approach the loutishness of many cab drivers.

    London is a different matter. I’d hate to see the black cabs go out of business, but that market has long since been penetrated by ubiquitous car services which are often under long-term contract to various corporations. And Las Vegas cabs are excellent as well. But NYC, LA, SF, Chicago all have lousy cab services, and I don’t just mean expensive. I mean vile, un-maintained cabs, surly and untrained drivers, and a delightful habit of refusing to pick up black people, sometimes women, young people – anyone they suspect might tip poorly.

    So, the model may not be sustainable for Uber or Lyft, but it will nevertheless survive because it is wildly successful from the customer’s perspective. Someone will make it work until that glorious day when the self-driving car becomes the norm.

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  15. grumpy realist says:

    @michael reynolds: Mike, have you ever taken a taxicab in Japan?

    Expensive as hell, but great with the lace covers on the seats and the drivers with white gloves.

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  16. michael reynolds says:

    @grumpy realist:
    I have! I’d forgotten Tokyo. I think the driver would have shined my shoes if I’d asked him. Though on the larger front I find the politeness and ritual to be a bit stifling. I was at the Peninsula in Tokyo for about a week and ended up sneaking out of side doors just to avoid the gantlet of people bowing. Sometimes you just want to walk through a door without it being a thing.

    On the other hand I went to the Robot Restaurant of Kabukicho on my 59th and it was flat-out the best bunch of crazy ever.

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  17. MarkedMan says:

    @michael reynolds: The Japanese / Asian thing that always threw me off took place in neighborhood restaurants, where the staff would shout out welcome to everyone who walks in the door. I’m a “when in Rome kind of guy” so normally things like that don’t bother me, but in this case I’m put off by that extra attention coupled with the “obvious foreigner” attention that is inevitable in any country where Caucasians like me are rare.

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  18. James Pearce says:

    We will never ride in self-driving cars, but little self-driving carts might bring us stuff.

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  19. grumpy realist says:

    @michael reynolds: I was in Japan during the whole real estate bubble thingie and got to see the sort of restaurant that the Japanese will put together when there’s a huge amount of spare cash floating about. One restaurant I went to several times had crooning robots, an automated calliope with actual steam, and you don’t want to even imagine what they did in the bathrooms….

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  20. grumpy realist says:

    @MarkedMan: In my experience, it has a lot to do with whether you speak Japanese or not and your body language…

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  21. Kathy says:

    @drj: Interesting article.

    I wonder how the rest of the gig economy is doing, both for the “contractors” and the companies running the apps.

    I also wonder how does Uber justify wrecking the taxi industry without making a penny in return. In some ways, it seems more like the plot of a Bond novel (if it were written by a bureaucrat): Startup creates turmoil in an inefficient transportation industry, and also traps lots of people into low-wage jobs.

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  22. Lounsbury says:

    @MarkedMan: Quite right.

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  23. Monala says:

    @Gustopher: This is not always true:

    Taxis and traditional car services are also part of the overall transportation policy for most cities. They are heavily regulated to ensure that cars are available in all neighborhoods, at all times, rather than just the wealthier areas. Nearly every regulation has come about as a reaction to abuse.

    A lot of poorer and minority neighborhoods in cities with taxi service aren’tactually served by taxi service, even when it’s plentiful in the municipal area. I know this from experience. For a lot of those communities, Uber and Lyft have been godsends, because they drivers will actually come to them.

    Your point about smart phones has more merit, but even in the poorest neighborhoods, most younger people have access to a smart phone. (Older people, not so much).

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  24. MarkedMan says:

    @grumpy realist: Oh, language is huge, and ability to walk around like you belong there is important. (I remember the first time I was walking on a crowded sidewalk in Shanghai when most of the people were moving towards me rather than with me. It was an excruciating exercise in crossed cultural norms. A month later I didn’t even think about it.). But no matter the country, whenever I visited a place with a good friend who was a native and we went in to their local cheap hangouts, yeah, it was a different level. People just don’t expect to see a 6′ 1” white guy* there. No one’s rude, but a lot of people look up and check you out.

    *That’d be 6’3″ in Trump inches

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  25. Monala says:

    @MarkedMan: Upvoted just for your footnote!

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  26. Sleeping Dog says:

    Uber and its ilk, have significantly traffic congestion in many major cities and have negatively impacted subway and bus service.

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  27. LA Fisher says:

    In 2014, the city sells $350,000,000 worth of wheelchair accessible medallions to buyers who, by NYC TLC directive, must provide proof of loans of at least 80% commitment. Six months later, Uber begins ramping up their fleet of cars. This was and always will be a local political issue in every municipality. It typically revolves around campaign coffers, and with the size of the Uber lobbying fleet, it’s no wonder that the cities have turned against traditional taxis. The technology Uber brought to the public was good, but now it’s matched by others including yellow taxis. If the medallion system was so terrible, the city should never have sold those medallions in the first place. Now, they should provide relief by giving that money back as a first step.

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  28. TM01 says:

    @michael reynolds:
    DO you mean exiting treaties or agreements that are nothing more than payouts from the US? Getting rid of onerous regulations that do nothing for the environment, but cause companies to leave the US to setup elsewhere? Or are we talking about getting rid of regulations that let individuals and companies freely develop and invest in new technologies?

    If so…then GREAT!!

    Or are you just a rabid ant-Trump troll who WANTS economic and technological stagnation? Let’s stop where we are right now?

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  29. grumpy realist says:

    @MarkedMan: I ran around to a lot of obscure places in Japan (wonder if that antique store I used to frequent in Kanazawa is still in existence?) and had a hell of a lot of fun getting into discussions with people. I still remember the Francophone kabuki actor I sat next to on one flight swapping stories about great restaurants to go to in Paris. Then there was the retired CEO who over the course of an evening gave me a complete history of the development of the Japanese railways after the war, including exactly how all the gauges were developed.

    Good times, good times.

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  30. R.Dave says:

    The taxi industry is a special case, though, in that cab and limousine owners and drivers made economic decisions based on rules set by the government.

    This is the one aspect of the situation that I think should be / should have been handled differently. I have no doubt that the terms on which taxi permits are issued shield the government from any liability for permit-holder losses resulting from changes in policy, but that’s a strictly legal point. From a good-governance / fair-dealing perspective, I think the government should have worked out some sort of one-time payout to existing permit-holders to cover their losses and perhaps funded it with a temporary excise or sales tax on ride-share fees.

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