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Uber admits underpaying drivers by 30% to 120%!

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Message Frank Stricker

Well, the company doesn't quite put it that way, but that is how much more Uber claims riders would have to pay for a ride if Uber is forced to treat its de facto employees as employees rather than as independent contractors. Uber and Lyft are fighting tooth and nail against AB 5, a California law that went into effect on January 1, 2020. The law aimed to force companies like Uber to modify their robber-baron business model and allow their workers the rights and benefits other employees have.

The Uber business model is frosted in rhetoric about driver flexibility, modern technology, and neighborliness: the worker chooses when to work, the allocation of rides is facilitated by an app, and the whole process is sometimes called ride-sharing. ("You were driving downtown anyway--why not share a little and get paid for adding a rider?")

But the reality of the Uber business model is that pay is low and most of the risks of the job and of life itself are loaded onto the workers. The company contributes nothing to Social Security, Medicare, workers compensation, tax shelters, health insurance, or state unemployment insurance funds. The last fact is why, early in the covid plague, the federal government--ultimately, we the tax payers-- had to pay the whole bill for giving unemployment benefits to independent contractors, aka gig workers.

Also, independent contractors are not normally covered by overtime and minimum wage laws. Their real average pay, after subtracting the cost to the worker of car insurance, gas, maintenance, and other things, is sometimes very low--far below legislated minimums in states like California.

While there is a real convenience factor for many people who drive for Uber, Lyft, and similar companies, drivers are generally subsidizing the price of a ride so that it is less than it ought to be, and they are subsidizing the companies who underpay the people who are, in key respects, their employees. Yes, some drivers are OK with part-time low-pay work. Others have organized to demand a better deal. Most drivers don't drive full-time or year-round and quite a few start driving after they've had a significant loss of income, due to unemployment, family emergencies, or something else. That is, they are desperate. In general Uber-type jobs are not the kind you'd like to have if you want to build a family and buy a home.

California's AB 5 requires that companies like Uber and Lyft treat their employees like employees. Uber and Lyft refused to obey the law. They sued the government. They lost the case and were ordered to classify their California drivers as employees. The companies are appealing. Some companies are talking about creating a third way that includes aspects of the employer-employee relationship. Uber's chief, Dara Khosrowshahi, who, in 2019, received a $45 million-dollar pay package that included $2 million just for work-related expenses, has proposed a pool of cash that workers could use for health insurance, leaves, and other things. New York Times writer Noam Scheiber notes that if companies go too far in that direction, they will look more like employers of employees than mere facilitators of the work of independent contractors.

Some third-way suggestions are on the California ballot this fall as Proposition 22. Uber, Lyft, Doordash, and other companies have raised over $100,000,000 to support Prop 22. The proposition exempts transportation company drivers from the regulations in AB 5 and it makes promises about minimum wages and health benefits. These promises may be iffy in a number of ways, including how many hours drivers must drive to qualify and whether wait time will count as work time. And in general, new benefits will have to be small. Otherwise, the Uber model may not endure.

August 20, 2020, update. Lyft just suspended service in California. Uber will follow. In part, this must be an effort to pressure the state of California to exempt them from AB 5. Also a political move to win support for Proposition 22. By the way, workers laid off by the Lyft and Uber shutdowns won't get regular unemployment benefits, thanks to the Uber-Lyft model. And the federal government has not yet renewed special unemployment benefits for gig workers.

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Frank Stricker Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Emeritus Professor of History, Labor and Interdisciplinary Studies, California State University, Dominguez Hills; board member of National Jobs for All Network.
Author of American Unemployment: Past, Present, and Future (University of (more...)

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