'It's a Laughable Fiction': How Uber's $82 Billion Valuation Was Built on a Lie to Its Workers

As Uber went public and drivers went on strike, we talked to an expert about the gig economy and the future of work.
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Uber drivers protest outside the Uber offices on May 8th, 2019, in Birmingham, England.

Uber drivers protest outside the Uber offices on May 8th, 2019, in Birmingham, England.

Uber might not be on the road to profitability, but its executives and early investors stand to rake in massive sums during the company's IPO on Friday.

In what is one of the most widely anticipated Wall Street debuts for a Silicon Valley start-up since Facebook's in 2012, the ride-sharing giant priced its shares at $45—a number expected to bring the company's valuation to an estimated $82 billion.

But while the company earmarked 5.4 million shares, or roughly 3 percent, of its stock for drivers, its top brass has been transparent about the fact that it will soon aim to reduce fares and slash driver incentives in order to bolster its overall financial performance. On Wednesday, ride-share drivers participated in an international strike action in order to demand job security and livable incomes.

The drivers' discontent is well-founded: Researchers at the Economic Policy Institute, a Washington, D.C.-based think tank, have previously estimated that, after taking into account Uber commissions, vehicle expenses, self-employment taxes, and the need to provide their own benefits, the company's drivers make less than $10 an hour on average—far below the minimum wage in many large metropolitan areas.

Lawrence Mishel, a distinguished fellow at EPI who worked on the study, spoke to Pacific Standard about the ways ride-share companies are squeezing drivers, and how the idea that the "gig economy" represents the future of work is a fallacy.

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With this Friday's IPO, what's really at stake for workers and for Uber as a company?

Here's the problem: Uber is unprofitable. In fact, they have not really clearly articulated how they're going to become profitable. They have indicated that they intend to clamp down on worker bonuses and incentives, which they acknowledge will upset drivers. At the same time, it's hard to grow, have more drivers, and replace those who turn over and quit, if you're not competitive. And so now we're in a situation of low unemployment. Wages are rising in other industries, but they're not in ride-share driving. So I think they're caught; they're in a price war with Lyft and others. It's hard to see how they're going to be able to accomplish growth, recruiting enough drivers, and become profitable.

So what this IPO is doing is it's giving the Uber investors the potential to cash out. So they may not have to worry about whether Uber ever becomes profitable if they can convince enough people to just buy the stock. I'm not buying any stock.

For workers, I think that there's going to be increased pressure for Uber to become profitable, and I think they're going to need to squeeze workers even more. I don't anticipate relations with drivers becoming less contentious.

Can you put that $10 an hour drivers make on average into context? How does that compare to other what other service workers are making?

It puts them at the 10th percentile, meaning 90 percent of earners earn more. It puts them below the minimum wage in many large metropolitan areas.

What's interesting is that Uber, in its IPO, says that it competes for workers with three industries: wholesale trade, retail trade, and restaurants. And two of those are very low wage: The restaurant workers earn half the average, and retail trade is 70 percent of the average. What they're saying is they regard the people they're trying to attract as very low in education and very low in wage, and that their options are for basically minimum wage-type jobs.

Uber tries to sell itself as an intermediary between customers and drivers, with no real responsibility to their workers. Is there an incoherence between that idea and the amount of control Uber maintains over drivers?

It's a laughable fiction. The idea that Uber drivers are running their own business? It's otherworldly. Uber drivers are subject to unilateral price cuts by Uber. They change the way passenger fares are even done. Uber drivers are not allowed to know who their customers are and keep a list. They can't market. They can't pick up someone on the street. They have not much option as to whether even to accept a ride—a passenger—when one is offered to them. They don't even have much say over the route that they take because if a passenger complains, Uber will pay the driver according to the route it thinks she should have driven. So it's a very strange business that drivers "run." So what are the ways that an Uber driver can expand his or her business? The only way is to drive more hours.

Uber wants to shift the risk, it wants to shift the cost, onto the driver. The end result is that drivers are denied access to worker compensation in an industry that is very dangerous. They have no unemployment insurance, and they obviously get no health or pension benefits. And they're not subject to the wage and hour laws, or laws overseeing race and gender discrimination. So the algorithms that Uber develops are the bosses.

Does that essentially make the case for why Uber drivers should be considered employees, and not independent contractors, as the company has argued?

The way to understand it is, if it's not that drivers are working for Uber, then you must consider them running their own small business. But in fact they have very little control over anything to do with the conduct of that business. All the decisions are basically made by Uber, so how can they be considered self-employed?

I asked a Uber staff person once why the company doesn't refer to drivers as employees, and they told me that if they did, the drivers would laugh. So they know that it's a fiction.

Have drivers' organizing campaigns, like this week's strike action, been effective in undermining Uber's political narrative?

I don't so think yet, but I think it's definitely getting the public's attention.

Uber's been successful in a lot of states in passing laws to protect itself, so a strong driver voice is definitely needed. But you know, it's not as if Uber is negotiating with drivers over higher fares or higher payments. So I think that Uber obviously has to worry about its reputation, and yeah, I think this is quite a visible raising of discontent, but this is just part of a process that might lead to better circumstances for drivers.

There's all this hype around the gig economy. Is this, as it's so often been characterized, the "future of work"? What are the inherent dangers to thinking about it that way?

It's definitely not the future of work. In fact, Uber itself has stopped saying that. The majority of Uber drivers work part time for supplementary income. That's also true of people [working for] other "gig" employers. So if this is not your main thing, it can't be the future of work, because the future of work has to be about how people are going to earn their living, not supplement it.

Uber and Lyft are a large share of the whole gig economy—more than half. The average Uber driver is the equivalent of one-eighth of a full-time, full-year worker, because they work for half time and they work for three months. So this is not the future of work. At the same time, there's a lot of people that are involved in what Uber does: Obviously it affects taxi drivers and others, and maybe the companies are trying to help privatize public transit, so I'm not saying it's inconsequential, because there's a lot of people involved. But the notion that any large share of people are going to be freelancers 10 or 20 years from now is unfounded—there's no basis for that.

This interview has been edited for length and clarity.

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