Uber’s Problems Are Real, and the Regulatory Solutions Are Simple

I will make a few quick points to clarify some arguments I made in my original piece and also to respond to some comments at the Cato forum.

First, the point on the optimal number of cabs should not be controversial. Cabs clearly impose externalities in the form of increasing congestion and pollution. We should not want Uber cars waiting outside every house and business just in case someone wants to get somewhere. Are  too many cabs likely to be a problem? Certainly it won’t be if Uber drivers are getting paid reasonable wages, a point to which I will return below, but it is certainly possible that Uber and other services will substantially increase congestion in some cities.

The extent to which this could be a problem depends on what an Uber ride is replacing. If it’s simply a question of Uber replacing a traditional cab, then there is no net change in congestion. If an Uber ride is an alternative to the person driving herself then it would increase congestion since the driver must drive to pick-up the person and then drive from the drop-off to another destination. If the Uber ride is in place of public transit, bicycling, or walking or alternatively causes an additional trip to be made that would not otherwise be made, then it is increasing congestion.

This would be a non-issue if cities had in place some sort of congestion pricing, since the Uber car would then be assessed the appropriate fees. But at least in the United States we don’t have congestion pricing in cities, which means that a proliferation of Uber-type services could be a problem. That doesn’t require a medallion system. We could have a system of flexible fees by time of day and location of service, but it is reasonable to assess fees on such services. It certainly does not make sense to assess fees in the form of medallion requirement for traditional cabs and then exempt Uber because customers use a web-based app.

I probably should have fleshed out the issue of cash-paying customers a bit more in my earlier reply. A range of people use traditional taxis for a variety of reasons. Some are relatively affluent and take cabs for convenience. However there are also older and lower income people who may be dependent on cabs for things like major grocery shopping or going for doctor visits. We expect cabs to serve these people. There is undoubtedly some element of cross-subsidy with relatively generous tips from more affluent people subsidizing the trips of lower income customers who may tip their drivers little, if anything.

If Uber and related services skim off the affluent customers, the traditional taxi services may no longer be viable. This could leave this older and poorer segment of the population without necessary transportation service.

This is an appropriate concern for public policy. I suggested that it would be possible to make cash cards available to people who did not have credit cards so they could use Uber-type services. (There is also an issue if the only taxis available have to be summoned with a smart phone and many people don’t have smart phones.) There are many ways in which this problem can be solved, but we should recognize the potential loss of an implicit cross-subsidy and be prepared to develop policies that will address any resulting gap in meeting transportation needs.

The last point I wanted to address was the treatment of Uber drivers. I argued that they need employee-type protections. Uber seems to be operating with the idea that Uber drivers are pseudo-employees when they have a paying customer in their car, but the moment the customer steps out, the driver no longer has a connection to Uber.

This is not a serious standard. It would be like an employer saying that a retail clerk is on the payroll when they are attending to a customer, but they are off the clock the moment the conversation or exchange ends. The exact nature of employer-employee regulation can be argued, but it doesn’t make sense to say that an employer can end it any time the worker is not directly bringing in money for the employer. In the case of Uber, this should mean that when the driver is going to pick up a rider and when they are returning from dropping off a rider, they are still Uber’s responsibility. This would mean being covered by Uber’s insurance and should also mean that these hours should be counted when assessing pay for minimum wage and overtime purposes. (Again, what the minimum wage should be and whether we should have one are arguable points. It is not reasonable to say that it shouldn’t apply to Uber because people order it over the web.)

The fact that Uber is web-based, and they have records of where people are picked up and dropped off, means that it should not be difficult for Uber to know when someone is actually doing Uber-related driving as opposed to taking their family for a picnic. This should make it a relatively simple matter to monitor Uber drivers’ time and ensure that wage and hour standards are being met. (The issue would be average pay, not that a driver will necessarily get the minimum wage for every hour they do Uber-related driving.)

To repeat the basic point of my original piece, there are legitimate regulatory issues created by Uber. These are not difficult to address if they are dealt with honestly. 

Also from this issue

Lead Essay

  • Matthew Feeney argues that the right response to the rise of the sharing economy is often to deregulate legacy industries. Users and service providers alike have tools at their disposal that ease many of the worries that might otherwise come with sharing one’s car, kitchen, or spare bedroom. Meanwhile policymakers should recognize that older regulatory systems often amounted to favoritism. Taxi monopolies are only the most egregious example among many. A level playing field should be the goal of public policy, provided that this playing field does not impose arbitrarily burdensome regulations.

Response Essays

  • Dean Baker points out how sharing economy companies have often received special favors, and he suggests what a truly level playing field might look like. While it’s hard to deny that companies like Uber have offered much-needed services, he argues that limiting the number of taxis in a city is still reasonable, that drivers must be guaranteed standard minimum wages, and that accessibility requirements must also be met. Anything less would amount to an implicit subsidy for one industry participant - in other words, exactly the sort of thing that conservatives should recognize as corporate welfare.

  • Sharing economies do not really exist, says Avi Asher-Schapiro. The glowing term really denotes downward mobility for the middle class. Formerly regulated and stable professional occupations are growing increasingly part-time and menial. Companies like Uber, HomeJoy, and Taskrabbit promote what is ultimately a servile class, one that must wait hand and foot on the desires of the wealthy. This is certainly not what we should want our society to look like. Such companies have succeeded in recent years in large part because many people have been otherwise unemployed. But if we want our economy to serve more than just the wealthy, then we should hope that Uber drivers and the like will exit the “sharing” economy in favor of something better.

  • Christopher Koopman notes that firms like Uber and Lyft are already writing very comfortable regulations for themselves, rules that lock out competitors and hurt consumers. The results will be higher prices, fewer choices, and poorer service. In the longer term, it may mean that many companies can’t innovate by providing entirely new side businesses or related services - things like moving services, delivering goods on demand, or offering autonomous cars for hire. There is no clear reason why these things mustn’t be on offer, but regulation stands to forbid them before they even exist.