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The recession hasn’t ended for gig economy workers

A new report shows how hard it is to make a living from the hustle.

Uber drivers protest the company’s recent fare cuts and go on strike in front of the car service’s New York offices on February 1, 2016 in New York City. The drivers say Uber continues to cut into their earnings without cutting into its own take from each
Uber drivers protest fare cuts and go on strike in front of the car service’s New York offices on February 1, 2016 in New York City.
Spencer Platt/Getty Images

Finding a job in the US is pretty easy these days. Finding a good one isn’t. And the gig economy is partly to blame.

The gig economy — that is, workers who get paid per task, sale, or project — is creating extreme financial hardship for millions of American workers, even as the overall economy continues to expand.

That’s according to the Federal Reserve’s latest report on economic wellbeing in the US. The report, which was released last week, found that in 2018, workers who supported themselves through the gig economy struggled financially far more than the average person.

Here is one of the most shocking statistics: 58 percent of full-time gig workers said they would have a hard time coming up with $400 to cover an emergency bill — compared to 38 percent of people who don’t work in the gig economy. Both numbers are alarming, but the gap suggests that this informal economy is far more destabilizing than Silicon Valley investors care to admit.

Not much is known about the gig workforce. Economists have a tough time measuring it because it can cover many different “alternative” work arrangements. The Fed survey defines it as people working as independent contractors or on temporary contracts (with or without a mobile app involved). That includes well-known gigs, like driving for Uber and running errands through TaskRabbit, but also less obvious ones, such as housecleaning, child care, and selling unwanted items for money.

The annual survey, which polled 11,000 people in fall 2018, found that the vast majority of gig workers don’t make a living from it — they just do it to make some extra money.

But a surprising 5 percent of those surveyed said gig work is their main source of income. That group was the most likely to report financial distress, and the least likely to have health insurance, paid time off, unemployment benefits, and basic labor protections.

Their financial hardship helps explain the anger that prompted thousands of Uber and Lyft drivers to go on strike in recent months. Earlier this month, as Uber prepared to make its debut as a publicly traded company, its drivers launched dozens of protests in the US and around the world demanding higher pay and recognition as employees, not independent contractors.

That didn’t happen, but their collective outrage was likely a factor that sent company stock prices plunging and renewed scrutiny of the industry’s role in fostering economic inequality.

The gig economy is largely based on exploitation

When tech startups in Silicon Valley began promoting their new app-based personal services, they often talked about how it would revolutionize work and empower people with the flexibility to set their own schedule.

For example, the ride-hailing service Lyft entices potential drivers with the question, “do you want to be your own boss?”

TaskRabbit, which allows people to hire a handyman (or woman) for individual tasks, makes a similar pitch to workers: “Find jobs you love ... at rates you choose ... make a schedule that fits your life.”

The reality is far less rosy. As gig economy startups struggled to turn a profit year after year, it became clear that the profit model of these app-based services was dependent on all the money they saved from skirting US labor laws.

Uber is the perfect example: By classifying drivers as independent contractors instead of employees, Uber doesn’t need to pay certain taxes, benefits, overtime, or minimum wages to tens of thousands of drivers. As self-employed contractors, drivers don’t have a legal right to form labor unions and negotiate contracts, either.

Uber drivers have spent more than six years fighting the company in court, saying they’ve been intentionally misclassified. They argue that drivers should be considered employees because the company has so much control over their workday, including strict rules on their vehicle conditions, what rides they can take, and which routes to take.

Uber has fought back, maintaining that drivers are not employees because they set their own schedules and provide their own cars.

In March, Uber settled the main court case with 13,600 Uber drivers, agreeing to pay them $20 million, but without changing their status as independent contractors. The other 350,000 drivers who were part of the initial class-action lawsuit had signed mandatory arbitration agreements, so a federal judge is requiring them to pursue their cases in a private forum, where they are less likely to win their case.

In the meantime, Uber has been cutting driver pay rates in major cities to boost its bottom line to attract stockbrokers. That infuriated drivers, who were already struggling to make ends meet (which the Fed survey confirms). They were particularly incensed by the fact that Uber investors reaped millions (even billions) of dollars from the IPO because of their labor.

So on May 8, a loose network of ride-hail drivers went on strike, from San Diego all the way to São Paulo and Sydney. They urged drivers to boycott ride-hailing applications for 24 hours and to instead spend the day picketing to demand more money.

They also called on cities to regulate ride-hailing platforms the way New York City does.

New York City drivers forced Uber and Lyft to pay them a living wage

New York City has set the standard for regulating ride-hailing services.

The unrestricted growth of app-based ride-hailing companies put serious financial strain on New York City’s taxi drivers, making it harder for all drivers to compete and earn a decent living.

Researchers say ride-hail drivers in the US earn about $12 an hour, after deducting car expenses and gasoline. But pay rates vary wildly each day, with Uber sometimes taking more than 50 percent of drivers’ earnings.

Economists at the New School and the University of California Berkeley published a report in July with some limited pay data, and discovered something alarming: Driving for ride-hailing apps in New York City is not really a part-time gig for people who want to earn extra cash.

More than half of their drivers are ferrying around passengers on a full-time basis, and about half of them are supporting families with children on that income. Their earnings were so low that 40 percent of drivers qualified for Medicaid, and about 18 percent qualified for food stamps.

The New School report showed that the average hourly wage for app-based drivers in New York was about $12. “The app companies could easily absorb an increase in driver pay with a minimal fare adjustment and little inconvenience to passengers,” they wrote.

The report helped drivers persuade city officials in December to pass the nation’s first minimum pay rate for drivers working with the four largest app-based firms: Uber, Lyft, Juno, and Via.

Starting in January, ride-hailing companies were required to start paying drivers around $17.22 per hour (after expenses) — about $5 more per hour than the previous average of $11.90 per hour, according to the Independent Drivers Guild, which represents about 70,000 Uber, Lyft, Juno, and Via drivers in the city.

The new pay rate is calculated per ride, but the guild expects it to give full-time drivers an extra $9,600 a year. (Lyft and Juno are now suing the city, arguing that the calculated rate favors Uber, but said they are using a different formula to meet the minimum hourly pay rate.)

Because Uber and Lyft drivers are considered independent contractors and not employees, they are not subject to the city’s minimum hourly wage, which is now $15 per hour. But the new rules essentially get around that loophole and ensure that drivers are earning at least the minimum wage, with a few dollars extra to cover payroll taxes and some paid time off.

Uber and Lyft have pushed back against the pay increase, saying it would hurt competition and discourage drivers from taking riders out of Manhattan. The current lawsuits suggest that Lyft and Juno are not done fighting it (Uber is not part of the lawsuits).

It’s still too early to study the impact of the new laws, but it gives other cities and states a blueprint for doing the same. In California, lawmakers have tried to pass laws giving independent contractor union rights. They’ve all failed.

In April, the California Supreme Court delivered a win for gig workers, making it harder for companies to classify them as independent contractors instead of employees.

As employees, Uber drivers would have the right to form a union and earn the minimum wage. And maybe, just maybe, they could save up $400 to put aside in case of emergency.