Earlier this year, I slipped on a patch of icy sidewalk and hurt my ankle while I was commuting to work. I spent the day with my foot iced and elevated on an office chair, and when it was time to leave, everyone told me to take a car home.
“Just use Uber,” someone suggested.
“No, I refuse,” I said.
“Okay, if you hate Uber so much, use Lyft.”
I downloaded the Lyft app, but didn’t end up using it. Instead, I limped my way down three blocks to a busy street and flagged down a taxicab.
My main issue with Uber can be summed up as this: I can’t support a company whose business model depends on the labor of contract workers who have very little leverage in ensuring that they are being treated fairly.
Take for example, this Marketplace story last week explaining Uber’s “low-credit finance program” which offers drivers with bad credit the opportunity to finance new cars through the company—at interest rates as high as 22.75 percent.
According to Marketplace, Uber partners with subprime lenders like Santander Consumer USA, which a former bank regulator describes as “one of the most notorious sub-prime auto lenders in the United States.”
This week, The Wall Street Journal reported that Uber is experimenting with taking 30 percent of revenue from drivers from fares booked through its app—the highest it’s ever charged drivers (they’ve previously taken between 20 to 25 percent). The high commission rate is a penalty for “low-usage drivers”; drivers who pick up more than 40 rides in one week can get the commission rate to fall back down to 20 percent. Lyft has a similar tiered fee structure.
In motivating drivers to commit to their services full-time, both companies may be undermining their claims, now being tried in the courts, that drivers are independent contractors. Two lawsuits in federal court in San Francisco allege that drivers are being treated like employees and should therefore be reimbursed for out-of-pocket expenses such as gas and car maintenance.
With this tiered fee structure, Uber would be making more money off of its part-time contractors and encouraging drivers to work full-time. This is quite the business move considering that seven months ago, the company put up a tone-deaf blog post celebrating teachers and boasted about how educators were able to make much needed side income while picking up afternoon shifts (you know, if they weren’t busy grading papers or planning lessons for the next day).
“Teachers, in general, need a little bit more money. With Uber, I get to pick when I want to drive and how much money I want to bring in. I can be a great teacher and make both happen.” – Jenny Hochmiller, High Tech Early College
Well, with the new fee structure, Ms. Hochmiller can be a great teacher and be penalized for not picking up enough rides because she’s only working part-time after school! Who’s celebrating?
At Bloomberg View, Megan McArdle writes that Uber is following the basic logic of economics: Uber’s price surging and tiered compensation structure makes the company more money than say, if it were a regulated cab company, and it is taking advantage of that fully while it can. Most companies avoid gouging customers and its own workforce in this way for obvious reasons:
Because it’s often counterproductive; what you gain in revenue, you lose in morale. A front-line employee or contractor is the public face of your firm. If they think that no matter what they do, you’ll keep altering the payment system in order to shake every last penny out of their pockets, they’ll get surly or quit. Managers will waste a lot of energy having fights about the compensation system. So many companies fall back to something that’s reasonably straightforward and predictable.
But Uber is taking counterproductive measures precisely because they can get away with it. It doesn’t need to care about its drivers because they are betting that in the near future, they won’t need them anymore.