Uber – driving down wages

Uber is taking us down an uncharted road and we may not like where we end up

Uber seems to augur in a new world of freedom. The app allows people to get picked up and dropped off with relative ease. The drivers themselves also benefit from a flexible schedule, working when and for how long as they like. While greater freedom tends to be seen as a good thing (especially to the Free Range Economist), Uber may to taking us to a new world that comes with a nasty twist.

Technology is increasingly freeing up people to work whenever and wherever they want. Previously, it was only those who were self-employed and running small businesses that had control over this. While the needs of customers had to be looked after, business owners were free to determine their own schedule. Apps like Uber (and others such as TaskRabbit) have essentially lowered the bar to reaching this point. By reducing the start-up costs and making it easier to find customers, the apps have opened up new opportunities for people to earn money.

Along with managing your own schedule, the freedom of self-employment also comes with the ability to decide how much to work for. Normally, businesspeople pay themselves relative to the success of their ventures but there are times when their pay would be abnormally low. For example, to kick start a business or during temporary slow periods, people who run their own businesses may choose to pay themselves next to nothing. Even though this would in theory contravene the notion of minimum wage, it is not seen as a problem as it was at the discretion of business owners.

As the drivers on Uber (along with others who provide services through apps) operate under the same premise, they can take whatever wages they are happy to accept. This is also true of any cases where the pay is less than the minimum wage, which may be the case if it so happens that demand on the app is slow or work takes a long time to complete. While the drivers are not sure how much they will get paid before they hit the road, the ability to earn some money, even if it is not much, can in many cases be seen as preferable to earning nothing at all.

There is the free-market argument that workers should be able to choose whatever wage to work for. There is always the option to quit if they don’t think that they are being paid enough. However, workers who are willing to work on the cheap, even if only for short periods or on a part-time basis, open up the possibility of businesses being able to take advantage of workers. Accepting a low wage not only impacts on the individual worker but on others who may also be paid less or lose their job.

When we think of the minimum wage, it can be easy to forgot that it not only applies to how much companies must pay its employees, but also as a way that stop workers underselling each other for cheaper and cheaper wages. Uber drivers don’t necessarily compete with each other, but could be seen as selling themselves cheaply compared to taxi drivers. And, it is this relatively low cost of labour that puts Uber at an advantage against taxi companies. Even the convenience of its app (another of its merits as a business) with faster pickups relies on lots of driver waiting, without pay, for rides.

It seems ironic that advances in technology are bringing us back in time to a world before the minimum wage. Uber continues to resist changes to the way it relates to its drivers so it remains to be seen if regulations will be adapted so as to also apply to Uber. Otherwise, this erosion of the minimum wage could be seen as part of a bigger trend, including stagnating wages and zero-hour contracts, as the balance of power continues to shift away from labour. Cheap rides are a boon for many and many people have been set free as a result, but lower wages could hurt the overall economy if people have less and less money to spend. Uber is driving us into a new future but even GPS is not useful in knowing where we might be heading.