Uber is the litmus test of support for a market economy
If moving to employee status would be bad news for drivers, it would also clearly harm customers. Bearing higher fixed costs of employment would see Uber and Lyft operating in fewer cities and restricting locations served within them. Basic rides would cost more and be less readily available, meaning higher prices for day-to-day consumers and a smaller network.
Consumers would find themselves then facing worse services that are less affordable. Less flexible driver numbers would worsen the responsiveness of car availability to supply and demand through the dynamic pricing Uber and Lyft are famous for, and that economists find increases consumer welfare.
Much ink has been spilt on the legal arguments over whether drivers really fit the bill of contractors or employees under existing law. There will be long debates that centre over how much control drivers currently have or should have over things such as pricing, to meet the contractor definition. Already, to try to squeeze into California’s strictures, Uber had begun to allow drivers to see destinations of journeys and be able to reject them without penalty, for example.
Yet these debates obscure the more important economic one. By arguing over how drivers fit into current worker definitions, we risk ignoring whether laws that risk making popular services unviable are themselves the greater problem.
These platforms facilitate mutually beneficial trades between drivers and riders. Regulatory or legislative enforcement that, in effect, bans some of these voluntary trades is economically destructive. If willing adults want to transact their labour in this way, then who benefits from going to such lengths to make the activity conform with existing employee definitions?
Rather than try to place square pegs in round holes, legislators should work with the opportunities new technologies afford. That’s not just my view, but that of former prime minister Tony Blair. In a piece published last week he argued for overhauls of benefit systems to allow more people to work flexibly, by reimagining social insurance programmes to compensate for downside risks.
In competitive markets, companies such as Uber are already finessing their own packages as drivers’ preferences evolve. The company’s own survey suggests drivers overwhelmingly support their most recent proposals to develop driver benefit funds in the US rather than turn them into employees.
And that’s the point: why shouldn’t workers be able to contract their labour on the terms that they wish through free negotiation like this? How policymakers react to these cases, especially if Uber loses, will provide a litmus test of their attitudes to innovation.
Platform technologies come along that provide popular services for users and providers. Will policymakers protect such innovation by altering laws, or sacrifice our economic welfare on the altar of traditional employment relationships?
Ryan Bourne holds the R Evan Scharf chair for the public understanding of economics at the Cato Institute
