Gig economy — the Economics of Supply and Demand
Revolutions are fascinating; those which topple governments via coup-d’etat or popular uprisings can keep one glued to ones Twitter feed or Television, as events unfold in dramatic fashion before your very eyes. Similarly, when such occurrences happen within a sector and industry — it provides much fodder for speculation; who will be the eventual winner, and the loser? Is this a hype — or really the end of an era. My latest muse is in such an industry — the transportation sector, having a few clients in the space and mostly because it is part of my life (and wallet) on a daily basis. I do not claim to be the best expert here, nor have the massive data sets to make accurate judgments. Perhaps the best I offer is a few thought experiments of where we may be headed if we can extrapolate some of the happenings around us — and the impact on the broader society (note — I say society, not economy — since I am true believer in the need for creative destruction, but all such acts does leave some debris behind….. Like revolutions so to speak…)
One of the most contentious and heavily debated topics these days in ride-sharing is whether drivers are able to make a living wage; whether these “independent owners” need reclassification (and protection) as employees. A significant amount of research has been done and published — both with and without Uber’s support. There has also been a lot of haggling whether the rise of ride sharing has helped or hurt the congestion in cities; while I do not have any concrete data — my hunch is that they may have had the invisible hand that hastened the demise of private mass transportation services such as Chariot, while simultaneously launching their own.
My own data sources are not as rigorous as Uber’s internal data set — it is gleaned by anecdotal evidence from Uber/ Lyft driver Facebook groups, some of which have 100’s if not 1000’s of participants. It provides an interesting insider look into the life of a regular driver — and if you can discard the extreme’s — provides some sense of how the industry is shaping up.
In the past, it all seemed a race to the bottom. Driver’s were complaining about declining wages, and what I perceived was high attrition rates. This simply meant that ride-sharing firms continuously had to offer perks to keep drivers on the road — even so, the average driver only lasts 3 months. In other terms — the perks have to keep on rolling to keep adding to the supply. Then I began to see a curious twist — which I can best highlight from these snapshots.
And more importantly from Amazon flex
This got me thinking — over the past few years the “uberization” of the economy (although a miniscule 0.07% of all workers) meant that there were an increasing number of services all dependent upon the same pool of drivers. In simple words — while the supply continued to increase (by new entrants or those reined in by perks), perhaps the demand for these drivers came not only from increased use by one provider (e.g. increasing usage of Uber) but from other services (e.g. Zesty, Amazon Flex etc.) all competing for the same driver.
Now if you put this in context with folks such as Uber pulling in the reins on their autonomous driving efforts, I am led to believe that that we are still some way off from replacing humans completely. That would imply that for the foreseeable future we are still dependent upon human power to drive our machines. Given that our economy has shown a remarkable growth streak over the past decade unemployment has fallen to sub 4% levels.
This should imply that unless the economy begins to stagnate, there would be an increasing shortage of drivers to begin with further restricting supply and driving up wages.
Put this all together — I daresay that there may just be an inversion to the declining wages of the “independent driver”, perhaps an assortment of benefits as an increasing number of firms chase this ever elusive resource. What may end up happening is a yo-yo effect — as demand from both single service (e.g. passengers on Uber) and multiple services (e.g. Postmates vs Uber vs Amazon flex) increase — hourly wages would rise. This would in turn bring in more supply — as is now, many Uber drivers in San Francisco commute all the way from Sacramento. This flood of supply would satiate the demand — and the cycle would reset once again.
Whether this translates into a move towards offering employment in order to maintain some stability is difficult to predict, since many of the underlying business models are hinged on having outsourced labor… but they may, they just may just come close.
