Latest / Trumponomics / How The Uber Economy Helps Riders At The Expense Of Drivers

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How The Uber Economy Helps Riders At The Expense Of Drivers · Trumponomics

• 0:00
  Speaker 1: Back in the day, if you needed to get from
• 0:02
  Speaker 1: point A to point B and you didn't have your
• 0:04
  Speaker 1: own car, you maybe hail a taxi or pick up
• 0:07
  Speaker 1: the phone and call it dispatcher. It could be a
• 0:09
  Speaker 1: major hassle to get a ride, especially if it was raining. Today,
• 0:14
  Speaker 1: the customer is in control. Cars for hire are flooding
• 0:17
  Speaker 1: the roads thanks to companies like Uber and Lyft, but
• 0:20
  Speaker 1: that convenience comes at a cost, not for the consumer
• 0:24
  Speaker 1: but for the person behind the wheel. Welcome to Benchmark.
• 0:37
  Speaker 1: I'm Scott Landman, an economics editor with Bloomberg News in Washington,
• 0:41
  Speaker 1: and I'm Daniel Moss, economics writer and editor at Bloomberg
• 0:45
  Speaker 1: View in New York. So, Dan, I just wanted to
• 0:48
  Speaker 1: talk about it was so bad taking cabs in d
• 0:51
  Speaker 1: C when I first moved here about fifteen years ago.
• 0:54
  Speaker 1: You couldn't get one when you wanted to, or if
• 0:57
  Speaker 1: you were in a part of town that didn't really
• 1:00
  Speaker 1: get served by the cabs. It was just really, really hard,
• 1:03
  Speaker 1: and you get into arguments with cabbies about the zone
• 1:06
  Speaker 1: fare system, which was it was its own beast. It
• 1:09
  Speaker 1: was just pretty crazy. And now it's just a different story.
• 1:13
  Speaker 1: Using your app to get Uber or a Lift and
• 1:16
  Speaker 1: it's just been really great. But talking with the drivers,
• 1:20
  Speaker 1: they just seem to work really long hours. They don't
• 1:23
  Speaker 1: make much money. It's kind of true for both the
• 1:25
  Speaker 1: taxi cabs and Uber dan or are you finding things
• 1:28
  Speaker 1: to be pretty similar in New York To a point
• 1:32
  Speaker 1: where I live in New York City, it's very very
• 1:36
  Speaker 1: easy to hail a cab, their yellow cabs, green cabs,
• 1:41
  Speaker 1: all kinds of cabs really running on the street next
• 1:45
  Speaker 1: to our apartment building. It's very straightforward. Neither my wife
• 1:49
  Speaker 1: nor I have had to rely on Lift or Uber now.
• 1:53
  Speaker 1: Having said that, it's quite a contrast from the ten
• 1:57
  Speaker 1: years I spent living in suburban Maryland, where it was
• 2:00
  Speaker 1: very tough to call a cab and get them there
• 2:03
  Speaker 1: on time. Ride check companies in that context, we're far
• 2:08
  Speaker 1: far more helpful, And I can say, as a resident
• 2:12
  Speaker 1: of suburban Maryland now it's pretty easy to get a
• 2:15
  Speaker 1: ride share, Uber or Lift out in the in the
• 2:18
  Speaker 1: suburbs these days. Wood cabs right the Barwood cabs that
• 2:23
  Speaker 1: you still see them around. But I think the company
• 2:26
  Speaker 1: isn't isn't doing well. They actually filed for bankruptcy. Well,
• 2:30
  Speaker 1: I think it's clear they're not doing well anyway, Let's
• 2:35
  Speaker 1: talk a little more broadly about who loses in the
• 2:38
  Speaker 1: ride share economy, and we have a distinguished guest who's
• 2:42
  Speaker 1: able to talk about that. Henry Farber is the Hughes
• 2:45
  Speaker 1: Rogers Professor of Economics and an associate of the Industrial
• 2:49
  Speaker 1: Relations Section at Princeton University. Dr Farber, thank you so
• 2:53
  Speaker 1: much for joining us. Well, thank you Scott for having
• 2:55
  Speaker 1: me so Dr Farber. First of all, you wrote a
• 2:59
  Speaker 1: study a few years ago about why it's so hard
• 3:02
  Speaker 1: to catch a taxi cab in the rain in New York.
• 3:05
  Speaker 1: Can you tell us just a little bit about that
• 3:07
  Speaker 1: and what you found. Yes, that that was a study
• 3:10
  Speaker 1: addressing something of a controversy in economics about how individuals
• 3:15
  Speaker 1: make decisions, and in particular, some people have argued that
• 3:20
  Speaker 1: taxi drivers or other workers set an earnings target for
• 3:24
  Speaker 1: the day, for example, and when they reach their target,
• 3:26
  Speaker 1: they go home. So some people had conjectured that it's
• 3:29
  Speaker 1: difficult to get a taxi in the rain because the
• 3:32
  Speaker 1: drivers do so well that they reached their target early
• 3:35
  Speaker 1: and then say, okay, good, I'm going home. Um. An
• 3:39
  Speaker 1: alternative view is that when it's easy to make money.
• 3:43
  Speaker 1: You say, gee, I, this is great. I'll make hay
• 3:45
  Speaker 1: while the sunshine, so to speak, even if it's raining,
• 3:48
  Speaker 1: and I will continue to drive. I took a look
• 3:52
  Speaker 1: at this using complete records on the driving history of
• 3:56
  Speaker 1: every taxi in New York for five years and was
• 4:00
  Speaker 1: able to figure out that in fact, in hours when
• 4:03
  Speaker 1: it's rains, the taxis are very busy, but they're not
• 4:06
  Speaker 1: making more money because they have to drive slower, So
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  Speaker 1: it can't be the case that they're going home early.
• 4:13
  Speaker 1: What happens during rainy periods is there's more demand for taxis, obviously,
• 4:18
  Speaker 1: but it's also true drivers don't like to drive so
• 4:21
  Speaker 1: much in the rain. It's harder, and they they just
• 4:24
  Speaker 1: some of them just take a break. Now, the market
• 4:27
  Speaker 1: has probably changed in a few years since you put
• 4:30
  Speaker 1: that out. There's probably more drivers on the streets in
• 4:34
  Speaker 1: New York. I guess just because of Uber and left
• 4:36
  Speaker 1: more cars out there. Would that effect the market? It
• 4:41
  Speaker 1: just seems to be pretty unfettered in terms of the
• 4:44
  Speaker 1: barriers to entry for for people trying to get in
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  Speaker 1: as drivers. Well as you know, whereas most people know
• 4:51
  Speaker 1: that New York had a very heavily regulated taxi industry,
• 4:54
  Speaker 1: with the number of yellow cab medallion's capped at around
• 4:57
  Speaker 1: thirteen or fourteen thousand. And what it happened was when
• 5:02
  Speaker 1: Uber came in basically relaxed this constraint and allowed other
• 5:07
  Speaker 1: ways for people to get rides. Uh So, fundamentally, the
• 5:12
  Speaker 1: technology of being able to match riders and drivers was
• 5:17
  Speaker 1: a huge leap forward, and it really allowed essentially a
• 5:20
  Speaker 1: relaxation of the limit on the number of cars that
• 5:23
  Speaker 1: could be out there. And I think we're feeling that
• 5:26
  Speaker 1: today because apparently traffic is a lot worse. It takes
• 5:30
  Speaker 1: longer to get, for example, from Manhattan to LaGuardia, or
• 5:34
  Speaker 1: to just get around Manhattan because of the increase in
• 5:38
  Speaker 1: the number of cars on the road. Did taxi companies
• 5:42
  Speaker 1: see this disruption coming? What did they miss that allowed
• 5:46
  Speaker 1: this to first creep and then gallop up on them.
• 5:50
  Speaker 1: I don't think the taxi companies themselves foresaw this. The
• 5:54
  Speaker 1: technological leap happened in the sweep of history rather quickly
• 5:59
  Speaker 1: and frankly the real you know, some people who lost
• 6:03
  Speaker 1: were people who had invested in medallions whose value is
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  Speaker 1: solely the result of the regulation of the number of
• 6:11
  Speaker 1: medallions and the price that can be charged for a
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  Speaker 1: taxi ride. So if you're asking about winners and losers, uh,
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  Speaker 1: certainly the losers were people who owned the medallions. Certainly
• 6:23
  Speaker 1: the losers were the people that owned medallions. And yet
• 6:27
  Speaker 1: it back in those days, given the limited number of
• 6:30
  Speaker 1: drivers on the road, you guess that drivers could still
• 6:33
  Speaker 1: earn a decent living doing what they did. And now
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  Speaker 1: there's just so much competition that it makes it I
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  Speaker 1: think a lot harder for drivers to earn a reasonable
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  Speaker 1: living doing the same job. I've seen studies offering different
• 6:46
  Speaker 1: numbers for what kinds of wages drivers earned, but it
• 6:51
  Speaker 1: seems like they're all fairly low. They're not nobody's getting rich.
• 6:54
  Speaker 1: It's probably tougher, is that what is happening today, Henry
• 6:59
  Speaker 1: in heart. What's true is the because the most taxis
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  Speaker 1: in New York City, most yellow cabs in New York historically,
• 7:08
  Speaker 1: we're not driven by the owners. They were leased daily
• 7:11
  Speaker 1: to drivers for us reasonably substantial sum of money, so
• 7:16
  Speaker 1: that even pre ride haling services, taxi drivers were not
• 7:21
  Speaker 1: making a lot of money, and so it was an
• 7:23
  Speaker 1: entry level occupation in recent years for new immigrants, and
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  Speaker 1: the what the drivers could take in in revenue and
• 7:32
  Speaker 1: tips less what they had to pay in lease fees
• 7:35
  Speaker 1: and gasoline really didn't make it even then a very
• 7:39
  Speaker 1: highly paid occupation is they sit for disruption in the
• 7:43
  Speaker 1: riding industry. Hank will Cuba and Lift and companies of
• 7:48
  Speaker 1: that ilk be themselves disrupted soon. What will be the
• 7:52
  Speaker 1: new new new thing. Well, I don't know if there's
• 7:55
  Speaker 1: going to be a new technology, but my own view
• 7:58
  Speaker 1: is that what's really innovative here is the technology to
• 8:03
  Speaker 1: match the riders and passengers. And as was noted in
• 8:06
  Speaker 1: the introductory remarks, this is a bit less valuable in
• 8:09
  Speaker 1: a very dense place like New York City, But in
• 8:12
  Speaker 1: the rest of the country, when you live in a
• 8:15
  Speaker 1: medium sized city or even small towns, the ability to
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  Speaker 1: have drivers at the ready to come out and pick
• 8:22
  Speaker 1: you up is really valuable. So Uber may be disrupted
• 8:27
  Speaker 1: and Lift may be disrupted by new entrants who use
• 8:31
  Speaker 1: the same technology, and you know, so I wouldn't. I'm
• 8:35
  Speaker 1: not bullish on Uber being able, for example, to corner
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  Speaker 1: the market and ride helling. Let's talk a little bit
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  Speaker 1: about the broader labor market, given that there seems to
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  Speaker 1: be an oversupply of drivers at the moment, and yet
• 8:52
  Speaker 1: we have a labor market that overall is considered pretty
• 8:57
  Speaker 1: tight in the United States, with unemployment at four point
• 9:00
  Speaker 1: one percent. Is this a situation among higher car drivers
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  Speaker 1: that can persist for a long period of time, or
• 9:09
  Speaker 1: you know, could have sort itself out. Could we actually
• 9:12
  Speaker 1: see the number of drivers uh diminish as the labor
• 9:16
  Speaker 1: market gets tighter. Well, I think that depends in part
• 9:19
  Speaker 1: on whether wages grow elsewhere in the economy. You know,
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  Speaker 1: one of the conundrums in the current labor market at
• 9:26
  Speaker 1: really unprecedentedly low unemployment rates at least for quite a
• 9:29
  Speaker 1: number of years, is that wages have not been growing.
• 9:34
  Speaker 1: And one you need to remember that many people who
• 9:39
  Speaker 1: drive for Uber and Lift and other car sharing services
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  Speaker 1: are people who have other jobs and are simply looking
• 9:46
  Speaker 1: for ways to supplement their income when their first main
• 9:50
  Speaker 1: job has fixed hours or at least no additional earnings
• 9:54
  Speaker 1: opportunities for them. So people are saying, Gee, I have
• 9:58
  Speaker 1: a car, I have some time, I'd like a little
• 10:00
  Speaker 1: more money, let me go out here. My own view
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  Speaker 1: is this could persist for quite a while because of
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  Speaker 1: the flexibility that's built in Hank. Could the ranching changes
• 10:11
  Speaker 1: that Uber and Lift have forced on traditional taxi companies
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  Speaker 1: ironically led to their salvation rather than the demise. I'm
• 10:22
  Speaker 1: not sure how to answer that. I would say that
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  Speaker 1: certainly they'll have to adapt by offering better and different service,
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  Speaker 1: and one important way they could do that is by
• 10:32
  Speaker 1: adopting the same kind of matching technology that that the
• 10:37
  Speaker 1: ride sharing services use, so that if you could if
• 10:41
  Speaker 1: you live in a town and you have an app
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  Speaker 1: for the local taxi company, where you just punch up
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  Speaker 1: I need a ride and a car can show up
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  Speaker 1: in a few minutes. I think that would be a
• 10:50
  Speaker 1: real improvement. Quality of service could improve. I don't have
• 10:54
  Speaker 1: any evidence on that directly, but these companies could adapt,
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  Speaker 1: or maybe these companies, the existing cab companies will start,
• 11:04
  Speaker 1: just as I said, start to operate more like the
• 11:07
  Speaker 1: ride sharing services, and maybe that's the future they We
• 11:10
  Speaker 1: don't need to save the companies in their existing form.
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  Speaker 1: They need to adapt what's newly to what's newly possible
• 11:18
  Speaker 1: with the technology. And by say, what I mean is
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  Speaker 1: it is without question, a better customer experience, the cars,
• 11:26
  Speaker 1: a cleaner the driver. As Polita, I'm told strangely enough,
• 11:32
  Speaker 1: that drivers would often refuse to take a passenger to Brooklyn.
• 11:36
  Speaker 1: That's pretty much when heard of now, and you can
• 11:39
  Speaker 1: also flag a Brooklyn cab in some parts of Manhattan.
• 11:43
  Speaker 1: These sort of things will once completely off limits. Well,
• 11:48
  Speaker 1: let's be clear. The green cabs, which are that what
• 11:50
  Speaker 1: are called the borough cabs in New York City have
• 11:54
  Speaker 1: only been around for a few years, and they are
• 11:57
  Speaker 1: prohibited by regulation from picking up passengers on the west
• 12:01
  Speaker 1: side Below Street and on the east side below nineties
• 12:06
  Speaker 1: Street in Manhattan. To the extent they're they're picking up
• 12:10
  Speaker 1: passengers in those areas, they're really not supposed to. What
• 12:13
  Speaker 1: is true is I believe there are fewer yellow cabs
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  Speaker 1: on the road at any given time than there used
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  Speaker 1: to be because a lot of drivers don't want to
• 12:21
  Speaker 1: pay the rental daily rental fee because they can't make
• 12:25
  Speaker 1: as much money as they used to because of competition
• 12:28
  Speaker 1: from the ride hailing services. Professor, we were just talking
• 12:31
  Speaker 1: about the future and adapting, and one thing that's really
• 12:36
  Speaker 1: hanging over this industry. You can say it's a guerrilla
• 12:39
  Speaker 1: and elephant, a big knife, whatever you want to call it,
• 12:42
  Speaker 1: Autonomous vehicles, self driving cars. Sooner or later, they're coming,
• 12:47
  Speaker 1: whether it's ten years, twenty years. Who knows what are
• 12:51
  Speaker 1: all these drivers going to do for jobs once they
• 12:55
  Speaker 1: come along, not just taxis but also delivery vehicles, trucks,
• 12:59
  Speaker 1: you name. What is this due to the labor force?
• 13:02
  Speaker 1: This is this is really the sixty four thou dollar question.
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  Speaker 1: In fact, um driving related jobs of all descriptions have
• 13:10
  Speaker 1: been good jobs for low skilled workers that are just
• 13:13
  Speaker 1: above the lowest skilled jobs in the economy. They can
• 13:17
  Speaker 1: be very quite skilled, they can be moderately skilled, and
• 13:21
  Speaker 1: it's not clear to me what people with these skills
• 13:26
  Speaker 1: or lack of better skills are going to do. We've
• 13:29
  Speaker 1: seen some real there's just a right now, there's a
• 13:32
  Speaker 1: lot of people interested in driving for these ride heiling
• 13:35
  Speaker 1: services because entry into that industry is just so legal.
• 13:40
  Speaker 1: So I'm sorry, not legal, but easy. There's vary some
• 13:44
  Speaker 1: very interesting recent work done which shows in fact that
• 13:47
  Speaker 1: it's also very difficult to raise the pay of these
• 13:50
  Speaker 1: workers in any meaningful way. For example, there was an
• 13:54
  Speaker 1: experiment at uber where they tried to raise the fees
• 13:58
  Speaker 1: they paid to drivers, and for a week or two
• 14:02
  Speaker 1: the drivers would get more money, but then other drivers
• 14:05
  Speaker 1: would say, hey, this is really good, and more so,
• 14:07
  Speaker 1: many drivers would be out there looking for passengers at
• 14:11
  Speaker 1: any point in time that the actual hourly earnings went
• 14:15
  Speaker 1: back to its original level. So it's very hard to
• 14:18
  Speaker 1: know both how to boost the pay of these drivers
• 14:22
  Speaker 1: and what will happen once you know, I agree with
• 14:25
  Speaker 1: you that autonomous vehicles appear to be in our future,
• 14:30
  Speaker 1: and there's going to have to be some thought generally,
• 14:33
  Speaker 1: not just for ride sharing drivers or taxi drivers, but
• 14:37
  Speaker 1: for delivery men, for over the road truckers, for bus drivers,
• 14:41
  Speaker 1: for all of this. Um, what are we gonna do
• 14:44
  Speaker 1: with these people? I don't have a good answer to that.
• 14:47
  Speaker 1: What about how the rise of Uber and lift and
• 14:51
  Speaker 1: ride sharing services fit into the broader shift in labor
• 14:56
  Speaker 1: markets and developed countries such as the US toward what
• 14:59
  Speaker 1: we like to call the gig economy. You know, it
• 15:02
  Speaker 1: seems like work is getting less tethered to one specific
• 15:07
  Speaker 1: employer or location and people are taking more jobs as
• 15:11
  Speaker 1: contract workers, which is basically what these Uber drivers are right. Yes,
• 15:17
  Speaker 1: this has been an important change that predates any talk
• 15:20
  Speaker 1: of the gig economy or ride sharing or any of that. Um.
• 15:25
  Speaker 1: There have been many professions like engineering, where companies higher
• 15:28
  Speaker 1: engineers on a contract basis used to be that a
• 15:32
  Speaker 1: worker who was an engineer, for example, and graduated college
• 15:35
  Speaker 1: would think if they could get a job with a
• 15:37
  Speaker 1: major company like General Electric or IBM, they'd have a career,
• 15:41
  Speaker 1: and they were company men, and that was how it worked.
• 15:44
  Speaker 1: Younger people today don't perceive their future in that way,
• 15:48
  Speaker 1: and I think, frankly, public policy needs to adjust because
• 15:54
  Speaker 1: long term employment was a source of important what we'll
• 15:58
  Speaker 1: call fringe benefits but call core benefits like pensions and
• 16:02
  Speaker 1: health insurance, and now that workers links with their employers
• 16:08
  Speaker 1: are more tenuous than they used to, this presents real
• 16:11
  Speaker 1: challenges and how to provide individuals with with the goods
• 16:15
  Speaker 1: and benefits that they need. And aren't people getting stuck
• 16:20
  Speaker 1: with things like non compete agreements where they can't even
• 16:24
  Speaker 1: get away from their jobs. I mean, at the same
• 16:25
  Speaker 1: time that the labor markets becoming less tethered to companies
• 16:31
  Speaker 1: like this, companies are still trying to keep those tethers
• 16:34
  Speaker 1: in some ways. I'm glad you mentioned that this is
• 16:36
  Speaker 1: an important trend in the labor market. Is frankly a
• 16:40
  Speaker 1: trend toward employers having more market power over their employees.
• 16:45
  Speaker 1: The employers appear to be less interested in having long
• 16:48
  Speaker 1: term employment relationships with their workers. They want to be
• 16:51
  Speaker 1: able to keep workers around as cheaply as possible, and
• 16:54
  Speaker 1: one of the ways they do that is to try
• 16:57
  Speaker 1: to make it harder for them to find other jobs.
• 16:59
  Speaker 1: And that's exactly what non compete agreements do. They say, look,
• 17:04
  Speaker 1: you can leave, but you can't work again in this
• 17:06
  Speaker 1: industry for a while. Um. There's also been a spade
• 17:10
  Speaker 1: of non poaching agreements across firms. There was a very
• 17:14
  Speaker 1: well known case a year or two ago involving some
• 17:17
  Speaker 1: Silicon Valley companies in high tech that was kind of
• 17:22
  Speaker 1: put together a bit by Steve Jobs at Apple saying that, gee,
• 17:28
  Speaker 1: you got we're all going to agree not to try
• 17:30
  Speaker 1: and hire each other's employees. This is simply a way
• 17:32
  Speaker 1: to keep labor costs down and presents real challenges to employees,
• 17:37
  Speaker 1: but and also frankly to the antitrust authorities in Washington.
• 17:41
  Speaker 1: All right, well, on that uplifting note, we'll end this here,
• 17:46
  Speaker 1: Dr Farber, thank you so much for taking the time
• 17:48
  Speaker 1: to speak with us today. All right, thank you. Benchmark
• 17:53
  Speaker 1: will be back next week. Until then, you can find
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• 18:12
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  Speaker 1: Thanks for listening, See you next time.