Workforce Development

The Downside to Lower Labor Costs in the Sharing Economy

August 29, 2014  • Maureen Conway

In this country, we believe in the value of work. Hard work is a prerequisite to economic success, and it is also held up as a virtue in itself. The American ideal is that if you work hard and save then you should be able to pay your bills and take care of yourself and your family. In other words, you should not be poor. The ways in which we organize work, however, may work against that ideal.

Companies like Airbnb, Uber, and TaskRabbit are exemplars of the sharing economy. The emphasis is on “sharing” a resource, such as a spare bedroom, a car, or some spare time. The owner of the resource can monetize that by “sharing” it, for a fee, with someone who would like a service. The sharers in this scenario are not employees of Airbnb, Uber, or TaskRabbit, but are generally described as community members. For many of these sharers, however, this is a critical source of income—this is not sharing; this is work. Witness the furious competition between Uber and Lyft for drivers and the pricing schemes that are intentionally targeting taxi services to put them out of business, and one can see that this is a business in which many drivers are working for a living.

This method of organizing work works extremely well in controlling labor costs, since the company doesn’t have employees and only owes drivers or workers money after they have performed a profitable service. If someone gets sick in the car and that driver has to spend the rest of the day cleaning the car, that’s not Uber’s problem. If a task takes longer or is harder than a “tasker” thought it would be, then the tasker doesn’t make as much money as they’d hoped, but TaskRabbit still gets its fee. A significant amount of business risk is shifted to the worker, and all the costs of things like benefits or unemployment insurance or workers’ compensation are avoided.

This model is good business, and one can see why investors like it. The company only owns and has responsibility for brokering transactions, and collects a fee on each. But the risks associated with illness, injury, or just the ups and downs of customer demand are largely borne by workers. Moreover, the online design creates competition among drivers, taskers, or hosts for a job, keeping their prices (i.e. wages) low. And this “sharing economy” approach is just the latest innovation in controlling labor costs, which has been a focus of business for quite some time.

But while success in lowering labor costs may be good for an individual business, it has a downside for our society. Working people in this type of precarious work arrangement have both low (remember those low prices?) and unpredictable incomes. It is difficult to plan to pay regular bills, such as rent, car payments, and groceries, with such irregular income. Moreover, these jobs have little insurance for injury, illness, unemployment, or old age. The winning bid for a job is not likely to include an additional amount to contribute to a retirement savings plan or to cover the cost of health insurance. So the result is more and more people working harder for less and less.

In the end, the sharing economy is nice words for what is really more of the same. More money going to business profits held by a few, and less money going to the labor income that is the primary means of support for most Americans. What we need is a sharing economy in which working people share in the wealth that their labor creates. Unfortunately, this version of a sharing economy does not promise that.  

Maureen Conway is the executive director of the Aspen Institute Economic Opportunities Program (EOP).