Is Uber a threat to traditional cab workers in the gig economy?

 Introduction

According to Fennell (2024), gig workers make a £20 billion contribution to the UK economy, equivalent to the aerospace industry, which illustrates the significant economic impact of the gig economy in the UK. The gig economy is characterised as a free market system in which temporary positions are common and organisations hire independent workers for short-term commitments (Gillis, 2022). Uber, Airbnb, and DoorDash emerged as seminal examples propelling the gig economy into widespread recognition on a significant level. Uber, particularly, has fueled gig economy expansion with its game-changing impact on the transportation industry. This blog post shall attempt to provide a comprehensive overview of the pros and cons of the gig economy through the lens of Uber and to conclude whether Uber poses threats to the traditional cab worker.

Figure 1: What gig economy platforms are popular in the UK? (Fennell, 2024)

Why did the gig economy arise, and how is it different from the traditional employment relationship?

In recent years, the gig economy has developed into a great economic force, altering traditional employment patterns. This economic framework, defined by temporary agreements and independent work arrangements, starkly differs from the longstanding model of stable, full-time employment. Projected figures suggest that by 2025 the Gig Economy will contribute up to $2.7 Trillion to the global GDP (Manyika et al, 2015), which implies the gig economy is a strong competitor to the advancement of traditional industries.

The ascent of the gig economy is not coincidental; it aligns with current social and technological trajectories. To begin with, the widespread adoption of the Internet and mobile technology has served as a conduit connecting freelancers and employers. Additionally, governmental measures encompass tax regulations and support programs for entrepreneurs, aiming to foster opportunities within the gig economy. Furthermore, intense competition within the conventional job market and escalating costs associated with labour acquisition have indirectly contributed to gig economy growth.

Uber = Innovation

Since its founding in 2009, Uber has become a cornerstone of the Gig Economy (Zwick, 2017), challenging traditional labour markets and redefining the transportation industry. Uber takes an interesting approach when it comes to employee recruitment, offering complete flexibility of working hours, and minimal entrance barriers to employment. Consequently, demographic groups that previously struggled to find work in the traditional labour market are now being employed at high rates by ‘gig economy’ companies such as Uber. A recent study on Uber drivers in London concluded "Uber drivers overwhelmingly come from immigrant backgrounds” (Berger, et al, 2019), highlighting the gig economy's ability to increase efficiency within the labour market.

Figure 2: Uber rider ratings (Thakur, 2022)

"Uber has brought transparency between riders and drivers"- Rahul Guhathakurta (2017)

Uber has also managed to increase access to information within the ride sharing space. Riders and drivers alike are given a rating out of 5 stars, paired with other information such as the type of car and a picture, all of which was priorly inaccessible in the traditional taxi industry.

Figure 3: Price discrimination (Martin, 2019)

Additionally, Uber has seemingly mastered the controversial (yet profit maximising) strategy of price discrimination. Utilising AI, pricing for trips varies based on historical user data, geographical location, time of day, and more. As an example, the Uber website outlines “Friday and Saturday Nights, rush hour, and big events” are likely to have increased prices (Phillips, 2024). Accurately predicting consumers' willingness to pay has always been at the forefront of economic theory, and with the relatively recent development of advanced AI and computer algorithms, Uber may have found a way to crack the code.

What are the limitations of Uber in the gig economy?

While Uber has brought significant changes and opportunities to the gig economy, there are also several negatives associated with their operation. Despite Uber’s promises of flexible schedules and high earnings potential, as an illustration, more than half of gig economy workers in the UK are earning less than the minimum wage, with a quarter reporting that the nature of their work puts them at risk (Kelly, 2023). Uber drivers face the challenges of low income, and job insecurity, which can negatively impact their mental health such as anxiety and burnout, and overall well-being.

Similarly, the rise of Uber and other ride-hailing services has disrupted traditional transportation services such as taxis and public transit (Clewlow, 2019). The decline of traditional transportation services may lead to reduced access to transportation options, particularly for marginalised or underserved populations. In the case of Uber, the struggles of drivers to earn a livable wage and the disruption of traditional transportation services represent microeconomic negative externalities that can have significant economic and social consequences at the individual and community levels.

Dynamic pricing employed by Uber can create uncertainty among consumers regarding the expected cost of their ride. Moreover, algorithms determine driver earnings based on factors such as trip fares, distance travelled, and time spent driving. However, these algorithms may not always prioritise driver earnings, leading to fluctuations in income and uncertainty about earnings potential for drivers. It's worth mentioning that Uber's algorithms collect a lot of data on drivers and passengers, including location information, travel history, and user behaviour. While the data may be used to improve service quality and efficiency, it also raises concerns about privacy and surveillance.

Conclusion

The rise of Uber has alleviated the problem of employment rates in the taxi market and increased the ability of labour market efficiency. In addition, Uber effectively differentiates itself from the traditional taxicab industry through the role of information. Moreover, through a price discrimination strategy, Uber can maximise profits. However, there are certain limitations as the largest employer in the gig economy, such as negative externalities, instability coupled with the impact of well-being on drivers which cannot be ignored. With the rise of the zero-work economy, Uber will pose a certain threat to the traditional taxi-industry, but it also has some unavoidable problems of its own. From an economic point of view, the emergence of the gig economy is a general trend, which presents a fascinating landscape of supply, demand, and market dynamics.

Reference List

Berger, T. et al. (2019) ‘Uber happy? work and well-being in the “Gig Economy’, Economic Policy, 34(99), pp. 429–477. (Accessed: 15 April 2024).

Fennell A. (2024) Gig Economy Statistics UK, The latest facts and figures behind the UK's fast-growing gig economy, Available at: https://standout-cv.com/gig-economy-statistics-uk (Accessed: 12 April 2024).

Gillis, A. (2022) What is the gig economy? [online] https://www.techtarget.com/whatis/definition/gig-economy(Accessed: 10 April 2024).

Guhathakurta, R. (2017) ‘Decoding Uber’s Rating System for Drivers and Riders How does it work for drivers?’, Available at: https://www.researchgate.net/publication/327051151_Decoding_Uber’s_Rating_System_for_Drivers_and_Riders_How_does_it_work_for_drivers (Accessed: 14 April 2024).

Kelly, P. (2023). Half of UK gig economy workers earn below minimum wage, study reveals. The Guardian. [online] 11 May. Available at: https://www.theguardian.com/global-development/2023/may/11/half-of-uk-gig-economy-workers-earn-below-minimum-wage-study-reveals.(Accessed: 18 April 2024)

Manyika J, Lund S, Robinson K, Valentino J, Dobbs R. (2015) A labor market that works: Connecting talent with opportunity in the digital age. McKinsey Global Institute. https://www.mckinsey.com/~/media/mckinsey/featured%20insights/employment%20and%20growth/connecting%20talent%20with%20opportunity%20in%20the%20digital%20age/mgi%20online%20talent_a_labor_market_that_works_executive_%20summary_june%202015.pdf (Accessed: 15 April 2024).

Phillips, J. (2024) How uber’s dynamic pricing model works | uber blog. Available at: https://www.uber.com/en-GB/blog/uber-dynamic-pricing/ (Accessed: 18 April 2024).

Regina R. Clewlow. (2019), Disruptive Transportation: The Adoption, Utilization, and Impacts of Ride-Hailing in the United States. [online] Transfers Magazine. Available at: https://transfersmagazine.org/magazine-article/issue-3/disruptive-transportation-ride-hailing/. (Accessed: 16 April 2024)

Zwick, A. (2018) Welcome to the Gig Economy: neoliberal industrial relations and the case of Uber. GeoJournal 83, 679–691. https://doi.org/10.1007/s10708-017-9793-8 (Accessed: 14 April 2024).