More Uber musings

Chris Lloyd’s comment on my previous Uber post prompt some further thoughts that I think merit a separate post.  Chris said:

“If you want to make a living off of Uber, you’re going to have to drive an insane number of hours.” I am surprised that Uber cannot offer cheaper fares without exploiting drivers. There are two cost elements that are removed compared to the old model. The first is the capital value of the license plates which were huge and supported the claim for higher rates. The second is all the red tape that went with the old system. If driver pay is low and fares a barely lower than traditional fares, then it sounds like Uber must be gouging the system because of their monopoly of the technology.

I can’t be sure but I don’t think that’s correct.  I haven’t driven taxis for over 30 years, but at one stage I managed a couple of cabs for an owner so I have some idea of the economics of the industry at least as it was in those days.

It appears that Uber is on average about 20% cheaper than a taxi (except at surge pricing times), as well as providing a quicker service.  Uber takes about 20% of the driver’s takings. By comparison, generally taxi owners take 50% of the driver’s takings.  But taxi owners actually own (or lease) the taxi vehicle as well as the plate, so they have to pay leasing or other finance on the vehicle as well as insurance and all running costs. Uber drivers on the other hand supply their own vehicle so they meet all those costs themselves.

When I was driving cabs, a typical apportionment of the taxi owner’s 50% of takings was that it would be split roughly evenly between:

(1) purchase price repayments, maintenance and running costs;

(2) taxi network and related fees and charges; and

(3) return on capital for investment in the taxi plate ($350,000 or so in some cities, I understand).

Uber drivers (owners) don’t need to achieve a return on a $350,000 capital investment in a taxi plate granting them a government-mandated oligopoly on urban point-to-point passenger transport, so (3) doesn’t apply to them.  However, (1) and (2) apply just as much to Uber as to taxis. On that rough analysis Uber fares around 20% cheaper than taxis look like a pretty good result for consumers.

You could argue (as Chris does) that Uber is gouging its monopoly position by charging drivers as much as 20% of takings (given that they don’t supply the vehicle or anything else other than the Uber online booking/tracking/payment technology).  However Uber is no doubt spending lots of money on fighting governments and the taxi industry to break the taxi oligopoly (including paying fines levied against its drivers), so you wouldn’t expect them to charge bargain basement fees in those circumstances.  Moreover, Uber would be well aware that competitors will certainly enter the market as soon as the taxi oligopoly is broken, so they’d be mugs not to charge what they can while the opportunity exists.

One reason why I decided to write a second post is that I didn’t initially make clear that my serious concern about the Uber “independent” contractor model, and its potential to undermine hard-won wages and employment conditions in a wide range of industries, certainly doesn’t mean I’m advocating  continuing taxi-style regulation of the passenger transport industry, still less that taxi and Uber drivers should be treated as employees and paid award wages as such.  After all, taxi drivers too have always been treated as self-employed, and their incomes were very poor on average even before Uber entered the picture.  The only factors that made it tolerable were the freedom to work essentially whenever and wherever you wanted, and the fact that income tax was a somewhat flexible obligation in the bad old days before computerised dispatching and online booking.

My perspective on all this was outlined in a recent post titled Re-imagining my “ideal” tax system. I don’t think it’s realistic or desirable to demand a return to the old industrial era days of inflexible award wages.  The neoliberal mantra of the “flexible” labour market need not be just a cloak for wholesale wealth transfer from labour to capital as long as we have a tax system that appropriately taxes accretions of capital and uses the resulting revenue to create/underpin a social wage with a universal minimum income (Negative Income Tax) that guarantees everyone a weekly income above the Henderson poverty line (which it should be noted sets the poverty line in a relative rather than absolute sense having regard to average weekly earnings in the whole Australian society).

Low-earning taxi and Uber drivers might well be net recipients of NIT payments in some weeks, providing a degree of basic income security and reducing the need to work excessive hours to make a living “wage”.  Full-time taxi drivers typically work extremely long hours.  With actual net returns (after fuel and pay-in to the owner) averaging between $10 and $15 per hour,  drivers need to work a bare minimum of 50 hours per week to make even a modest income of around $25-35,000 per year. Quite a few work much longer hours than that.  NIT would allow them effectively to take 6 weeks paid annual holiday from that punishing schedule at the NIT rate of $430 per week (for a single adult without dependents), potentially resulting in an annual income for competent, hard-working drivers of a still modest but livable amount of $38,000.

For students and others for whom taxi driving or Uber receipts may be just a supplementary source of income (e.g. the sort of drivers Nicholas Gruen has spoken with), a NIT/guaranteed minimum income may be less important, but the fact is that relatively unskilled industries like taxis and Uber driving have always been staffed to a significant extent by people with few other opportunities who do need a full-time income to support themselves and a family.  Calculations of this sort apply equally to a range of unskilled work areas e.g. contract cleaning and labouring work in the building industry. Unless we start constructively re-imagining the interrelationship between social security and the workplace and how it’s organised and regulated, Australia faces a society of increasing inequality. We will have increasing numbers of the desperate working poor while the wealthy live in privileged and often gated communities, rather like many modern American cities.   Australia can be a prosperous, flexible 21st century society without embracing that sort of nightmarish vision, but not if we thoughtlessly allow the importation of US models like Uber (and for that matter 7-Eleven and similar franchise systems) without carefully thinking through the linkages and possible implications.

About Ken Parish

Ken Parish is a legal academic, with research areas in public law (constitutional and administrative law), civil procedure and teaching & learning theory and practice. He has been a legal academic for almost 20 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in the early 1990s.
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Moz of Yarramulla
Moz of Yarramulla
5 years ago

I think it’s important to separate “Uber with a functional welfare state” and “Uber as we have it now”.

I had a housemate drive for Uber, and initially with the pay guarantee it was a pretty reasonable income. He ended up doing it full time, and has a decent amount of cash to splash round because he was ignoring maintenance and tax costs. Which is an issue that ideally Uber would address, but we have that problem in many, many indsutries (I used to lend a friend a years worth of tax every year because they were contracting and not setting aside the necessary cash… so I charged a bit less than their credit card did). Ahem. But… once Uber was a bit established they cut rates and started playing with surge pricing, to the detriment of the drivers. Not so long after that our housemate had to move back in with his parents because he couldn’t afford rent. I’m not sure where the money went, but it didn’t seem to make it into the hands of his “landlord” (whatever you call the head tenant? in a share house)

Also, PublicAddress in NZ has some interesting confessions of an Uber driver over there with good details on what it’s like. The NZ legal situation is very different, but the economics seem to be similar.

paul frijters
paul frijters
5 years ago

as far as I know, the main economic issue with Uber is the same as with taxi licensing generally: not working conditions or the quality of the service, but the ability to tax the industry. Traditional taxi licenses are a terrible system, but its one saving grace is that it creates an army of tax-enforces, ie the taxi drivers with a license, who used to muscle out any moonlighters. So you got crap service and major fights over taxi licenses, but the tax-man got his due. The same issue goes for large local taxi-companies that monopolise the market: terrible, apart from their use as tax-inspectors.

Uber undercuts this system and makes tax-avoidance easier. As a result, it is being banned left-right-and-center in Europe because at the end of the end, the need to tax activities trumps the other issues. We might soon be next. And the same thing might well come up with many of the other internet-lead intermediary activities.

5 years ago
Reply to  paul frijters

That is a good point Paul. I have an acquaintance who is a casual Uber driver. After much consideration he decided to not declare his Uber income and is avoiding paying income tax.