IS THERE AN app for cognitive dissonance? Most consumers who have tried ride-hailing services find them cheap and convenient. But many worry that, because drivers are classified as independent contractors, they have fewer rights than normal employees. That treatment helps create the flexibility and low cost that consumers crave. However, it has also given the gig economy a slightly dubious reputation.
Now the ride-hailing companies are falling over themselves to proclaim that they treat their drivers well. Lyft, which launched the roadshow for its initial public offering (IPO) on March 18th, claimed in its prospectus that “we focus on providing drivers with a best-in-class experience”. It offers career coaches and “education resources” and is also paying a cash bonus to drivers who have undertaken more than 10,000 rides. Shares in the IPO have been put aside just for the drivers to invest in.
Uber’s rapid expansion has been dogged for years by legal battles over the employment status of its drivers. As The Economist went to press, the firm was expected to face yet another challenge in the British courts. A group of drivers argue that they have been denied access to data (despite a request under the EU’s General Data Protection Regulation) on issues such as their working time and performance ratings.
Travis Kalanick, Uber’s founder, had an aggressive management style. But he was ousted in 2017. Dara Khosrowshahi, the cuddlier chief executive who replaced him, has been trying to show that the company’s culture has changed for the better. This seems timely given that Uber is also expected to launch an IPO this year.
Last year, in partnership with AXA, Uber created insurance policies for drivers across the EU, covering sickness, injury and payments for maternity and paternity benefits. Uber bore the cost. Similar programmes are available in Egypt, Pakistan, Saudi Arabia and South Africa. Medical insurance in America is available, too, although this does require the drivers to pay a per-mile levy.
Also in America, Uber drivers who have notched up more than 3,000 trips can take up the offer of an online degree at Arizona State University on the company’s dime. This benefit, which is dependent on their customer rating, can be transferred to a loved one or a dependant.
Being nice to the drivers makes sense for three reasons. First, there is competition in the ride-hailing market, not just between Lyft and Uber but from services like Ola and Gett. Drivers may use more than one platform and can switch to the service that treats them best. Second, brand reputation matters. At the height of Uber’s troubles in 2017, the hashtag “#deleteUber” was trending on Twitter.
Third, companies that list on the market have to convince institutional investors to buy their shares. Many asset managers nowadays pay more attention to social and governance issues, which might restrict their willingness to buy shares in companies that are perceived to have a rancorous relationship with their contractors.
All this makes Uber an interesting test case in brand management. Attempts to woo drivers carry long-term risks. The more benefits the ride-hailing apps offer, the more their drivers may start to resemble employees, rather than contractors, in the eyes of the courts.
Whatever the courts decide, it is hard to see Uber’s ride-hailing model disappearing for good. Many drivers prefer it to paying upfront (often a lot) for a traditional taxi licence.
A study* of drivers in London finds that they earn around £11 ($14.50) an hour (after costs), more than the living wage, and more than a third of them vary their working hours by more than 50% from week to week. These drivers report higher levels of life satisfaction than workers in general, probably reflecting their independence. But as with other freelancers, this independence leads to irregular incomes that make Uber drivers more anxious than those in regular work.
Ride-hailing apps present a classic version of a policy trade-off. Society can choose from three options—cheap services, employees’ flexibility and full workers’ rights—but it cannot have all three. Consumers and lawmakers will have to work out which to sacrifice.
* “Uber happy? Work and well-being in the gig economy”, by Thor Berger, Carl Benedikt Frey, Guy Levin and Santosh Rao Danda