3 reasons to cheer Uber and the sharing economy

July 20, 2015, 3:30 PM UTC
Uber Tops Taxis
Uber driver Karim Amrani sits in his car parked near the San Francisco International Airport parking area in San Francisco, Wednesday, July 15, 2015. In the three months ended in June, Uber overtook taxis as the most expensed form of ground transportation, according to expense management system provider Certify. (AP Photo/Jeff Chiu)
Photograph by Jeff Chiu — AP

The sharing economy, where people rent apartments, cars, boats and other assets directly from each other through the Internet, has received a lot of flak lately. Critics of companies such as Uber, Task Rabbit and the like say workers lose out on the benefits and protections that regular full-time employees at big companies enjoy, such as health insurance and retirement savings. The latest case was perhaps last week when Democratic presidential candidate Hillary Clinton criticized the sharing economy for its sometimes poor treatment of freelancers, and Uber is currently locked in a heated battle with New York Mayor Bill DeBlasio over licenses to operate.

It’s true that today’s laws need to catch up to this emerging business model, but there are three big benefits to the sharing economy that could be compromised if the U.S. government tinkers too much with this arena.

Creates new services
There’s growing demand for services like ride sharing and short-term apartment rentals that isn’t easily met by traditional means, often due to the capital investment required. Uber has been successful because of the ubiquity of its service. The transportation company requires a massive fleet of vehicles and drivers, which could be prohibitively expensive if Uber had to supply all those cars or hire all those drivers full-time. In other words, if Uber didn’t employ the model that it currently does, it might not be able to provide the valuable service that it does.

That doesn’t mean the company couldn’t pay its drivers more, especially since they have to invest in their own vehicles. Uber has a mercenary attitude toward its drivers and competitors, but solutions are emerging to mitigate some of these problems, such as a startup called Breeze that rents cars to Uber and Lyft drivers to enable them to provide ride sharing services cost-effectively. Uber estimates that on average its drivers make $19 an hour, which suggests that it would take just one week of driving for someone to cover the monthly costs of a Breeze rental, according to a calculation by Billfold.

Provides workplace flexibility
While full-time employees enjoy many benefits, they can also have restrictions placed upon them; it’s an expected quid pro quo. By contrast, a freelancer can usually set their own hours, work from home or elsewhere instead of an office, take more vacations, and do pretty much whatever they want outside of work. This is particularly important for millennials, who tend put a premium on flexibility, enjoy doing different things and dislike being tied down. According to a study by PwC, the demand for flexibility isn’t just limited to millennials, but is becoming a feature of the wider workforce.

The sharing economy seems tailor made for this trend. Despite its drawbacks, freelancing could well be the preferred work structure of the future. While it may be impossible to ascribe a dollar value to flexibility, it clearly has value for many since almost 34% of the U.S. population is now freelancing, according to a survey conducted by the Freelancers Union. In addition, freelance work, especially something like driving an Uber, can also sometimes be a lifeline for those who lack the credentials for more skilled jobs or need to make a living without committing too heavily to an employer so that they can pursue other passions.

Sharing economy jobs can be just as, or more, lucrative than full-time gigs
Contrary to what critics might say, wages under the sharing economy are not necessarily inferior to regular full-time jobs. Even though companies like Walmart (WMT) and McDonalds (MCD) are now increasing wages and some cities like Los Angeles have enacted a $15 an hour minimum wage, the minimum wage in most of the U.S. still remains fairly low – the federal level is $7.25 an hour and the 10 states with the highest minimum wage all have wages below $10 an hour.

It’s worth noting that employer-subsidized health insurance does add to full-time wages, but not enough. On average, the annual employer contribution to cover a worker and his/her family was $12,011 in 2014, according to the Kaiser Family Foundation, offset by $4,823 that the employee had to pay from his/her side. This translates to net additional compensation for a full-time employee working 40 hours a week of $3.75 an hour and for someone making a base of $10 an hour, a total wage of only $13.75 an hour. By contrast, an Uber driver who makes $19 an hour can get family health coverage through Obamacare at about $570 a month, which translates to $3.60 an hour and therefore a net income of $15.40 an hour.

What this all means is that some full-time jobs may pay less, even taking health insurance into account, than what Uber says their average driver makes.

From a purely financial standpoint, then, there is little difference between the traditional economy and the new sharing economy. There is a need in the U.S. to raise wages for workers of all stripes, but whether they are full-time or freelance is mostly irrelevant.

S. Kumar is a tech and business commentator. He has worked in technology, media, and telecom investment banking. He does not own any shares of the companies mentioned in this article. He is not an investor of the companies mentioned in this article.

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