Why Not Us? Uber Drivers Unite As Executives Prepare To Profit From IPO

April 25, 2019, 2:00 PM UTC

Mostafa Maklad, 35, is already nostalgic about the good old days of driving for Uber. Five years ago, snaking across the freeways and suburban streets of Los Angeles he estimates he made roughly $50 an hour working 40 hours a week. Now, that figure is around $26 an hour and he works about 75 hours. Much of that money goes back home to his family in Egypt. Then three years ago, he says he was forced to downsize his living conditions in part due to the financial strain. While he once had his own room, he now lives with two others in one bedroom. Having completed 9,000 rides for Uber, Maklad is eligible for a $500 bonus when Uber, which recently filed a prospectus for its IPO, goes public. And while these bonuses, which go up to as much as $10,000, are meant as a nod to drivers who have complained about pay, it’s done little to address their concerns.

It’s nothing compared to the billions [the executives] are going to make,” says Mostafa.

Everyone knows that ride hailing giant Uber’s road to an IPO will likely make billionaires and millionaires out of its founder and executives. But what about the drivers? It’s a pressing question for Uber as drivers across the U.S. continue to make themselves heard. Most recently, they’ve organized a 12 hour strike slated for May 8 in cities such as Philadelphia, Washington D.C., Chicago and Minneapolis, demanding increased wages, benefits, and greater transparency about pay practices.

In its IPO prospectus, Uber lauded it’s network of 3.9 million drivers as “valued partners” that are “critical” to its business. But scratch the surface, and one of the only plans it outlines in the prospectus for stemming the bleeding of cash–Uber posted an adjusted EBIDTA loss of $1.8 billion in 2018–is to cut down on driver ‘incentive pay.’

“In particular, as we aim to reduce Driver incentives to improve our financial performance,” the company said in its IPO filing. “We expect Driver dissatisfaction will generally increase.” The system of incentive pay–on which Uber spent $837 million more than what drivers provided in revenue last year–has been critical to making Uber’s massively complex network work so well: by pinging drivers with bonuses to head to a certain area, or add one more ride to reach a goal, or drive just as the Taylor Swift concert is getting out, the company is able to get wheels on the road where there’s demand.

“The existing model was designed to deliver exponential growth and little else, and Uber, and the other players in this game, have only a limited window to fix it,” wrote Aswath Damodaran, a professor of finance at the Stern School of Business at New York University, in a blog post last week.

But already there are signs of driver dissatisfaction. In March, Uber alerted drivers that pay per mile in California would be cut from 80 cents to 60 cents. In return, they claimed riders would increase for a net gain in pay. Thousands of drivers have since turned out in California to protest the move.

And drivers read the news: Mostafa says he sees news of Uber’s investments constantly. It bought up scooter firm Jump a year ago,and ride-hailing firm Careem for $3.1 billion in March. And he has to wonder—if Uber has enough in its coffers to make such headline grabbing investments, can’t it pay drivers better?

That’s a good question, says Stanford Graduate School of Business Economics Professor Paul Oyer. He thinks Uber also has a limited point to which it can lower these bonuses or cut pay, with the U.S. unemployment rate now down to 3.9% (economists consider 5% ideal). Cut too much and you risk pushing Uber drivers to seek other jobs, endangering the ecosystem it has built up until now.

And, says Oyer, the reality is that Uber is just part of a larger trend in the economy of shrinking wages for low skilled labor force. That group “is doing terribly,” says Oyer. “It’s not an Uber specific thing, and it isn’t Uber that is causing low pay—it’s the natural forces in the economy, through globalization and autonomization, that are doing it. But it does become their problem to make people with very reasonable complaints happy.”

Maybe, but many think Uber’s ultimate goal isn’t to make drivers happy, it’s to make them obsolete.

Eventually, the company’s IPO filing suggests it plans to be an autonomous car company. We believe that there will be a long period of hybrid autonomy, in which autonomous vehicles will be deployed gradually against specific use cases while drivers continue to serve most consumer demand,” the company’s filing stated. And in a move emphasizing it’s autonomous driving prowess as it prepares to market shares of itself, Uber raised $1 billion Thursday for its self-driving car unit, valuing it about $7.3 billion.

Mostafa for his part might be out the door long before that happens. The 35-year-old is currently taking classes on cybersecurity at a local college and graduates in a few months.

Once that happens? Uber will be in the rearview mirror.

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