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Thursday, December 17, 2015

Everyone Loses from Unionizing Uber

The goal is to force new models into old molds

On Monday the Seattle City Council voted to extend collective bargaining to people who drive with ridesharing companies such as Uber and Lyft — even though these drivers are not employees of the companies. Though this move may be ruled illegal, Seattle’s push to unionize Uber and its competitors shows that many politicians do not understand what drives a 21st century workforce, nor younger workers’ goals. 

More than eight in ten Uber drivers are satisfied with their work arrangements, mostly because they are self-employed and can control when and where they work. But rather than embracing promising developments that promote entrepreneurship, many politicians call for a return to the manufacturing “golden age” of the 1950s — and the high unionization rates and inflexible workforce that accompanied it.

Even powerful political allies do not change the dim reality that unions are facing. Membership is declining, public pension plans are dangerously underfunded, right-to-work legislation is expanding, and young workers are not interested in diverting a portion of their paychecks to union dues that offer them few benefits in return.

Because of these changes, the union membership rate, now 6.6 percent of private-sector workers and 11.1 percent of all workers, has fallen to its lowest level since the National Labor Relations Act was passed in 1935. Data for 2015 will be released in January.

Unions’ problems are not caused by a lack of worker protections, but rather by the shifting needs of workers who increasingly emphasize flexibility and mobility. 

The trend of declining union membership is even more dramatic for young workers. Only 4.5 percent of employed 16 to 24 year-olds are union members. In contrast, workers age 45 to 64 have the highest union participation rate at 13.9 percent — over three times higher than that of young workers. 

Given the costs of joining a union, it is unsurprising that unionization rates increase with age and few young people clamor to sign up. Union dues add another 2 to 4 percent tax to each paycheck. Initiation fees add another $50 to $100, the price of a year’s worth of Netflix.

With union pension plans poorly funded, young people see little value in having part of their paychecks going towards propping up what is essentially a Ponzi scheme. Without a heavy influx of new members, many more union retirement plans will be insolvent long before millennials retire. This is why large unions such as the Teamsters are so eager to add Uber drivers, over half of whom are under 40, to their declining membership rolls. 

The outdated union model is antithetical to the flexible, entrepreneurial workplace that millennials desire. Ridesharing is a popular transportation option and work opportunity for a multitude of reasons that union representation will likely limit. 

Fares dynamically change based on real-time supply and demand. Maximum or minimum work hours would take away drivers’ freedom to work as much or as little as they desire. Minimum wage requirements could create incentives for more drivers to turn on their apps when the need for rides is low. Pre-determined driving schedules would also lead to drivers idling, unable to find fares, and riders waiting on the side of the road, unable to find available cars.  

Under union representation, young workers are the first to be fired, even if they show more promise than some experienced employees. Would unions defend a poor driver who had his account deactivated because of negative reviews? Post-ride, dual-feedback systems have led to the sharing economy’s increased level of service and trust. If partnerships with unqualified drivers cannot be terminated, consumers will be less safe (and rides will be less enjoyable). 

Most people who partner with ridesharing companies do so because of the freedom offered by the platforms. Uber is the main source of income for only 32 percent of drivers, with 69 percent of drivers having another full- or part-time job. This is why, on average, half of Uber drivers drive with the company under 10 hours a week. 

The concerns of some backers of Seattle’s unionization effort seem to be that Uber is growing too large, at the expense of consumers and drivers. “We’re trying to balance the playing field,” said Seattle Councilmember Mike O’Brien. He continued, “We have this multibillion-dollar company trying to monopolize the taxi industry around the world.” 

However, as Lyft’s success and the continued introduction of new ridesharing firms have shown, Uber does not have a monopoly. Rather, Uber’s breakthrough puts pressure on taxi companies — often actual, government-enforced monopolies — to improve their services. This increased competition benefits riders and drivers by providing them with more options. 

The ease and fluidity with which both drivers and riders switch between multiple ridesharing companies show that if Uber stops working to improve its service, its market share will quickly fall. 

It is a constant challenge for companies to balance the needs of workers with those of customers. Increases in driver pay lead to higher fares for riders, just as decreases in pay lower fares. Unlike taxis in the pre-Uber era, riders and drivers now have a multitude of available vehicle-for-hire transportation choices.

If drivers decide that they are no longer earning enough money to make it worth their time, they can easily leave the ridesharing platform to move to another opportunity. One of the benefits of the ridesharing model is that there are low start-up costs. Drivers can use their own cars and phones while partnering with the companies. Among active Uber drivers, two in three have never worked as professional drivers before partnering with Uber. 

Sharing economy companies know that they need qualified workers to stay ahead of the competition. This is why many of these companies are open to offering access to benefits for those who contract with them. Uber also offers cell phone discounts, health insurance recommendations, reduced-cost vehicle maintenance, and fuel incentives — all at no cost — to its drivers. The problem is that the more these companies do to help their workers, the more they resemble employers. In other words, by working to help alleviate workers’ concerns, they are opening themselves up to being designated as employers — something that, along with unionization, would cripple the sharing economy’s growth.

While most workers in the sharing economy are satisfied with their work arrangement, some desire a greater voice. Fare decreases upset many drivers, but as long as there is a healthy, competitive market, drivers will have the option to partner with other ridesharing companies that better fit their needs. Competition, not unionization, is what Uber drivers — and passengers — need.

This post first appeared at E21.

  • Jared Meyer is a fellow at the Manhattan Institute for Policy Research. His research has been published in The Wall Street Journal and National Review.