Uber’s Plan to Survive a Driver Shortage: Short-Term Bribery
If you’ve tried to call a ride on Uber or Lyft lately, you may have noticed that it takes much longer than you’re used to. Many drivers quit at the beginning of the pandemic because of the risk of contracting COVID-19 from a stranger, and rideshare companies are facing a massive shortage of drivers just as demand has begun to pick back up.
So dire is the shortage that Uber CEO Dara Khosrowshahi announced plans to spend $250 million to lure drivers back onto the road. At the same time, reports showed that ride prices for consumers were up by 40%. It would be easy to assume that the millions promised by Khosrowshahi are visible in these heightened prices, but this is incorrect.
The base rate of pay for drivers remains unchanged. Rather than charging higher prices and increasing driver pay, Uber and Lyft are using short-term incentives to create temporary boosts in the supply of drivers. Drivers new and old are being barraged with special offers to get back on the road, with incentives taking three forms:
- 1) A flat bonus paid to the driver after completing a certain number of rides. In my case, my current “quest” (as Uber calls these incentives) is $35 for 20 rides, a subsidy of $1.75 on each ride. Drivers willing to do 100+ rides over a weekend are being offered hundreds of dollars in bonuses.
- 2) An income guarantee for a fixed number of rides. Again using my own example, I am guaranteed $900 in earnings if I complete 100 rides before the end of June. If I fall short of $900, Uber will give me the difference to make up for it. If I make more, my reward is nothing.
- 3) Recruitment bonuses. Before COVID, the bonus for recruiting a new driver in my area was as low as $20. Now, drivers are being offered $200+ per head.
The one thing that astute readers will notice is that these offers are temporary. These are bonuses fixed to a specific period of time like a weekend or a single month. Drivers are not actually being paid more, they are being bribed with promises of easy money if they’ll get behind the wheel or find a new sucker for the company.
How Uber and Lyft Operate
Before the pandemic, rideshare drivers had seen their earnings steadily slashed every year. Whenever Uber needed to appear to be moving towards profitability, it would simply adjust the payment algorithm for drivers. While these adjustments always came with lofty promises of equal or greater pay, drivers had a very different experience. As their earnings collapsed, Uber crowed to investors that it was losing less money than usual, a direct result of pocketing the money that used to go to the people doing the actual work.
This plan remains unchanged by the pandemic. While other industries (particularly the restaurant industry) are suddenly finding that they can no longer pay poverty wages and expect an unlimited supply of desperate job seekers, rideshare companies have discovered that their only route to survival is hoping for a return to business as usual.
Uber and Lyft have never turned a profit, and their business model has always stressed that they would become profitable at some hazy point in the future. Meanwhile, the companies have engaged in anti-competitive practices, legislative rent-seeking, and tax evasion. Paying the people who drive the cars more money has never been on the table, and rideshare executives know it. Khosrowshahi isn’t going to slit his own throat for some dirty poor sleeping in the backseat of a Honda Civic.
Rideshare companies treat drivers as disposable, able to be discarded at will. Because drivers are considered “independent contractors,” they lack basic protections like unemployment, sick leave, or guaranteed minimum wages. While slick advertising from gig economy companies often promises huge wages and total freedom, the reality is very different.
Drivers work long hours for substandard pay. So poor is the treatment of drivers that only 4% of them last for more than a year (some analyses put the number closer to 10%, but the point is the same).
Because the pool of drivers churns so rapidly, the incentive for gig economy companies isn’t to treat drivers well in order to retain them. Instead, the goal is to offer short-term incentives to attract a constant pool of new suckers, then squeeze them as hard as possible until they quit.
The constant exit of drivers from the labor pool bolsters the claims of these companies that their workers are simply contractors choosing to leave the workforce rather than hopelessly exploited people who quit rather than continue working for peanuts. In this vicious cycle, the only winners are the people with stock options.
The Plan Remains Unchanged
For rideshare companies, the plan to survive the driver shortage is simply to play the waiting game. As expanded unemployment benefits wind down and a moratorium on evictions and foreclosures expires, America will return to its quiet baseline of economic desperation for the most vulnerable. These people are not currently going to choose to drive a car for a living, but in a few months, they just might be willing to pick up a few rides to help make ends meet.
For Uber and Lyft, that’s okay. They can wait, and as long as they keep up the appearance of making a modest effort to try to be profitable, there will be no repercussions. This cynical waiting game is a result of the complete failure of regulators to impose any sort of costs on these companies. If wages across the country rise, Uber and Lyft won’t budge. There’s no reason to. No price has ever been paid for their substandard treatment of workers.
Until then, short-term bribery is the way forward. Plying the few willing drivers with cash bonuses will keep them from noticing that their base rate of pay is abysmal. Demands for a bigger cut can be safely ignored (as they always have been). There will be 100 people signing up behind them to avoid getting pushed into the street.
Welcome to the new American serfdom. Welcome to the gig economy.
