I have said it once before and I think it bears repeating: you can’t build an economy with minimum wage jobs. In my last commentary on the U.S. labor market I talked about how service jobs are destroying the U.S. economy. This week I wanted to expand on by focusing on another sector of the labor market, which has been coined the “gig economy.” In a “gig economy,” workers don’t have traditional nine-to-five jobs. They are self-employed contractors, working freelance, jumping from contract to contract. These workers are also classified as “non-regular” employees.
So you can’t build an economy on minimum wage jobs and now I add to that: you can’t build an economy from freelance jobs!
Yes, freelancing offers people great flexibility but the tradeoff is that the concept of job security has completely vanished. Not only that but freelancing also means that workers are having to be more competitive with their contract rates, which is leading to stagnant wage growth.
But how bad can freelancing really be? Latest employment numbers showed that average hourly wages increased 2.3% annual in March; however, a lot of this is due to the “base-effect.” This is an economist term used to describe an increase based on a previous lower number. So in layman terms wages last month sucked less than they did last year.
I was also sent an interesting report from Capital Economics that looked at the wage growth of new jobs and they highlighted a very clear downward trend. Their research shows that the average wages for new jobs created in the last six months was $24.30, down from the average earnings of $24.80 for new jobs created in 2015, which was down from $25.10 for jobs created in 2014.
This isn’t surprising as high-paying manufacturing jobs have been in a significant decline recently while service sector, or minimum wage jobs have surged.
I know that one company can’t be blamed for all the woes of the U.S. economy and labor market but I don’t really care. This is my opinion and I am blaming Uber.
Nobody embodies this new-age “gig economy” more than Uber, the “ride-sharing company.” Uber has taken the world by storm and in hurricane style it has decimated the taxi industry. Yes consumers have seen a benefit of lower transportation costs and more choice but what does this new freedom cost the U.S. economy.
Uber has set the standard for other companies to follow and in my opinion I think the results will be disastrous. While doing my research on Uber I came across an interesting article from the Atlantic which said that Uber drivers can make $300 to $400 extra a week for 15 hours of driving. That sounds like a great chuck of change but then the realization hits, being an Uber driver is only a sideline job. They are only supplementing their income.
This makes sense because, as I pointed out in my last article, you can’t raise a family on a minimum-wage job, well maybe you could if you wanted to live in Cleveland.
The Atlantic article was based on research from Alan Krueger, a Princeton economist who also was an advisor for President Barack Obama and Jonathan Hall the head of Uber’s policy research.
According to their research, looking at San Francisco specifically, Uber drivers make around $25 an hour, which is right in the middle of the wage bracket. They even had a nice little chart to show the comparison.
However that is only half the story. Remember an Uber driver is a freelancer and that means they are completely responsible for all their costs. If they want health insurance they are going to have to pay for it themselves. They have to set some money aside for taxes, (unless they are already rich enough to have hired lawyers to create a Caribbean tax haven). Money also should be put aside for vehicle maintenance. Despite what Uber claims, drivers are basically professional drivers; they accept a fee for a ride so they probably need to get different car insurance as the current package might not cover them in an accident with a paying customer in the back seat. Finally there is also fuel costs.
There are also the fees to think about. I don’t use Uber but I have been a freelancer writer for many years, working on sites like Upwork.com and I would suspect that for Uber drivers there re probably fees associated with transferring your money from your Uber account to your bank account or prepaid credit card.
All these bills add up pretty quickly and that $25 an hour job might not seem so great.
Unfortunately this is the way the world is going. High paying tech jobs like web design are now are being farmed out to freelancers; there are also very few in-house graphic designers, or communication specialists. To make matters worse, in this gig-economy world, for the most part, the lowest bid gets the contract.
So what happens if workers try to stand up for their right to make a fair wage? Well just ask the Uber drivers in Seattle. The drivers successfully lobbied the city to allow ride-sharing drivers and taxi drivers to form a union and collectively bargain.
But it looks like it is going to be an uphill battle.
Uber is fighting back against this the proposed union, saying that it won’t work because they are a collection of part-time drivers. They even acknowledge themselves that most Uber drivers have full or part-time jobs. By their standards the company acknowledges that their “contract” drivers cannot make a full-time living.
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