Uber, Airbnb and Consequences of the Sharing Economy

Writers: Joanna Penn and John Wihbey

Lyft car in San Francisco (Wikimedia)
Lyft car in San Francisco (Wikimedia)

The implications of the so-called “sharing economy” have been hotly debated in the news media, and the research world is now beginning to weigh in with deeper analysis. One central area of argument relates to whether the sharing economy is simply bringing more wage-earning opportunities to more people, or whether its net effect is the displacement of traditionally secure jobs and the creation of a land of part-time, low-paid work. It’s a debate that continues to play out across communities in the United States, forcing reporters to weigh competing claims and varying in tone from boosterism to warnings of the new economy’s “dark side.”

While the conclusions are anything but clear, even as more data pour in, it is worth digging into the available literature and knowing the centers of research debate and lines of argument.

A January 2015 paper co-authored by Princeton’s Alan Krueger — the former Chairman of President Barack Obama’s Council of Economic Advisers — based on Uber’s internal data finds clear benefits for “driver-partners” and notes the new financial opportunities created for tens of thousands of workers. Those conclusions have been critiqued by, for example, the liberal-leaning Center for Economic and Policy Research. In any case, the Krueger paper also argues that “the availability of modern technology, like the Uber app, provides many advantages and lower prices for consumers compared with the traditional taxi cab dispatch system, and this has boosted demand for ride services, which, in turn, has increased total demand for workers with the requisite skills to work as for-hire drivers, potentially raising earnings for all workers with such skills.”

A 2014 paper by Annette Bernhardt of University of California, Berkeley, also signals a cautionary note about any claims of radical recent change being wrought across the U.S. economy:

[We] all share a strong intuition that the nature of work has fundamentally changed, contributing to the deterioration of labor standards. Yet at least with aggregate national data, it has been hard to find evidence of a strong, unambiguous shift toward nonstandard or contingent forms of work – especially in contrast to the dramatic increase in wage inequality. This is not to say that there have been no changes in the workplace. But as this paper has emphasized, for enforcement agencies and policymakers, it may be more fruitful to focus on specific industries and regions in assessing when and where pernicious forms of nonstandard work have grown, and which groups of workers have been most impacted.

It is also true that the rise of independent workers, and associated job insecurity, long predates the recent rise of the sharing economy, although their percentage of all U.S. workers is expected to grow from about one-third currently to 40% by 2020, according to some estimates.

A 2015 report from the Center for American Progress notes the heated debate in Britain over “zero hours contracts” and charges that highly insecure and contingent employment leads to the exploitation of workers. The report — co-authored by Harvard’s Lawrence Summers, a top official in both the Clinton and Obama administrations, and Ed Balls, a British Labour Party MP — notes that “technology has allowed a sharing economy to develop in the United States; many of these jobs offer flexibility to workers, many of whom are working a second job and using it to build income or are parents looking for flexible work schedules. At the same time, when these jobs are the only source of income for workers and they provide no benefits, that leaves workers or the state to pay these costs.”

Meanwhile, scholars such as Juliet Schor of Boston College have been examining how workers might regain bargaining power despite an increasingly app-based, decentralized system of distributed labor. “While the for-profit companies may be ‘acting badly,’” she writes in an October 2014 essay, “these new technologies of peer-to-peer economic activity are potentially powerful tools for building a social movement centered on genuine practices of sharing and cooperation in the production and consumption of goods and services. But achieving that potential will require democratizing the ownership and governance of the platforms.”

Fights over rules and regulations

In October 2014 the New York State Attorney General released a report into Airbnb’s operations that concluded that 72% of the site’s rentals violated state zoning regulations or other laws. The company’s business model is built around allowing people to rent out rooms or entire apartments on a short-term basis, and the report is the latest in a series of ongoing battles Airbnb is engaged in with regulators across the world.

Berlin has banned regular short-term rentals in the most popular parts of the city without prior permission from the authorities. Paris passed a law in February 2014 to allow city inspectors to check rental homes whose owners are suspected of renting them out to visitors illegally. Airbnb has countered with its own reports on the benefits of short-term stays on local housing markets, arguing that the company’s service benefits local economies.

Also known as collaborative consumption or peer-to-peer (P2P), the sharing economy challenges traditional notions of private ownership and is instead based on the shared production or consumption of goods and services. Its origins were in not-for-profit initiatives such as Wikipedia (2001) and Couchsurfing and Freecycle (both 2003). Advances in information technology enabled the creation of large-scale bike-share systems (the first was in Lyon, France, in 2005), and these have subsequently expanded to the United States and around the world.

Social media and mobile technology have enabled the latest expansion of the sharing economy and turned it into a big business: Airbnb allows individuals to share their homes, while Lyft and Uber transform private cars into common resources. All these are for-profit services, but they take only a fraction of the fees levied, passing the rest on to the owners: In 2013 it was estimated that revenues passing through the sharing economy into people’s wallets exceeded $3.5 billion, up 25% from the previous year. Airbnb has exceeded 10 million guest-stays since its launch and now has more than half a million properties listed. Meanwhile Uber has said that it is doubling its revenue every six months.

As a 2014 article in Harvard Business Review noted, the interests of sharing-economy firms and city governments are often aligned, but failing to engage early on with potential regulators can raise the suspicion that companies are trying to exploit loopholes rather than develop a legitimate business model. For example, courts in Frankfurt recently upheld a national ban on Uber, and the service has been banned in several Canadian cities as well. At the heart of many of these debates is whether Uber is, as it claims, operating as a pure technology company, providing a match-making service to willing participants, or whether it is operating in effect as an unlicensed taxi service, which was the conclusion of Calgary’s city council. Moreover, a Massachusetts class-action lawsuit asserts that Uber exploits its drivers, misclassifying them as independent contractors to avoid paying them as employees with the same benefits.

Examples from elsewhere in the world shows such fractious relationships with regulators need not be the norm. In February 2014, Amsterdam became the first city to pass so-called “Airbnb friendly” legislation. A law allowing short-term rentals by permanent San Francisco residents was finalized in October 2014, but requires them to collect city hotel taxes and imposes other restrictions. In London, 1970s regulations limiting short-term stays were scrapped, making it easier for Airbnb and others to operate in the city. The British government has even launched an initiative to make the U.K. the “global centre for [the] sharing economy.” Similarly, while some traditional operators have fought sharing start-ups, others have chosen to get in on the game themselves: In 2013 Avis paid half a billion dollars for the car-sharing service Zipcar, and Hertz has started a similar service.


Journalists Resource