Above the Crowd

April 19, 2018:

In spite of all the ink that journalists, analysts, and pundits have spilled on Uber over the years, no mainstream article has focused on what I consider to be the most elegant feature of this now ubiquitous, high growth global service — no driver-partner is ever told where or when to work. This is quite remarkable — an entire global network miraculously “level loads” on its own. Driver-partners unilaterally decide when they want to work and where they want to work. The flip side is also true — they have unlimited freedom to choose when they do NOT want to work. Despite the complete lack of a “driver-partner schedule” this system delivers pick-up times that are less than 5 minutes (in most US cities (with populations over 25K) and in 412 cities in 55 other countries. The Uber network, along with Mr. Smith’s invisible hand, is able to elegantly match supply and demand, without the “schedules” and “shifts” that are the norm in most every other industry.

Some have raised questions and concerns about the “gig” economy and the rise of these new independent and autonomous work types. Detractors frequently highlight that these work types lack some of the structured benefits that are frequently attached to traditional full time job offerings. However, what they fail to consider is that there is one critical and fundamental feature of the “gig” economy that is completely absent from traditional job types. That feature — worker autonomy of both time and place — simply does not exist in other industries. One cannot show up for work at Starbucks on a Monday and then decide not to work at all on Tuesday, and for only 2 hours on Wednesday. Oh yeah, and then on Thursday let’s just “play it by ear.” One cannot get a job at Walmart or McDonalds or ironically even as a taxi cab driver without agreeing to some sort of shift or schedule. It is unheard of for an employee to say “I want to work 3 hours this week, 45 the next, and then take 2 weeks off.” This autonomy and freedom of the “gig” work type, which is highly valued by millions and millions of people, would be impossible to implement for the overwhelming majority of companies.

In November of 2014, the Morgan Stanley sell-side research team that focuses on the auto industry, headed by Adam Jonas, made a trip to Detroit to visit the big three automakers. In their own words, “the highlight of the trip, however, was three Uber trips we took between meetings.” They chronicled these three trips in a report they published titled, Confessions of an Uber Driver: Rollin in the ‘D. Interestingly, they encountered three different driver-partners that epitomize why the “where you want, when you want” autonomy of Uber is so fundamentally important. Each of these individuals has a life situation that is supplemented and improved as a result of this super unique flexibility. Included herein is a summary of each driver-partner profile. You will notice that a traditional 9-5 job would have been completely unhelpful to any of the three.

• The Veteran — She’s a retired US Army Veteran (recently stationed in Germany) and a mother of 3 daughters, the youngest of which is still in middle school. Our driver wanted a job that offered flexibility so she could take her daughter to and from school without relying on the area’s bus system. All of the other jobs she considered made it impossible to be there for her daughter when she needed to be. Uber provides enough flexibility so that she can take jobs when and where she wants while providing substantial income to help make ends meet while her husband, an active member of the US Military, is on tour.
• The Student — Our driver was a 30-something Jordanian-born student at Henry Ford College studying computer science with an emphasis on internet security and encryption. He’s supporting a family and wanted a job with flexible hours that could accommodate his class schedule and his familial responsibilities.
• The Dean — Here was a dean of students at a charter school in the area who ran into a cash flow deficit for many months while undertaking extensive construction/renovations to his residence. He began ‘Ubering’ last June to make extra cash and has since developed a steady level of business, making around $600 to $700 per week with flexible hours that worked around his time at the school.

In January of 2015, Uber partnered with Alan Krueger, a professor at Princeton University, to conduct the first comprehensive analysis of Uber’s driver-partners, based on both survey data and anonymized, aggregated administrative data. The results from this survey mirrored many of the points that Jonas uncovered and that McKinsey would later uncover. Here are a few key highlights:

• 85% say they partner with Uber “to have more flexibility in my schedule and balance my work with my life and family”
• 55% of drivers work less than 15 hours a week, highlighting that a majority of drivers use the service for supplemental income
• Driver-partners do not turn to Uber out of desperation, only eight percent were unemployed just before they started working with the Uber
• Two-thirds of these individuals reported that they had a full-time job
• Reasons for partnering with Uber:
  • “to earn more income to better support myself or my family” (91%)
  • “to be my own boss and set my own schedule” (87%)
  • “to have more flexibility in my schedule and balance my work with my life and family” (85%)
  • “to help maintain a steady income because other sources of income are unstable/unpredictable” (74%)
• When asked directly, “If both were available to you, at this point in your life, would you rather have a steady 9 to 5 job with some benefits and a set salary or a job where you choose your own schedule and be your own boss?” 73 percent chose the latter.

In October of 2016, McKinsey and Company (working with Uber) published a detailed research report titled, Independent Work: Choice, Necessity and the Gig Economy. The complete work, which is quite detailed and interesting, is publicly available. As the main report is quite lengthy at 138 pages, some readers may prefer the 18-page executive summary. Unsurprisingly, their findings were quite consistent with points already raised above — people value freedom and autonomy. Here is a subset of the relevant findings:

• The size of the independent workforce is quite large — “up to 162mm individuals, engage in independent work.”
• McKinsey identified the key feature mentioned above — “A high degree of autonomy: Independent workers have a high degree of control and flexibility in determining their workload and work portfolio.”
• Supplemental income is a key driver — “More than half of them use independent work to supplement their income rather than earning the primary living from it.”
• Independent by choice — “Most independent workers have actively chosen their working style and report high levels of satisfaction with it,” “Approximately 70 to 75 percent of independent earners are independent as a matter of preference.”
• High levels of satisfaction —“Free agents report higher satisfaction than those who choose traditional jobs on 12 of the 14 dimensions we measured, and they are just as satisfied on the remaining two dimensions. Free agents cite higher satisfaction than traditional workers across issues ranging from the creativity they can express to opportunities for learning and recognition. They are happier with their overall level of income and are just as satisfied as traditional workers on income security and benefits. These observations hold regardless of gender, age, education level, or household income.”

Last year, on a trip to New Orleans, I met another driver in a similar situation to those profiled in the Morgan Stanley report. She was a single mother who worked during the week as a nurse. On Friday and Saturday nights, she would drive with Uber until she acquired $100 in earnings, then she would head home. This effort earned her over $800 a month in extra income that helped her support her family. There are no other supplemental job types that are as simple and consistent as Uber is for this single mother. And the impact to her life is real and meaningful.

Another reason Uber is such a great supplemental work type is that peaks in usage elegantly overlap with time windows that are convenient for traditional 9-5pm, Monday-Friday full-time workers. Friday and Saturday nights are simultaneously the consistent weekly peaks of (a) demand on the Uber system, and (b) spare time that is available for people with standard full-time jobs that want to pick up some incremental income (the chart to the right highlights this). The same thing happens with holidays and festivals. The need for rides (and therefore drivers) at music festivals or seasonal events or in a vacation town like Tahoe are bursty. That said, these same holiday weekends are when people searching for supplemental income are free from the primary occupation and can make the voluntary decision to earn more money. I have met drivers in Tahoe that came to town with their family (on vacation) and are earning while others are hiking or skiing. The matching of this excess supply with excess demand is both elegant and fortunate.

There is another incredible driver-partner benefit of the Uber system that is radically different from traditional work types. Uber pays the driver their money immediately when earned. While other employers have experimented with ways to do this from time to time, or once a month — Uber allows this up to 5 times a day. Normal employers are nowhere close on this dimension (most pay 2-3 weeks in arrears). Imagine how this can be helpful to someone who is living paycheck to paycheck in their primary occupation. Not only are the extra earnings in and of themselves useful, but the speed of delivery of the actual cash could mean avoiding nasty traps like usurious payday loans. In fact, based on an analysis of Federal Reserve data, 47 percent of Americans “can’t pay for an unexpected $400 expense through savings or credit cards, without selling something or borrowing money.” Now they have a much better option.

There are many difficult situations in modern life where having a simple, flexible, and consistent form of supplemental income is quite beneficial:

• A bridge while looking for a full-time job — In the above survey 32 percent of driver-partners indicated a major reason they partner with Uber is “to earn money while looking for a steady, full-time job.”
• Extra income for a stay at home parent — Many parents are in positions where having a full-time 40-hour week job is incompatible with their duties and responsibilities to their children. Driving with Uber means they are able to have extra income without missing their children’s pick-ups, drop-offs, baseball games or theatre performances. And they can be home in the afternoons to help with homework.
• Using it to fund their way through college — I have met many driver-partners who are attending college. College is expensive and student debt is extremely high. Students cannot work two days at McDonalds and then skip three days to study for your final — this is “not a thing” with a traditional scheduled job type. Moreover, studying and test schedules can be sporadic and unpredictable. Interestingly — the “elegant balance” characteristic applies here as well. Guess where there are lots of people that should be riding in Ubers instead of driving? College towns. Guess where there are lots of people with extra time that would love to have extra money?
• Aiding in skills transition/retraining — The notion of skills displacement and digital disruption of certain jobs due to automation or robotics is a hot-button issue. It even comes up with regards to ride sharing as a result of the excitement generated around autonomous vehicles. If people are in need of learning new skills, they would be materially aided by the presence of a flexible and autonomous supplemental income opportunity as they retrain. Nursing school or a vocational training school have all the same issues as going to college. They cost money and demand time — which is super hard to do while maintaining a traditional 40-hour/week full time job.
• Work your way out of debt — Many Americans are unfortunately saddled with debt — credit card debt and student loan debt. If you are simultaneously living paycheck to paycheck you have no way to “catch up,” and as a result the interest payments chew up the marginal income you would use to pay down the debt. It’s a real trap. Supplemental income — working extra hours while you need to in order to get past a problem like this can be very powerful.
• Cover an unexpected expense — Sometimes life gives you lemons. You wreck your car. Your refrigerator or washing machine dies. You have an unforeseen medical expense. These are the exact moments where being an Uber driver-partner can get you over the hump. Not forever — just for a few weeks to cover the extra expense.
• Do what you love — Many of life’s most interesting career pursuits can be the hardest from an earnings perspective. We all know the notions of a “struggling actor” or “struggling artist” or “struggling musician.” Over the years I have met many of Uber’s driver-partners who use the extra earnings power so that they can pursue their dreams. One musician I met would even drive while he was touring on the road — in every city along the way.

The McKinsey study also uncovered these broader societal benefits that come from scalable “independent work” earnings structures:

“Independent work could have benefits for the economy, cushioning unemployment, improving labor force participation, stimulating demand, and raising productivity. Consumers and organizations could benefit from the greater availability of services and improved matching that better fulfills their needs. Workers who choose to be independent value the autonomy and flexibility.”

One thing to note about most of the scenarios above is that they are “temporary.” There is not a desire or intention on the part of the driver-partner to do this as a lifelong career pursuit. Rather, they recognize that it is an amazingly convenient way to solve a temporary need or to help bridge through to another station in life. Some labor lobbyists argue we should turn ride-sharing driving into a scheduled, full-time affair, but in doing so, you would eliminate the key reasons that most people take to the road in the first place. You would also potentially eliminate the world’s premier supplemental work offering.

In just a few short years, over 3 million driver-partners have joined the Uber platform. To put that in perspective, Walmart has grown to 2.3 million employees over 55 years. I think it’s safe to say that over the past five years, no industry has created more new jobs and new income opportunities than ride-sharing. And keep in mind that approximately three-fourths of the industry revenue goes straight to the labor provider — which is higher than almost any other industry on the planet. As a result, in just a few short years, global ride-sharing driver-entrepreneurs have taken in approximately $75+ billion dollars (with industry lifetime revenues north of $100 billion dollars). And keep in mind that ride-sharing only represents around 1% of the miles driven in the United States. As more and more people reduce car usage and abandon car ownership — this number will most certainly go higher and higher.

One interesting thing to note about Uber’s 3 million driver-partners — they all “volunteered” to start driving with Uber. This articulation may sound unusual, but some detractors want you to believe that driving with Uber is equivalent to working in the steel mill in a small mid-western town, where it is the only opportunity for the individual. That is not the case — people are “choosing” to be driver-partners, and they are doing so in record numbers. You have to ignore over 200 years of microeconomic research to be able to contort your brain into believing that all of these people are voluntarily making poor life decisions for themselves.

In all the discussion about why independent work is different than a traditional full time occupation, all of the focus has been on the features and benefits that are absent relative to the historic and perhaps idyllic notion of “work type.” What is missing from the conversation is why this job type is so special and unique to so many millions of people. There is simply no way for the vast majority of employers in the world to offer a completely independent and autonomous work-schedule. They are unlikely to enable “instant payment” either. Yet these are the EXACT same features that show up over and over again in the research as to why people chose independent work in the first place. Independent work is undisputedly “different” from a traditional job type — which is exactly why it is so valuable to so many people.

Driving with Uber reverses the way we have been trained to think about labor. Instead of making labor conform to management’s notion of a ‘job,’ Uber hands control to the worker. You do not have to make your life fit the needs of your job; you can make the job fit the needs of your life. Just how revolutionary this notion is has not, in my opinion, been adequately understood.