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Socioeconomic Effects of the Uber Model

Costs and Benefits of Uber versus Taxicabs

Is it possible that the Uber ride-sharing app is worth between $60 billion and $70 billion as has been reported? Can Uber’s market valuation be higher than that of the automobile companies that make the cars its drivers use? To put it into perspective, Ford and Honda are worth about $60 billion, while GM has a market value of around $55 billion. Yes, the valuation seems ridiculous but so did Facebook’s $104 billion market value the day it went public in May 2012. Four years later, Facebook is now worth about $300 billion.

What are the costs and benefits to society and our economy of having Uber, Lyft and their drivers roaming the streets of our cities and waiting for a call to pick up passengers and drive them to their destination? What are the displacement effects? What might these trends portend for the long-run?

I had my first encounter with Uber during a recent trip to New York City. What I found is the quality and efficiency of the drivers varied depending on the level of service. I will never use an Uber pool car again. It’s no fun to be in the middle of three passengers in the back seat of a Camry, two of whom could have been football players. Our “tour” through the city to drop the two off before me took one hour for a 15-mile trip and traffic was moderate.

I also wondered whether Uber drivers have background checks, undergo training, are covered by insurance, use their own cars, and so on. I learned that background checks are done, although to what extent I am not sure. I am told their cars have to be inspected and training is provided. Again, I doubt the training is extensive but had no problem with my drivers other than a few ‘short stops’ and near misses, a given when driving in NYC. Uber drivers use their own cars or can rent/lease cars as well through an Uber-driven exchange leasing program or from rental companies like Hertz and Enterprise. As for insurance, it seems as though this is up to the drivers.

There is a story on the Internet of an Uber driver who was hit by an uninsured motorist only to find out Uber wouldn’t cover any of his costs, even though the accident was not his fault because his insurance policy didn’t cover accidents caused by uninsured drivers. A word to current and future Uber drivers: Ask Uber about insurance coverage and check with your insurance company to avoid such occurrences before you start driving for the company.

It has been reported that Uber is taking millions of Manhattan rides away from taxis. In fact, NYC Mayor Bill de Blasio tried to impose a cap on the number of its for-hire cars operating in the city ostensibly because of concerns about traffic congestion. Data provided by FiveThirtyEight indicates that traffic congestion has not worsened because Uber drivers are replacing cabs in the center of the city and supplementing them in the outer boroughs.

According to the New York City Taxi and Limousine Commission, during the six-month period from April 2014 through September 2014, pickups in the city increased 3 million. My guess is two years later that amount had doubled as taxi-drivers continue to feel the socioeconomic effects of the convenience of calling Uber.

In the long run the movement to a call-for-ride program are enormous. Might there be a day where residents of cities like NYC ditch their cars entirely because of the ease of calling for a ride and the expense of keeping a car in large cities? What might that do to the automobile industry in the U.S? Could it be that traffic will decline and congestion reduced because a smaller number of people use cars? If the same level of displacement occurs and increases year-over-year, what will happen to taxi drivers? Perhaps many would wind up driving for the Ubers of the world.

What about land use? A major reduction of cars brought into and/or used by drivers living in the city means that we no longer would need so many parking facilities, which frees up land for other uses. Moreover, pollution effects due to the combustion of a fossil fuel, a process that emits gasses and affects the environment, would be lessened. 

Uber and Lyft are manifestations of a changing technology and the level of comfort and ease for Millennials. These folks are already well connected with the digital world and best placed to respond to the opportunities it provides. Just imagine what the Uber vs. taxicab relationship might be in five or ten years; it is not far-fetched to think taxi drivers will become a dying breed, at least in large cities.

As with most issues, California is a bellweather state. The California Labor Commission recently ruled that an Uber driver is an employee and not an independent contractor. The long term effects of this ruling are significant for Uber. Uber had argued it did not exert any control over the driver, but the Labor Commission said Uber is “involved in every aspect of the operation, from vetting drivers and their vehicles to setting rates for trip fares.” Uber’s arguments that it just matches passengers and drivers fell on deaf ears.

Adding fuel to the fight between Uber and the regulators, in March 2016 a former Uber driver in San Diego successfully applied for unemployment benefits. Patrick Ely, the driver, was part of a group of drivers who filed a complaint against Uber for those benefits and won their case when the California Employment Development Department recognized Ely as an employee and granted him unemployment benefits; independent contractors do not qualify. If other states rule as California has done, then Uber drivers will be better protected but the costs of forced-participation in the unemployment pool may negate one of Uber’s competitive advantages.

In short, Uber is a mixed blessing. It cost less than taxi rides; the experience may be more pleasant; and it plays into our technologically-driven society. However, we have an ethical responsibility to consider the long-term socioeconomic effects as well.

Blog posted by Steven Mintz, aka Ethics Sage, on August 30, 2016. Dr. Mintz is Professor Emeritus from Cal Poly San Luis Obispo. He also blogs at: