The paratransit sector offers complementary services to those of traditionally fixed route rail and road public transit systems. Taxis have traditionally been a major segment of paratransit services. Disruptions brought about by technological advancements, and the increasing clamor for the sharing economy poses a threat to traditional paratransit service providers. The most prominent of these technological disruptions include Uber and Lyft, which are taxi-hailing apps. These new initiatives face opposition from traditional taxi operators. Debate still rages on whether they create more jobs in the industry and the economy as a whole or they result in a net loss of jobs for the economy.
The sharing economies in which services such as Uber and Lyft lie involve matching people that would prefer sharing assets at a cost using online platforms. It has the effect of creating efficiency, which is frowned upon by the traditional economy for it relied on inefficiencies to overprice and exploit consumers.
Uber’s pricing policy is dependent on supply and demand factors. In many cities, it has often been cheaper to ride on Uber as opposed to traditional taxis. As a result, many potential clients have a preference for its taxis and in the process creating more demand for drivers. In the process, employment opportunities are created. Due to its popularity and convenience, drivers may also experience a surge in incomes. Under its pricing policy, when the demand is high, its prices rise - a scenario the company refers to as surge pricing. The high prices act as a motivation for the drivers using Uber. If demand is low, prices reduce, thus increasing the probability of attracting more customers, as they are attracted by the low prices. That results in the trade-off between high prices when demand is high and a high volume when demand is low ensures. Consequently, Uber drivers have a constant and predictable flow of income. However, that is not the case for the traditional taxi drivers. It has the effect of encouraging more people to join Uber in providing the taxi service and in the process creating further opportunities for employment.
Uber has also broken the barriers of entry into the taxi business, which in the medium term has the effect of adding more jobs in this segment of paratransit services. The traditional taxi industry is among the most regulated in the industrialized world. A prospective taxi operator must purchase a license. With the growth of cities, such licenses have become rarer and as such, their values keep increasing. It is similar to the case of fixed airport slots whose value rises as demand for the limited slots grows. In the U.S, big cities such as Newyork and Dallas have been known to charge as much as a million dollars for a taxi license. The situation is the same for other cities in Europe, especially in Paris where there are only 3.4 taxis for every 1000 inhabitants of the city. It is due strong and politically connected taxi lobbies, which restrict the number of taxi licenses in a bid to have control over the sector.
Rates charged by traditional taxi operators are fixed by the various cities as opposed to those of online taxi-hailing services. As such, they are slow to respond to competition, which is not the case for Uber. Uber drivers do not require licenses to operate neither do they face regulations that mandate them to charge fixed rates. As such, the platform is easily available to many car owners, thus allowing them to have a slice of the taxi business which was not the case before. In the process, it creates additional employment opportunities. Possession of a taxi license had been used by traditional taxi operators as a shield against competition and that allows them to offer poor services at the expense of customers.
In the long run, it may also serve to open up the traditional taxi industry to competition. The influx of Uber taxi drivers has led to a gradual decline in the value of taxi licenses. In Newyork, the value of these licenses has reduced by about 30% when data from 2013 and 2015 is compared. The entry of Uber forced the traditional taxi industry to react in a bid to remain relevant. There have been recorded improvements in the level of services offered by traditional taxi drivers; they have become more customer friendly as opposed to the situation in the past before Uber and other online taxi-hailing services were launched. They have also been forced to adapt to technology and come up with their own taxi-hailing apps. A case in point is the Taxicab Commission of Los Angeles, which has in the recent past mandated all licensed taxis to use online hailing apps. The efforts have been made in a bid to reduce waiting times and improve convenience in making payments. Payment issues had been a major drawback for the traditional taxis. These changes even though marginal, have served to increase jobs or, at least, maintain jobs in the traditional taxi business owing to the revamped image.
The number of Uber drivers has consistently grown since the launch of the service in 2009. The outlook for the industry estimates that jobs will grow by about 13% in the years between 2014 and 2024, which is well above the average for many other occupations. The growth is mainly attributed to the surge in the use of taxi-hailing apps such as Uber, especially in the age of increasing use of smart phones. That has occurred due to the ease of entry into the market attributed to these online services as opposed to their traditional forms. The attractiveness of such services is due to the ability of most of the drivers to supplement their incomes. 61% of Uber drivers in big American cities hold another job and join Uber to supplement their earnings. Uber drivers have higher incomes too as they earn an average of $25 an hour as compared to $11.16 an hour median pay for traditional taxi drivers. It creates an incentive for more drivers to join the service in the process creating more jobs.
The higher earnings can also be attributed to the fact that Uber drivers are not considered employees but independent contractors. For that reason, unlike traditional taxi drivers, they are not mandated to pay the minimum wage or other forms of statutory of payments such as health insurance which translates into higher earnings for the drivers due to lower contributions. The downside is that the lack of minimum wage rules in the market segment, and the lack of other statutory contributions leave the drivers worse off in terms of welfare despite the higher wages.
In San Francisco, the California Public Utilities Commission (CPUC) in 2013 mandated all taxi-hailing services defined under the new rules on Transport Network Companies (TNC) to conduct background checks on their drivers as well as develop driver training programs. The initiatives by CPUC have been replicated by many other jurisdictions in regard to paratransit service providers such as Uber. It has the effect of improving professionalism in the industry hence its labor quality. Hitherto the existence of Uber, there had been no stipulated training programs for taxi drivers where a majority of them were not as learned for there was no bare minimum education standard. Such training initiatives increase the employability of the driver, which may eventually lead to them join specialty services such as those offered by Uber. They include UberBlack and UberSelect that offer the driver an opportunity to earn higher incomes.
Despite the apparent advantages of services such as those of Uber in terms of job creation, there are still major drawbacks attributed to them. It is mainly due to the fact they remain unregulated. Unregulated industries lead to public costs, which is no different for the taxi industry. The failure to regulate Uber is not advisable despite its immediate benefits as it may, in the long run, result in the loss of the same jobs that it has purposed to create since its inception.
In the short-term, a majority of the traditional taxi operators have experienced reduced business. The low business volumes have resulted into loss of some jobs in the traditional taxi industry. Most of the proponents of this view argue that the low prices that Uber charges are unsustainable in the long run. In fact, the high revenues often reported by Uber and its drivers show only a single aspect of the costs incurred by the taxi drivers. It is the fees that Uber charges its drivers; the revenues do not, however, give a breakdown of the other costs that individual driver incurs such as fuel, parking and maintenance costs. For that reason, Uber is being misleading in its pricing since the drivers only end up pocketing a small margin as their profits.
Furthermore, Uber’s drivers are held as independent contractors and as such are not mandated to pay minimum wages. It has the effect of lowering drivers’ incomes, especially during the off-peak periods. Therefore, despite the increase in the number of jobs created as a result of Uber drivers, the overall effect to the economy is negative. Factoring in costs incurred by individual drivers and the lack of observance of minimum wage laws, the drivers end up earning less income in real terms. The status of Uber drivers as independent contractors means that company does not offer them health insurance putting the health of these drivers at risk. In 2015, the U.S Department of Labor issued guidelines on the misclassification of labor, which many have argued Uber is guilty of breaking. Those against Uber opine that the business model is not sustainable and is only being bankrolled by expansive private capital in a bid to kick out traditional taxi business. Once monopoly status has been achieved, the company would proceed to raise the price of its services. An increase in the prices would, in the long run, lead to a loss of jobs as there will be fewer people taking taxis.
Uber has a system in which its drivers and customers can rate one another. For drivers, a few bad rating often leads to suspension. The suspension is worse for drivers that solely depend on the taxi business for their income. It is because of the very low threshold set for such suspensions. Of the highest possible rating of 5, a rating of 4.6 would more often than not lead to suspension of the driver in question. Retribution involves incurring out of pocket expenses to cater for retraining sessions. While the ratings may appear as progressive, Uber drivers complain that some of the situations that result in their low ratings are not within their control. Some of the cases they cite involve clients with disorderly drinking behavior. For women drivers, some are given low ratings by clients for refusal to submit to sexual advancements from the clients. As a result of these suspensions often due to bias ratings from customers, many drivers have lost their jobs. Others have experienced loss of income due to the high out of pocket expenses incurred for the retraining program. Furthermore, Uber does not compensate these drivers for on job training they undergo contrary to the practice by many corporate.
In the long run, the convergence of all these factors would result in Uber drivers experiencing declining incomes and, as a result, declining standards of living. Many would be forced to leave their jobs in search of better prospects leading to a decline in the level of employment.
Conclusion
In conclusion, the struggles between traditional and technologically improved taxi services illustrate that that this new phenomenon outpaced policy makers. For that reason, there is a need to have debates and consultations of the remedies to the current situation. I am of the view that multiple business models can co-exist; in this case, traditional taxi services and online taxi-hailing services can work side-by-side. The solution would not be to ban online taxi-hailing apps such as Uber since their presence has proved to have a positive disruptive effect on the traditional taxi business by forcing it to innovate and adapt to new technologies.
The major bone of contention has been the rates charged by Uber, which are not regulated as opposed to those of traditional taxis that are fixed. It is important to have a background understanding of why many cities across the globe have regulated the pricing of taxi services. It was in a bid to eliminate the information symmetry that existed and as such there were many incidents of overpricing. However, technology interventions have served to bridge the gap in information and as such there is a need for legislative bodies to rethink the regulations and eliminate the fixed rates imposed on traditional taxi drivers. Such an intervention would have the effect of further opening up the paratransit industry creating more competition resulting in better services for customers as well as increased employment opportunities for drivers.
Increased employment coupled with greater environmental benefits of the shared economy prove that disruptive technological advancements are critical and are here for the long haul. As such, the entire traditional taxi business should be wise enough to adapt to the changes rather than fighting them. However, the traditional taxi operators do raise legitimate concerns that online taxi-hailing services such as Uber are not regulated. City authorities should take this into account, and come up with regulations to ensure that it does not abuse its dominance in the market.
Ultimately, the success of initiatives such as those of Uber will be measured through the number of jobs it creates over a period versus the amount of capital Uber and its competitors put into the business. A high number of jobs created coupled with a low return on investment may not be economically feasible in the long run. Therefore, looking at the issue in the singularity of jobs created may not be the best way forward as it is important in maintaining a balance between jobs created and the economic cost of creating the jobs.
Works Cited
Austin, David and Zegras, Peter. Taxicabs as Public Transportation in Boston, Massachusetts. Transportation Research Record: Journal of the Transportation Research Board, Vol. 2 277, 2012, pp. 65–74. Print.
California Public Utilities Commission. Transportation Network Companies. http://www.cpuc.ca.gov/PUC/Enforcement/TNC/. Retrieved Mar. 16, 2016
Hall, Jonathan and Alan Krueger. An Analysis of the Labor Market for Uber’s Driver-Partners in the United States. Working Papers: Princeton University. 2015.
Henderson, John. Street Fight: The Politics of Mobility in San Francisco. Amherst, University of Massachusetts Press, 2013. Print.
U.S Department of Labor. Occupational Outlook Handbook. http://www.bls.gov/ooh/transportation-and-material-moving/taxi-drivers-and- chauffeurs.htm Retrieved Mar. 16, 2016
