No one is innocent in New York's taxi market
CLV
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Taxi.
After years of being blamed for the woes of taxi drivers in New York City, Uber is no longer the leading villain. Over the weekend, the New York Times published a scathing investigation of the city’s taxi medallion system and the people who propped it up, taking millions of dollars from unsuspecting drivers at the peak of a bubble.
For those who aren’t familiar, the taxi medallion is a special plate affixed to the hoods of cabs legally permitted to pick up passengers on New York City streets. Local politicians developed the medallion system in 1937 to tamp down on fly-by-night cabbies who had overwhelmed the market, snarling traffic and depressing fares. The city originally sold 16,900 medallions but later reduced that number to 11,787, where it stayed until the late 1990s.
In the beginning, a taxi medallion sold for about $10. It increased over time, as you’d expect of any valuable asset with limited supply, not to mention regular inflation, but prices were relatively stable until the mid-2000s. Then something changed. The city began selling new medallions. It placed ads and held seminars promoting a medallion as a “once-in-a-lifetime opportunity.” From 2002 to 2014, the price of a medallion soared from $200,000 to more than $1 million, though driver incomes barely changed.
To feed the frenzy, taxi medallion lenders loosened standards. They eliminated down payments, piled on fees for borrowers, signed decades-long deals, and even devised interest-only loans that could last indefinitely. In late 2014, the bubble burst. Taxi driver incomes had started to wobble thanks to Uber, but medallion prices crashed by as much as 90%.
Since the Times stories published, politicians who sat idly by through the boom and bust have rushed to launch probes, plan hearings, and draft legislation. New York City mayor Bill de Blasio, the least popular Democratic primary candidate for US president, has ordered three different agencies to investigate. The Independent Drivers Guild and New York Taxi Workers Alliance, groups that represent local driver interests, have renewed calls to exempt professional drivers from a congestion tax that took effect in February.
Uber, meanwhile, is surely breathing a sigh of relief. The Times investigation has firmly shifted the blame for the collapse of the taxi industry and the suffering of professional drivers in the city, including eight who died by suicide in just over a year. The focus of the political rhetoric has moved on from Uber and the broader, app-based ride-hail industry to the bankers, dealers, lenders, and local officials who fueled the irrational exuberance.
As is often true, the reality is more complicated. More than 80,000 drivers now drive for the four largest non-taxi ride providers in the city—Uber, Lyft, Gett/Juno, and Via—compared to the 13,587 licensed medallion cabs. There were 206,540 licensed drivers in 2018 (pdf), nearly double the number from when Uber arrived in New York City in 2011 (pdf). The local taxi regulator says that when you account for fare increases and various taxes and surcharges that don’t get passed on to drivers, the average medallion driver earned $219 per day as of March, compared to $263 per day as of March 2014, right before Uber really took off (see Todd Schneider’s great data).
Medallion lenders also aren’t the only ones to have made misleading promises and pushed predatory loans. Uber famously ran an ad campaign in 2014 claiming its median driver in New York City earned more than $90,000 a year. I worked at Slate at the time and asked Uber to produce a driver making that much money who I could interview; it never did. The company paid $20 million to the Federal Trade Commission in January 2017 for misleading drivers over their potential earnings.
Uber also for years ran a car-leasing program in New York in partnership with four local auto dealers that funneled drivers into predatory subprime leasing contracts. These contracts enabled dealers to deduct weekly lease payments, which could be as high as $500 a week, directly from a driver’s Uber earnings—and enabled dealers to remotely lock drivers out of their cars if they missed too many payments. Uber shut down that program in November 2017 following my investigation for Quartz.
Local officials have recently become attuned to the plight of professional drivers. In December 2018, the city council passed a first-of-its-kind pay floor for ride-hail drivers that aims to lift their earnings to $17.22 an hour, or an independent contractor’s equivalent of the city’s $15-an-hour minimum for regular employees. Those rules use the pay formula we’ve discussed a lot (refresher here). They took effect in January and are expected to boost earnings for the typical driver by 45%, or nearly $10,000.
None of this is to trivialize the havoc wrought by the medallion bubble, but to point out that the taxi industry is, and has always been, a mess. The irony shouldn’t be lost that the medallion was originally created to fix one problem, and over time created a new, arguably worse one. The medallion owners, the bankers, the lenders, the lawyers, the city, Uber, Lyft—no one is innocent in this market. Except, maybe, the drivers.
Gigs.
We’ve talked a lot about the theory that the gig economy caught on so fast because it coincided with the recession, and there were lots of people who had lost their jobs and life savings, which made hopping in a car to drive for Uber or signing up to do odd jobs on TaskRabbit seem like pretty good options. I’m inclined to think this theory is right: Airbnb and TaskRabbit were founded in 2008, Uber in 2009, Fiverr and Homejoy in 2010, Postmates in 2011, Drizly, Handy, Instacart, and Lyft in 2012, DoorDash and Shyp in 2013… you get the idea. Gig companies got started right as the economy cratered, and really hit their stride in the first few years after the crisis, when unemployment was still high and wage growth practically nonexistent.
The research has come around to this point of view. Labor economists Larry Katz and Alan Krueger in January tempered their outlook on the gig economy, concluding their original, bullish forecasts were skewed by faulty data and labor market weakness that lingered after the recession. (Krueger, a seminal economist and leading researcher on the gig economy, died in March.) Previous work from the JPMorgan Chase Institute found that people who worked on gig platforms like Uber usually did so to offset shortfalls in their regular earnings. In other words, they turned to the gig economy when traditional work failed them, in contrast with people who rented assets on platforms such as Airbnb to add to a steady income.
If you believe gig economy companies benefited from a weak economy, it’s worth asking how those same companies would fare, long-term, in a strong one. The workers who jumped at a chance to drive for Lyft or deliver food for Postmates may not be so keen in a tight labor market—and US unemployment is at its lowest since 1969. Sure, flexible hours are nice, but so are predictable weekly earnings and health care.
Worker turnover, or churn, bedeviled gig companies even before the economy improved. The companies sometimes spin this as a positive, saying workers take advantage of the flexibility contract work affords them, but the fact is that constantly replenishing workers is time-consuming and expensive. “People often think ride-hailing is a rider acquisition game, but the bulk of the investment and work goes into acquiring and retaining drivers,” former Uber policy and comms director Jason Post told me in March. Companies tend not to share their retention figures, suggesting the numbers are nothing to boast about. In a rare and now dated bit of transparency, Uber once provided 2013 data to Krueger that showed nearly half of drivers dropped out after their first year on the job.
Micah Rowland, chief operating officer of Fountain, a company that helps gig companies find and hire workers, worries that current levels of turnover could be unsustainable for some of his clients. “It struck me that in some of these markets, they’re processing thousands of job applicants every month, and these are not large cities,” he told the Wall Street Journal earlier this month. “I asked, ‘Have you guys ever considered you may burn through the entire available labor market of people interested in or willing to do roles like this?’ and they did not have an answer for that.”
Meanwhile, here is a story in the Economist on how the labor market is so tight these days that even the lowest paid Americans are quitting jobs for better jobs:
Brad Hooper quit his previous job at a grocery in Madison because his boss was “a little crazy”. The manager threatened to sack him and other cashiers for refusing orders to work longer than their agreed hours. Not long ago, Mr Hooper’s decision to walk out might have looked foolhardy. A long-haired navy veteran, he suffers from recurrent ill-health, including insomnia. He has no education beyond high school. Early this decade he was jobless for a year and recalls how back then, there were “a thousand people applying for every McDonald’s job”.
This time he struck lucky, finding much better work. Today he sells tobacco and cigarettes in a chain store for 32 hours a week. That leaves plenty of time for his passion, reading science fiction. And after years of low earnings he collects $13.90 an hour, almost double the state’s minimum rate and better than the grocer’s pay. His new employer has already bumped up his wages twice in 18 months. “It’s pretty good,” he says with a grin. What’s really rare, he adds, is his annual week of paid holiday. The firm also offers help with health insurance.
Brad Hooper isn’t a gig worker, but it’s not hard to imagine a similar scenario playing out for an Uber driver. If 1,000 people aren’t applying to every McDonald’s job anymore, then they’re probably not looking at Uber, either.
Quiet, please.
Uber last week debuted a “quiet preferred” mode option in its luxury Uber Black car service, allowing passengers to indicate if they’d like to ride in silence. Over at driver blog The Rideshare Guy, driver and reviewer Jay Cradeur is not a fan:
For those passengers who think this is long overdue, I have to ask you why has it been so hard, up to this point, to ask your driver for some peace and quiet while you are being driven around town?
Many of my passengers sit in the back seat, look at their phones and disengage. Some fall asleep. Some have told me they just need quiet. It all has seemed so very civilized. I did not realize passengers were feeling so stressed out.
Quiet mode puts drivers in a bind. As independent contractors—a status recently affirmed by the US federal government—drivers don’t have to do everything Uber tells them, like be quiet during a ride. For Uber to be able to tell drivers when to talk and when to be silent could constitute an unreasonable degree of control over contractors, and so Uber instead can only request drivers do these things. If drivers don’t comply with the requests, however, they could get bad reviews from passengers, losing their status on the platform or even risking deactivation, gig-speak for being fired. That Uber offloads managerial power to riders has always been true—that, after all, is what the five-star ratings system is for. Quiet mode just renders it more obvious.
For a passenger perspective on quiet mode, I conscripted Oversharing chief gif officer John Hasley to test it out this week in New York City. He writes:
To be frank, this is not unlike my usual experience when Uber-ing. But, for the black car passenger, the ability to easily specify the contractual terms of these transactions, especially an aversion to chitchat, trims an unnecessary element of the interaction. I must admit I am split. Part of me wonders why such a feature is necessary, a virtualization of what would otherwise be a simple (yet slightly Catch-22-esque) comment to your driver that you are not in the mood to talk. To what degree will the virtualization of functions otherwise performed by simple social interaction extend? A perfectly intermediated/aloof passenger class poking and prodding their devices for every detail of every transaction with the gig-based worker? Another part of me welcomes this fuller exercise of the free market. If passengers don’t wish to converse with the person they are paying to drive them, they shouldn’t have to. My driver and I have a relationship ultimately governed not by any connection that expects casual conversation, but by the almighty dollar. As with all sticky questions, explanations have to end somewhere. But for Uber drivers, the daylight between “interaction” and “transaction” seems to be narrowing.
A.R.K.
The We Co. lost $264 million in the latest quarter, down slightly from $274 million a year earlier, on revenue that more than doubled to $728 million year-over-year. In the pantheon of startup-slash-newly-public-company losses, $264 million in a quarter is actually not that bad. Lyft, for instance, lost $1.1 billion in the first quarter, and Uber a casual $1 billion. $264 million is chump change, by comparison, which is scary.
Losses at We Co., the parent of office-space rental firm WeWork Cos., were reportedly driven by development costs and marketing expenses. The company said it expects to generate upward of $3 billion in revenue in 2019, though average revenue per member fell to $6,340 in the latest quarter from $7,169 two years ago, a decrease of about 12%.
Meanwhile, We Co. CEO and cult leader Adam Neumann, who says the only two things holding his company back are “cash” and “space” (details!) has devised a complicated bit of financial engineering to get more of both. WeWork is developing an investment fund, “ARK,” to help the company buy stakes in buildings where it is already a major tenant.
Neumann explains the name Ark as “Adam, Rebekah, and Kids” (he and his wife, Rebekah, have five children) or a reference to the Bible (“Noah’s Ark represents a covenant between God and the people to never destroy the world,” he told Bloomberg). A We Cos. spokesman prefers “Asset, return, kicker.” Ark, fittingly, will prove a shelter of sorts for Neumann, who plans to sell his controversial stake in properties he leased to his own company—details!—to the investment fund, at the price he paid.
This time last year.
Uber forgot to tell Pittsburgh it wanted to get back together
Other stuff.
Brutally efficient Aldi is beating Walmart at low prices. Fiverr files for IPO. Uber negotiating lease at Chicago’s Old Post Office. Postmates couriers want a minimum wage. Bankers keep lending to Softbank. One in six Uber and Lyft cars may have open safety recalls. Uber employee resigned after IPO party got out of hand. Drivers cause artificial surge at Reagan National Airport. Wagestream raises $51 million to pay workers ahead of paychecks. Blue Apron plans for reverse stock split. Instacart and Whole Foods officially part ways. American Express acquires restaurant reservation startup Resy. Lyft and Hilton partner on loyalty. Amazon leads $575 million investment in Uber Eats competitor Deliveroo. DoorDash raising at least $500 million. Postmates recruits Martha Stewart for TV ad campaign. Airbnb listings in China discriminate against Uygurs and other ethnic minorities. China on track to be Airbnb’s top origin market. How much money is Postmates losing? GoPuff valued at $1 billion to sell nicotine and beer to college students. VCs Aren’t Doing Uber Any Favors Praising a Down IPO. Congestion Pricing Only Works If Rideshare Companies Care About Losing Money.
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