2021iii19, Friday: arbitrage while the music plays.

How long can Uber’s “labour law arbitrage business” last?

Short thought: There are times when someone comes up with a phrase that perfectly sums a concept up. And you therefore have to lift it – giving due credit, of course.

This week’s example came from FT Alphaville, which caustically, and I think accurately, described Uber as “everyone’s favourite labour law arbitrage business”.

This is beautiful. The whole Uber business model – even more, perhaps, than other gig economy businesses – rests on treating its drivers as self-employed in law, but as under contracts of service (ie workers) in practice. (This was, after all, the essence of the Supreme Court’s judgment earlier this year.)

The reason is simple. As many, many people have documented over the years, the sums just don’t add up otherwise. To succeed, Uber needs to undercut old-fashioned cab services (since its technological advantage is no longer quite so extreme as once it was). So it needs to externalise the significant costs of running a real-world service – which isn’t something that benefits from the zero-marginal-cost scaling advantage of a purely online ones-and-zeroes business – onto its drivers, while retaining sufficient control over them to make sure it can both supply the services with relative certainty and avoid the risk of drivers genuinely running their own “competing” businesses.

Even with this externalisation, and the relentless driving-down of payments to drivers, Uber still loses money hand over fist. Smart people have long opined that the only way the company could ever make a profit is to either have genuinely driverless cars – not going to happen, not in the near enough future – or to drive every other cab firm out of business and hike fares.

At some point, the music will stop. And setbacks to the core arbitrage play like the Supreme Court judgment may well bring that closer. Uber is resisting the judgment, or at least parts of it, while proudly declaring how wonderful it is for complying with the bits it thinks it can just about live with. We’ll see how long that works.

(I note, too, that it spends a lot of time talking about the need for a kind of “middle way” for workers between employee and self-employed status. Which – the sceptic might observe – isn’t a bad definition of “limb b” worker status, which is what the Supreme Court said Uber drivers were. Whereas what Uber seems to be pushing for – unsurprisingly – is something much closer to “self-employed, but with a bit of help”. Which really doesn’t seem to address the point.)


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