Uber and Lyft's Drivers Can Call the Shots Now
(Bloomberg Opinion) -- Gig economy workers are in the driver’s seat. With ride-hailing demand outstripping labor supply, a strengthening economy may accomplish what activists have failed to achieve: better pay and benefits.
This week, Uber Technologies Inc. and Lyft Inc. reported earnings that exceeded expectations, citing a rapidly improving market for ride-hailing. Not everything was perfect. While enthusiastic about demand trends, the two companies admitted driver shortages were becoming a serious limit for their businesses. For now, they are resorting to temporary financial incentives while holding out hope that more workers will return after fears about pandemic safety wane. But given the likelihood of a hotter labor market, I don’t believe that will be enough to build the sustainable workforce they need. Instead of using stop-gap measures, the two gig economy leaders should take the opportunity to find a more permanent solution.
Wall Street homed in on the driver shortfalls during the two companies’ earnings calls. Analysts repeatedly questioned Uber and Lyft management about their plans to attract more workers and how it would affect the supply-demand imbalance. The good news is demand will likely remain robust as the economies reopen and lockdown restrictions are lifted. Uber cited the continued strength it saw inside cities, while Lyft noted how trips to airports were up more than 65% in April compared with those in January. Regarding the supply of labor, things are more complicated. Following the expiration of unemployment benefits later this year and as more people get vaccinated, the companies expect more drivers will come back. Lyft even said ride-hailing will pull in food-delivery workers because they will crave in-person social interactions with passengers. Really.
That seems like a lot of wishful thinking — especially because the hiring market seems to be tightening. Corporations are getting the message and taking action, accordingly, to stay competitive. Last week, Amazon.com Inc. said that it would pull forward a pay hike of up to $3 an hour for more than 500,000 employees. And several dozen large companies – including JPMorgan Chase & Co., Walmart Inc. and McDonald’s Corp. – committed to expand hiring of the 70 million to 100 million Americans with criminal records in another sign labor shortages may be changing employment practices.
Worker availability is not the only problem for the ride-hailing firms. Uber and Lyft are also still facing the prospect of rising regulatory scrutiny. Last November’s Proposition 22 victory in California, allowing gig-economy workers to remain as contractors, doesn’t mean there won’t be subsequent setbacks. For example, in February Uber lost a landmark case before the U.K. Supreme Court, which mandated some extra worker benefits and forced the company to reclassify the status of its drivers. And on Wednesday, the Labor Department revoked a Trump administration rule that would have made it easier to categorize gig workers as contractors under federal law, a sign that the government under President Joe Biden will do more to push for worker rights and protections.
With risks on several fronts, it isn’t surprising investors are getting skittish. Despite their good numbers, Uber and Lyft shares declined following their reports.
But the smart move for Uber and Lyft would be to look beyond the short-term volatility and do what’s right for their businesses over the long term. They could get ahead of any government action and fix the labor-shortage problem in one swoop by offering higher wages and enhanced benefits — including health care, disability insurance and paid vacation days. Yes, it will hurt profitability, but it’s the only durable solution. Not only will it create a more loyal and productive workforce, it will let the ride-hailing companies meet higher levels of demand more easily.
In the current environment, Uber and Lyft are incentivized to do the right thing. They should step up.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tae Kim is a Bloomberg Opinion columnist covering technology. He previously covered technology for Barron's, following an earlier career as an equity analyst.
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