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Ants, I feel all of the frustration from the ants stemming from pay rates and I do believe pay is too low to be profitable in the long run. I would like to have a thoughtful conversation around this topic instead of ranting with system 1 knee-jerk commentary about simply raising rates as if that is the panacea to all of our problems. I would like to take a system 2 approach that considers all of the forces involved in this fascinatingly complex topic. There are at least four approaches by which this problem could be solved (and I'd love to hear thoughts on others): 1) UBER takes a top-down approach and dictates higher rates through fiat; 2) we allow market forces to work and driver pay will naturally find the right level through the invisible hand of price discovery; 3) Government dictated interventions around minimum wage and other regulations; 4) taking a page from the cab industry book by restricting the supply of drivers through medallions or other means.
Now, Frankie is a free-market guy, so I tend to err on the side of allowing market forces to work their magic. The issue with this approach is that it can take some time. A decree from the powers-that-be at UBER is instantaneous and those types of strongman tactics can be appealing to some.
I will start with one major issue and allow the ants to begin discussing their favorite related topics. I will also chime in with additional analysis as the thread progresses.
Too many ants. Most economics can be boiled down to supply and demand and we currently find ourselves in a situation where the supply of drivers is outstripping the demand. We must consider what forces will exert themselves to bring this equation into balance. I will begin by examining the forces that may constrain or reduce supply. I believe there is really only a certain supply of folks who would ever choose to pursue this profession and the better the economy, the more attractive other options become thereby shrinking the potential talent pool. Certain sociodemographic characteristics serve to constrain the potential applicant pool: not many women choose to drive for various reasons; anyone without a driver's license cannot drive; the elderly and or disabled are not part of the driver pool; the list goes on and on. So I do believe (outside of issues discussed below) that there is a finite pool of potential industry workers.
I listened to a recode/decode podcast yesterday where Kara Swisher interviewed Dara and he is keenly aware that UBER must compete for ants not only with Lyft, but with other substitutable jobs both in transportation and other industries. Furthermore, given that at current rates, this is not a profitable endeavor long-term, you will have ants leaving the industry after doing the calculation. This is still a relatively nascent industry so there are plenty of folks in the potential driver pool that get lured into the business. It takes time to work through the inventory of potential drivers that enter and exit the business after having come to understand the economics. But allowing this process to work itself out naturally takes time and patience. Folks enter and exit businesses in diverse industries constantly - it's the backbone of our capitalist society and is pretty efficient at allocating capital to the most productive means. Once the supply of drivers is reduced through these avenues, UBER will be forced to raise pay to lure folks back. One must trust the process and trust that long-term, folks will act in their best economic interests and that the market will reach equilibrium.
I would hope equilibrium is found at a higher level than where rates stand today, but there is no guarantee. We must understand that the barriers to entry in this industry are very slim and the service we provide, while much appreciate by pax, is not creating much value. We are not partners at a white-shoe law firm drafting complex M&A transaction docs. In a capitalist society, we must respect people's free will to transaction privately on their own terms. No one is forcing a company to pay the partner $1,000/hr to draft a purchase and sale agreement, the company is doing it because they believe it is worth the cost. We cannot simply dictate the amount someone should pay for our services, we must allow for a mutually agreed upon figure. The issue is that UBER does not allow for bargain between parties but must set a single clearing price that attempts to balance the supply and demand equations. I have thought deeply about how UBER could attempt to allow for a freer ability to bargain, but do not have an elegant solution. In a way, the stratification of the tiers of service is a step in that direction.
Next we need to think about what forces could increase supply. There is a famous quote that is often attributed to P.T Barnum which says "There's a sucker born every minute." If you believe that, you may believe that there is an unlimited supply of drivers willing to take the wheel for meager compensation. Beyond that, we should consider other forces that may increase driver supply like immigration, new folks entering the workforce, increase in rates/driver pay, economic weakness eliminating or making alternative employment options fewer and less attractive. There may just be a nearly unlimited supply of drivers, but only time will tell.
Ants, I look forward to your contributions.
Toodles,
Frankie
Now, Frankie is a free-market guy, so I tend to err on the side of allowing market forces to work their magic. The issue with this approach is that it can take some time. A decree from the powers-that-be at UBER is instantaneous and those types of strongman tactics can be appealing to some.
I will start with one major issue and allow the ants to begin discussing their favorite related topics. I will also chime in with additional analysis as the thread progresses.
Too many ants. Most economics can be boiled down to supply and demand and we currently find ourselves in a situation where the supply of drivers is outstripping the demand. We must consider what forces will exert themselves to bring this equation into balance. I will begin by examining the forces that may constrain or reduce supply. I believe there is really only a certain supply of folks who would ever choose to pursue this profession and the better the economy, the more attractive other options become thereby shrinking the potential talent pool. Certain sociodemographic characteristics serve to constrain the potential applicant pool: not many women choose to drive for various reasons; anyone without a driver's license cannot drive; the elderly and or disabled are not part of the driver pool; the list goes on and on. So I do believe (outside of issues discussed below) that there is a finite pool of potential industry workers.
I listened to a recode/decode podcast yesterday where Kara Swisher interviewed Dara and he is keenly aware that UBER must compete for ants not only with Lyft, but with other substitutable jobs both in transportation and other industries. Furthermore, given that at current rates, this is not a profitable endeavor long-term, you will have ants leaving the industry after doing the calculation. This is still a relatively nascent industry so there are plenty of folks in the potential driver pool that get lured into the business. It takes time to work through the inventory of potential drivers that enter and exit the business after having come to understand the economics. But allowing this process to work itself out naturally takes time and patience. Folks enter and exit businesses in diverse industries constantly - it's the backbone of our capitalist society and is pretty efficient at allocating capital to the most productive means. Once the supply of drivers is reduced through these avenues, UBER will be forced to raise pay to lure folks back. One must trust the process and trust that long-term, folks will act in their best economic interests and that the market will reach equilibrium.
I would hope equilibrium is found at a higher level than where rates stand today, but there is no guarantee. We must understand that the barriers to entry in this industry are very slim and the service we provide, while much appreciate by pax, is not creating much value. We are not partners at a white-shoe law firm drafting complex M&A transaction docs. In a capitalist society, we must respect people's free will to transaction privately on their own terms. No one is forcing a company to pay the partner $1,000/hr to draft a purchase and sale agreement, the company is doing it because they believe it is worth the cost. We cannot simply dictate the amount someone should pay for our services, we must allow for a mutually agreed upon figure. The issue is that UBER does not allow for bargain between parties but must set a single clearing price that attempts to balance the supply and demand equations. I have thought deeply about how UBER could attempt to allow for a freer ability to bargain, but do not have an elegant solution. In a way, the stratification of the tiers of service is a step in that direction.
Next we need to think about what forces could increase supply. There is a famous quote that is often attributed to P.T Barnum which says "There's a sucker born every minute." If you believe that, you may believe that there is an unlimited supply of drivers willing to take the wheel for meager compensation. Beyond that, we should consider other forces that may increase driver supply like immigration, new folks entering the workforce, increase in rates/driver pay, economic weakness eliminating or making alternative employment options fewer and less attractive. There may just be a nearly unlimited supply of drivers, but only time will tell.
Ants, I look forward to your contributions.
Toodles,
Frankie
