Uber, Lyft created ride-hailing shortage: Gig economy expert

·3 min read

Workers are leaving ride-hailing jobs, creating a severe labor shortage in the gig economy. Many of the problems leading up to this shortage were created by Lyft (LYFT) and Uber (UBER) themselves, Aquent CEO John Chuang said Tuesday.

“One, [ride-sharing companies] have very low wages,” Chuang said. “And they are very undesirable jobs. Now that we have 7 million less employed workers in America right now, you know, the first jobs to go are the undesirable jobs. And unfortunately, their jobs are undesirable.”

Chuang identified the jobs’ lack of benefits and low wages as significant drawbacks to ride-hailing employment opportunities. Workers in this market do not have a Social Security net to fall back on, Chuang said, making ride-sharing a much riskier living than traditional jobs.

“And so workers are voting with their feet,” he said. “And they're leaving these gig economy jobs.”

The coronavirus pandemic exacerbated the issue, with ride-sharing companies like Uber and Lyft experiencing a significant decrease in revenue in 2020 from the previous year. Both companies saw massive declines in user trips during the early months of the pandemic, though as the recovery progressed, much of these losses were recouped.

“During a pandemic, when it's not safe, when 40% of Americans might never get a vaccine, a lot of drivers are deciding to stay home,” Chuang said. “So they absolutely created the mess they're in now.”

Uber, Lyft pursue aggressive options to regain workers, address environmental concerns

The employment shortage has hurt business overall for Lyft and Uber. The undersupply of workers has led to higher prices and longer wait times for many U.S. cities, which in turn has negatively impacted customer satisfaction.

“What workers really want is a good job at a reasonable wage with flexibility, which is their calling card,” Chuang said.

In response to similar criticism, Uber launched a $250 million stimulus to boost earnings for their drivers back in April. The move was intended to incentivize laborers back into the market amid the rise of alternative gigs and a hot labor market.

Even with Uber paying $250 million extra in incentives, it may not be enough, Chuang said. “Unfortunately, they are probably making an extra $1.2 billion. So Uber might make $1.2 billion, but the majority of that money is staying with Uber ... So we will persistently have these shortages.”

Tyumen, Russia - May 11,2019: Mobile app Uber on a Apple iPhone XR
Tyumen, Russia - May 11,2019: Mobile app Uber on a Apple iPhone XR

The ride-hailing industry, including ride-sharing companies like Uber and Lyft, as well as delivery companies like DoorDash (DASH) and Grubhub, are not profitable, Chuang said. Uber lost over $6 billion last year while Lyft lost $1.8 billion.

“This lower cost business model isn't sustainable,” he said. “And their lower cost business model wreaks havoc on the public transportation system and on [the] existing infrastructure of our transportation.”

Both companies have remained firm on maintaining their cost-structure which emphasizes flexibility over benefits and stability, despite recent stimulus programs designed to incentivize workers. This past May, following the aforementioned stimulus, Uber told The New York Times that 100,000 more drivers returned to the platform during the month.

“Will they change their ways?” Chuang asked. “I would not hold [my] breath for that. I think if anything, they are doubling down on the gig economy.”

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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