Uber, Airbnb and Consequences of the Sharing Economy

By Joanna Penn and John Wihbey, Journalist Resources

The leading businesses that are advancing the concept of the “sharing economy” are in many respects no longer insurgents and newcomers. The size and scale of Uber, Airbnb and several other firms now rival, or even surpass, those of some of the world’s largest businesses in transportation, hospitality and other sectors. As the economic power of these technology-driven firms grows, there continue to be regulatory and policy skirmishes on every possible front, across cities and towns spanning the United States, Europe and beyond.
While many municipalities and regions have accepted change as inevitable and have been eager to facilitate new efficiencies for consumers — Uber in particular has made a lot of regulatory headway since 2015 — there have been cases, such as in Austin, Tex. in May 2016, where policies have been in effect reversed to block these new forms of commerce. These fights are looking more and more like political campaigns.
The implications of the sharing economy — part of what has also been termed the “gig economy” — have of course been hotly debated in the news media, and the research world has been steadily weighing in with deeper analysis. One central area of argument relates to whether the sharing economy is simply bringing more wage-earning opportunities to more people, or whether its net effect is the displacement of traditionally secure jobs and the creation of a land of part-time, low-paid work. It’s a debate that continues to develop and play out, forcing reporters to weigh competing claims that vary in tone from boosterism to warnings of the new economy’s “dark side.”
While the conclusions about the overall effects of this sector are anything but clear, even as more data pour in, it is worth digging into the available literature and knowing the centers of research debate and lines of argument.
A January 2015 paper co-authored by Princeton’s Alan Krueger — the former Chairman of President Barack Obama’s Council of Economic Advisers — based on Uber’s internal data finds clear benefits for “driver-partners” and notes the new financial opportunities created for tens of thousands of workers. Those conclusions have been critiqued by, for example, the liberal-leaning Center for Economic and Policy Research. In any case, the Krueger paper also argues that “the availability of modern technology, like the Uber app, provides many advantages and lower prices for consumers compared with the traditional taxi cab dispatch system, and this has boosted demand for ride services, which, in turn, has increased total demand for workers with the requisite skills to work as for-hire drivers, potentially raising earnings for all workers with such skills.”
There is the distinct danger, on both sides, of overstating the case and the size of effects. A 2014 paper by Annette Bernhardt of University of California, Berkeley, signals a cautionary note about any claims of radical recent change being wrought across the U.S. economy:
[We] all share a strong intuition that the nature of work has fundamentally changed, contributing to the deterioration of labor standards. Yet at least with aggregate national data, it has been hard to find evidence of a strong, unambiguous shift toward nonstandard or contingent forms of work – especially in contrast to the dramatic increase in wage inequality. This is not to say that there have been no changes in the workplace. But as this paper has emphasized, for enforcement agencies and policymakers, it may be more fruitful to focus on specific industries and regions in assessing when and where pernicious forms of nonstandard work have grown, and which groups of workers have been most impacted.
It is also true that the rise of independent workers, and associated job insecurity, long predates the recent rise of the sharing economy, although their percentage of all U.S. workers is expected to grow from about one-third currently to 40% by 2020, according to some estimates.
A 2015 report from the Center for American Progress notes the heated debate in Britain over “zero hours contracts” and charges that highly insecure and contingent employment leads to the exploitation of workers. The report — co-authored by Harvard’s Lawrence Summers, a top official in both the Clinton and Obama administrations, and Ed Balls, a British Labour Party MP — notes that “technology has allowed a sharing economy to develop in the United States; many of these jobs offer flexibility to workers, many of whom are working a second job and using it to build income or are parents looking for flexible work schedules. At the same time, when these jobs are the only source of income for workers and they provide no benefits, that leaves workers or the state to pay these costs.”
Meanwhile, scholars such as Juliet Schor of Boston College have been examining how workers might regain bargaining power despite an increasingly app-based, decentralized system of distributed labor. “While the for-profit companies may be ‘acting badly,’” she writes in an October 2014 essay, “these new technologies of peer-to-peer economic activity are potentially powerful tools for building a social movement centered on genuine practices of sharing and cooperation in the production and consumption of goods and services. But achieving that potential will require democratizing the ownership and governance of the platforms.”
Fights over rules and regulations
In October 2014 the New York State Attorney General released a report into Airbnb’s operations that concluded that 72% of the site’s rentals violated state zoning regulations or other laws. The company’s business model is built around allowing people to rent out rooms or entire apartments on a short-term basis, and the report is the latest in a series of ongoing battles Airbnb is engaged in with regulators across the world.
Berlin has banned regular short-term rentals in the most popular parts of the city without prior permission from the authorities. Paris passed a law in February 2014 to allow city inspectors to check rental homes whose owners are suspected of renting them out to visitors illegally. Airbnb has countered with its own reports on the benefits of short-term stays on local housing markets, arguing that the company’s service benefits local economies.
Also known as collaborative consumption or peer-to-peer (P2P), the sharing economy challenges traditional notions of private ownership and is instead based on the shared production or consumption of goods and services. Its origins were in not-for-profit initiatives such as Wikipedia (2001) and Couchsurfing and Freecycle (both 2003). Advances in information technology enabled the creation of large-scale bike-share systems (the first was in Lyon, France, in 2005), and these have subsequently expanded to the United States and around the world.
Social media and mobile technology have enabled the latest expansion of the sharing economy and turned it into a big business: Airbnb allows individuals to share their homes, while Lyft and Uber transform private cars into common resources. All these are for-profit services, but they take only a fraction of the fees levied, passing the rest on to the owners: In 2013 it was estimated that revenues passing through the sharing economy into people’s wallets exceeded $3.5 billion, up 25% from the previous year. Airbnb has exceeded 10 million guest-stays since its launch and now has more than half a million properties listed. Meanwhile Uber has said that it is doubling its revenue every six months.
As a 2014 article in Harvard Business Review noted, the interests of sharing-economy firms and city governments are often aligned, but failing to engage early on with potential regulators can raise the suspicion that companies are trying to exploit loopholes rather than develop a legitimate business model. For example, courts in Frankfurt recently upheld a national ban on Uber, and the service has been banned in several Canadian cities as well. At the heart of many of these debates is whether Uber is, as it claims, operating as a pure technology company, providing a match-making service to willing participants, or whether it is operating in effect as an unlicensed taxi service, which was the conclusion of Calgary’s city council. Moreover, a Massachusetts class-action lawsuit asserts that Uber exploits its drivers, misclassifying them as independent contractors to avoid paying them as employees with the same benefits.

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