A Word About the Gig Economy and the Disrupters

It is estimated that there are about 15 million workers in the “gig” economy.

The trouble with the gig economy is that it shifts the costs of work away from the “company” (whatever that is these days) and lodges it on the workers. Uber and Lyft have never been a viable business model because they have been free-riding on the use of free capital (the cars owned by their drivers). And the companies have spent millions to avoid classifying drivers as employees because—guess what—they would then need to pay fringe benefits, etc. If those disrupters had to pay the full costs of their business model, they could not compete with the taxi sector.

For those of you charmed by Airbnb my hostility is even more pronounced—sorry. Rich folks buy extra houses (thereby reducing the stock of residential housing), rent them out, do not provide much (if any) employment, probably take a nice tax break on the mortgage (because the home is now a “business”), and steal jobs from hotels who actually hire (mostly women) to clean rooms and serve meals. Those women are in the Social Security and pay into that system for when they are too old to work. It is not luxury to be sure, but it is better than those who earned tips.

All of this disruption has destroyed work life in America. There is now a large fund of liquidity (cash) fueled by our inequality that has created an odd aspect to capitalism.

In the old days, businesses would go to bankers to get liquidity to start, expand, etc. Now, large pots of money (from the ultra-high net worth crowd) is sloshing around looking for business on which to bestow their largesse. They will pour money into Uber and Lyft (and all of the other 3 catchy shams like WeWork) hoping to cash out when they and the investment bankers take the company public. It is not the workers that gain from this—it is the rich who have funded these bizarre schemes. The market seemed to recognize this aspect recently when both Uber and Lyft had very disappointing IPO results.

So we have an economy in which the young—unable to find plausible work—sit around their iPhones trying to create the next app-based zombie disrupter that will attract big money from the ultra wealthy.

The gig economy is doomed.

Dr. Daniel Bromley can be contact at dbromley@wisc.edu.

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