The online platform economy helps all, from rich to poor

(Uber)

(Uber)

“The gig economy is paying off for workers who are already among America’s highest earners,” the Wall Street Journal reported last week. The story asserted that companies such as Airbnb and Uber likely weren’t making much of a dent in income inequality.

The Journal relied heavily on a JPMorgan Chase Institute report analyzing more than 260,000 people who made money providing goods or services on one of 30 “online platform economy” apps.

But is measuring the impact on income inequality really the best way to evaluate whether these companies help poor people? That’s not really the conclusion the JPMorgan study drew. According to the analysis, “The fact that participation in and reliance on platforms was so consistent across the income spectrum speaks to the diversity of roles and opportunities with which individuals can access these new marketplaces.”

The report did note that 3.3 percent of those in the top quintile earned income from the platform economy over the last 12 months (compared to 3 percent of those in the lowest income quintile). But this is hardly a large difference, and the study highlights more directly the benefits of the gig economy for low-income people.

More people in the lower income quintile took part in a labor platform (such as driving for Uber) than those in the top quintile, while those at the top were more likely to participate in a capital platform (such as renting their house on Airbnb). This is not surprising, nor a testament to the unfairness of the gig economy as a whole. Different platforms are simply geared toward people with different assets (free time as opposed to empty houses).

Because of the “independent contractor” relationship most workers have with labor platform companies, workers gain benefits such as flexibility and self-direction while accepting that they also won’t receive health insurance plans or paid time off — perks that come with committing to a full-time job with a traditional employer. A contractor arrangement is simply more attractive to low-income people, who are looking to supplement their existing income by working in their free time. Many of the downsides of the independent contractor relationship are government-imposed, such as higher tax rates and quarterly reporting.

It’s important to note that low-income people also receive a significantly larger percentage of their income from labor platforms (28.3 percent) than do high-income people (19.9 percent). These labor platforms are playing a vital role in helping low-income people find extra opportunities to make money, and that’s a benefit that shouldn’t be ignored just because some wealthy people use the platforms, too.

Perhaps most importantly, the JPMorgan report highlighted the stabilizing effects of the gig economy on income volatility. A shocking 74 percent of individuals in the bottom quintile saw more than a 30 percent fluctuation in their income from month to month. But the availability of online platform economy work helps offset that volatility by offering a flexible way to smooth out income changes.

“Individuals relied on labor platform work when outside income dipped and when they were between jobs,” the report noted.

Focusing on “closing the income gap” between the poor and the rich misses a crucial point. It’s more important to give low-income people the opportunities to work when they want and the ability to protect themselves from income shocks with extra income.

The gig economy has also mobilized “idle assets” and made it cheaper for people to find a bed for the night, catch a ride home after a night of drinking or have their dinner delivered. This downward pressure on prices helps low-income people afford things that were previously out of their reach.

Despite these clear benefits, Austin politicians recently decided to take on the ride-sharing companies, requiring them to submit to a city-run fingerprint background check process in a confusing referendum called Proposition 1. Both Uber and Lyft publicly announced they would withdraw from Austin as a result of the new regulations and fees — leaving more than 10,000 Uber and Lyft drivers without the extra income they have come to rely upon.

Here’s an idea: why not let Uber riders determine whether they trust the company’s existing background check process? (Clearly they do.) Why not let drivers decide whether the job is worth it for them? (Clearly it is.)

Uber and companies like it in the gig economy are bringing benefits to all people, from the poor to the rich. What’s great about a market economy is that you don’t need politicians or journalists to tell you which companies are actually useful to society — you can simply watch and learn.

Published on Opportunity Lives

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