The "Sharing Economy" is different from the Gig Economy
If you drive for Uber, Lyft, or Doordash- beware
Side hustle, gig economy, freelancing: everybody's doing it.
Moonlighting, or having a second job to help pay the bills, used to be kept hush-hush so your boss at your day job didn't find out. But today, everyone is doing it- and quite openly. In fact, the idea of having only one stream of income seems quaint at best, and risky at worst. Today nobody puts all their eggs in one basket.
Many side hustles are a win/win for both the workers and those who hire them. Working from home as a proof reader, a dog walker, or making cool things to sell on Etsy is a legitimate gig for all parties involved. The gig worker can put their unused time and talent to work producing goods and services that are of value to the buyer. The overall economy benefits: more goods are available, economic activity expands, and no laws or regulations are broken, thus preventing harm to society.
However, one sector of the gig economy is very different: the "sharing economy."
The "sharing economy" is very different from the gig economy. The gig economy merely requires you to utilize your unused time and talents, without putting up significant capital. The sharing economy is different: it requires the seller to employ their own capital assets (such as a house or car) in the venture.
These are two very different concepts, and this difference has so far eluded the mainstream press that reports glowingly on the new economy. To them, there is no difference between a copy writer who proofreads manuscripts at their kitchen table, and a Doordash driver who delivers food around the neighborhood. But they are very different- and one of them is dangerous from an economic perspective.
Sharing economy companies such as Uber, Lyft, and Doordash require the gig worker to place their own capital asset (a car) at the use of the company, without compensating the worker appropriately for the depreciation expenses incurred. Essentially, these companies are getting a free fleet of vehicles. All of the depreciation expenses incurred while operating the vehicle are shifted back on to the driver- but the pay earned while driving is not enough to cover those expenses.
The business model relies on the worker's urgent need for money that causes them to overlook the invisible nature of depreciation expenses. The worker needs money today- to pay their rent and buy groceries. But depreciation is delayed. The brake job that is needed, the worn out bearings, the transmission that begins slipping gears- all those things only happen a few months into the future.
Essentially it is a form of "time arbitrage" that pits the worker's need for money today, against the hidden effects of depreciation tomorrow.
Depreciation may be invisible and delayed, but it is very real. A car requires maintenance just as much as it needs gas in the tank and air in the tires. Even the IRS confirms this. The IRS is no teddy bear, and is not known for giving freebies away. Yet even the hard-nosed IRS allows a mileage deduction of a whopping 62 cents per mile for cars driven in business travel. This is because the IRS knows that depreciation is real, and a car that is driven will require maintenance (and will also decline in resale value).
Are Uber, Lyft, and Doordash drivers earning 62 cents per mile in cash money, on top of their daily earnings? If not, that money is effectively being stolen from them.
Ask yourself this: if Uber, Lyft, and Doordash are such great business models, why don't those companies operate their own fleet of vehicles? They could own the vehicles that drivers- still independent contractors- would lease from them by the day. That way these companies could capture the entire value chain- Capitalism 101. It would be good business, right?
Uber, Lyft, and Doordash won't operate their own fleet of vehicles because they know the depreciation expense is sky high. Their business model wouldn't work if they were forced to absorb the true costs of operating a fleet of cars.
Also, if Uber, Lyft, and Doordash operated their own fleet of vehicles it would expose the fact that what their business models are not legal from a compliance perspective. Taxis, hire cars, and chauffer services are a regulated sector of the economy, to protect customers, drivers, and the public at large who may be affected by reckless operators. (How these companies were able to evade these rules is a breathtaking story, to be discussed another time.)
The gig economy is an exciting place. It offers the average American a chance for economic freedom, instead of corporate serfdom. If you partake in it, be sure to work in a capacity that respects your time, talents- and just as importantly, your economic capital. It took you a long time and a lot of hard work to accumulate the capital to buy that car. Don't give your precious capital assets away for free to a company who will benefit from them without compensating you for the true cost of capital.