The launch of Uber in 2009, heralded the birth of the so called “Gig Economy” involving the exchange of labour and resources through a digital platform that could actively match buyers (riders in the case of Uber) with sellers (the drivers). On such platforms, workers perform smaller jobs, commonly referred to as ‘gigs’, instead of, or perhaps on top of, a full-time job and are paid based on the number of ‘gigs’ they perform. For over more than a decade, a large number of “Gig Economy” companies have followed suite, so that today, these companies now form a major part of the economy. There are approximately 73.3 million freelancers working in the USA and approximately 1.57 billion people self-employed around the globe, accounting for a significant proportion of the global workforce.^[1] The “Gig Economy” encompasses popular ride-sharing platforms such as Uber and Lyft; parcel/food delivery companies like Deliveroo and Amazon Flex; and ‘crowd work’ platforms, like AirBnB and Upwork. Advocates for the “Gig Economy” point to Uber as a poster child or role model for 1) sustainable economic growth, 2) more efficient labour markets, 3) better consumer transport services and 4) improvements to the environment. This essay, will critically examine the Uber business model (as a proxy for the “Gig Economy”). In particular, the disbenefits in terms of 1) unsustainable economic growth, 2) inefficient / inequitable labour markets, and 3) anti-competitive threat to consumer interests and the environment. Furthermore, I will call for greater regulation of the “Gig Economy” to protect marketplace participants.

In 2009, Travis Kalanick founded Uber, raising $15 million from Benchmark and other venture capitalists^[2], such as Jeff Bezos and members of Goldman Sachs. He subsequently raised several Series B, C financing rounds and scaled Uber successfully to initially become the largest ridesharing company in the United States, before internationalising to 70 countries and 10,500 cities worldwide. Uber went on to complete a further 32 funding rounds, including an Initial Public Offering  (one of the methods that companies can use to go public) – which will make its stock available to retail traders, in 2019 valuing the company at $75billion^[3]. Post-IPO, Uber’s worth has since grown to an enterprise value of $134billion, placing the company at 55x EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization).

Proponents for the “Gig Economy” point to Uber as a model for sustainable economic growth. In its investor communications and 2023 Social Impact^[4] report, Uber UK proudly proclaims how it “benefits its drivers, customers and the environment”. For its drivers, and the labour market, Uber also claims it provides 5.4 million licensed Private Hire Vehicle drivers globally and 100,000 in the UK with flexible, good work and a range of benefits and protections that remain unique to Uber. For its customers, Uber transports 131 million active riders^[5]  globally, per year, and 5 million in the UK to commute to work or travel to leisure activities. Using the government’s estimate of hourly leisure and commuting time, Uber estimates the economic value of this time saving to stand at about £447 million for Uber rides in 2022^[6]. In terms of environmental impact, Uber’s goal is for every car on the app to be electric by 2025 in London and 2030 in the UK, by making available £145 million for drivers to switch into fully electric vehicles. 

However, despite these slick corporate communications, it could be argued that Uber like other companies in the “Gig Economy” have a number of disbenefits in terms of 1) unsustainable economic growth, 2) inefficient / inequitable labour markets, and 3) anti-competitive threat to consumer interests and the environment.

Uber has not been able to sustain itself economically, as the business was loss-making for the first 13 years of its existence, burning through an incredible $25 billion of capital to scale the business, which required $25.2 billion in external venture capital funding over 32 rounds^[7], before turning cashflow positive for the first time in Q2 2022^[8]. It could be argued that the business model for “Gig Economy” companies like Uber, are primarily reliant on the ability to raise greater external venture financing than competitors in order to scale the marketplace (recruiting drivers and customers) faster than competitors. As it has been able to raise more capital than its competitors, Uber along with Lyft have become the winners controlling 99% of market share in the US rideshare market^[9], whilst other competitors have run out of funding. This winner takes all vs high failure rate for followers is a recurring theme across many other “Gig Economy” sectors with 3,200 private venture-backed U.S. companies, which had raised $27.2 billion in venture funding, going out of business in 2023, according to data compiled for The New York Times by PitchBook^[10].

There is evidence that rather than liberating workers and liberalising labour markets, “Gig Economy” companies implement exploitative and illegal labour practices to reduce their cost base and minimise their tax burden. Uber has been heavily criticised by its drivers, unions and regulators globally for “contracting” but not “employing” its drivers in order to avoid paying minimum wage and basic employee benefits, as well as avoiding paying national insurance and VAT contributions. In 2016, two former Uber drivers, James Farrar and Yaseen Aslam, took Uber to an employment tribunal. Uber argued its drivers were “self-employed and it therefore was not responsible for paying any minimum wage nor holiday pay”. The drivers highlighted that Uber exploits its drivers by making them provide their own vehicle (including maintenance costs), pay all fuel costs, pay their own insurance and tax, before also having to pay a 25% service fee to Uber. Furthermore, as Robert Booth from The Guardian commented, Uber also used this employment practice to avoid paying taxes.  “…The exchequer is facing a £6 billion shortfall in national insurance revenue by the beginning of the next decade as a result of the rapid growth of self-employment in the UK” (Booth, 2017^[11]). The employment tribunal ruled in favour of the two drivers criticising Uber for framing itself as an intermediary digital platform, labelling it as utter “fiction” (Hickey, 2016) -”^[12]. The case of Uber BV v Aslam was appealed by Uber at the UK Supreme Court in 2021, in a case lasting almost five years. The Supreme Court declared that the two drivers were not independent contractors but workers to whom certain minimum employment rights should be due. Subsequent to the Supreme ruling other courts and governments globally have followed in moving to protect workers basic rights. In December 2023, European Union lawmakers provisionally agreed on a bill aimed at giving workers at online companies such as Uber (UBER.N) and Deliveroo (ROO.L) employee benefits^[13].

Like other dominant “Big Tech” companies such as Microsoft and Google, Uber has also been criticised for building a market dominant position (75% share in the US ride sharing market^[14]) and sued in multiple jurisdictions for allegedly engaging in anti-competitive behaviour, which are well documented^[15], although many of these cases are still ongoing. The 2020 case of Uber being sued by its competitor Sidecar Technologies^[16], claiming illegal predatory pricing and other anticompetitive practices highlights potential anti-competitive practices in two stages of the company’s development. They claim that in a first phase, Uber used venture capital financing to subsidise above-market incentives to recruit more drivers than any competitor and lower fares to passengers to build market share and drive competitors out of business. There are numerous examples in London of traditional mini-cab companies like Addison Lee and Hailo experiencing financial distress as a result^[17]. The number of black taxis has also shrunk by c 40%. In the second phase, once Uber has established a degree of market dominance, it cut driver payments (by increasing its commission) and raised fares for customers through “surge” pricing, a way of setting the price for a product or service in which the price changes according to how much demand there is for it at a particular time. Rather than surge pricing being a direct function of the supply-demand curve, critics in the media highlight numerous examples of excessive price surging. One example is in Sweden,  where Uber tested multiplier values as high as 50X^[18]. 

In conclusion, whilst “Gig Economy” and “Big Tech” companies bring benefits in terms of innovation, it can definitely be believed that more supervision is required to protect consumer/ employee interests and prevent market abuse. A 2022 article in the New York University Journal of Law and Business^[19] outlines a series of potential options including regulating excessive supplier/ customer pricing, retroactive contractual measures (such as fines) for market abuse and encouraging competition from new entrants.