It is important to remember that although Uber’s disruption of the public transportation system might appear new and technologically innovative, the reality is that this type of business innovation has happened many times before and will continue to happen well into the future. The industrial revolution is a prime example of this. Innovative technologies will always disrupt existing business models. Many farmers can attest to how technology continues to pressure their way of life. Therefore, rather than decry the economic disruption, it needs to be understood for what it is and individuals need to prepare for it.
I am going to break this post down into two sections. In the first section I am going to focus on the issue if minimum wages and employee benefits. In tomorrow’s edition, I am going to focus on local tax policies.
Wages and Employee Benefits
Many of those advocating for Uber on the political scene are the same individuals demanding better wages and benefits in the workplace. While on one hand demanding that governments stay out of the way of Uber, on the other hand they decry the unfairness of business owners taking home huge bonus checks at the expense of lower wages and automation. One of the underlining arguments in support of the Affordable Care Act, or ObamaCare was that businesses were not providing the health benefits that employees demand.
As I have pointed out before, the largest part of any businesses’ overhead are the associated labor costs. As pressure to reduce prices increases, the need to decrease labor costs rise as well. Businesses have decreased labor costs as far as they can by eliminating benefits, pressuring employees to do more and reducing experience and educational requirements to the lowest possible requirement.
Unable to lower labor costs any further, several businesses have embarked upon automation to replace the labor force. You can see it at fast food joints, like Wendy’s, who is testing automated ordering kiosks to banks who are replacing lobby attendants with ATM machines.
Labor advocates have responded with municipal minimum wage laws, highly publicized protests and riots against multinationals and the Affordable Health Care Act, among other legislative activities. In other words, the downward pressure on wages and benefits is responded to via legislation to artificially create higher wages and benefits. However, artificial wage setting does not work in an economy based principally on capitalism. Other economic models have failed miserably so the notion that capitalism needs to be eradicated will never be attainable.
Uber has based its entire business model on avoiding paying into the tax base of the communities in which they operate. Uber has also based its business model on independent contractors, thus avoiding paying employee taxes, employee benefits and higher wages.
Uber pays nothing into the coffers of the communities in which they operate and Uber does not pay wages.
El Paso politicians have been arguing for years that the homeowner is unfairly taxed. The El Paso politicians have responded to the inequality by pressuring businesses to cough up more tax monies on their operations and by imposing usage fees on their operations. El Paso politicians and citizens alike, routinely argue that out of state drivers and drivers from Mexico tear up the El Paso streets but do not pay their fair share to maintain them.
Yet, for the most part, the politicians and citizens alike are demanding that the El Paso municipality leave Uber to operate without contributing to the city’s economy.
Look at it this way. The Uber drivers are independent contractors. Other than an APP and a network of willing passengers, Uber offers nothing else to the independent contractor drivers. Uber does not pay higher wages nor does it pay benefits to the drivers. However, the drivers pay for their own gasoline, their own automobile insurance and the maintenance and repair of their own cars. As if that isn’t enough, the Uber drivers do most of the work and pays Uber corporate for that benefit out of the fares they generated.
Now this is where it gets even worse. After doing all of the labor intensive work, the money that goes to Uber does not stay in El Paso, it goes out of the city. Tomorrow, we’ll take a good look at that.