October 30, 2020

Venture Contracting

Speaking of misclassification of contract workers, Robert Reich of UC Berkeley makes a compelling case for why California’s Proposition 22 isn’t a good measure either (emphasis mine):

Right now, massive corporations like Uber, Lyft, DoorDash, Postmates, and Instacart are pouring nearly $200 million into a giant PR campaign designed to get you to vote for this. It’s their measure — they put it on the ballot — and it’s the most expensive ballot measure ever, not just in California, but in the entire country.

Prop 22 would allow companies like Uber and Lyft to continue to misclassify employees as independent contractors, and eliminate the rights of millions of other workers — who’d no longer be entitled to unemployment insurance, overtime, sick leave, protections against discrimination and sexual harassment, or the right to collectively bargain for better wages and working conditions.

A study by my colleagues at UC Berkeley found that under Prop 22, Uber and Lyft drivers would be guaranteed only $5.64 an hour — a far cry from the $13 an hour minimum wage they’d otherwise get. And the vast majority would not qualify for the health benefits outlined in Prop 22.

With hindsight, we can see clearly what’s happened here:

  1. Venture capital allows companies to pay workers more money than the company is actually earning. The goal for these companies is to earn market share and crush competition”. They do this by pricing services below market cost.
  2. Customers love paying less, which is no surprise. Eventually, companies acknowledge that they don’t actually have the cash flow to pay drivers what they used to, so need additional rounds of funding, including in some cases going public. And of course, they need to cut costs, and the easiest way to do that is to reduce driver pay. That’s easy enough, since they’re not officially employees.
  3. To keep costs low and pay back investors, drivers’ wages are reduced. Drivers have already always had to foot the bill for the cost of everything anyway: the cars, the insurance, the gas, etc.

Essentially, these huge companies put most of the overhead costs on the employees, calls them contractors and call it a day.

Update: This ballot measure, unfortunately, was passed. We have a lot of work still to do.

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