The Sharing Economy is Great News — Unless it’s Your Labor Getting Shared
By: Daniel Accordino
Tags: Sharing Economy, Wp3s2021econ, Education, Automation, Employment

The Sharing Economy is Great News — Unless it’s Your Labor Getting Shared Daniel Accordino Follow May 3 · 16 min read

When I first embarked on my year-long stint as an Uber driver, I had no idea what to expect. From an ideological lens, I genuinely believed peer-to-peer service would define the future of urban commerce, and my foray into Uber was partially an experiment to better understand the lifestyle of a gig-economy worker. Realistically, though, I was a broke college kid home for the winter in the sleepy, snowy suburbs of Cleveland in need of money for groceries and nights out, and Uber offered easy, flexible cash with a low barrier-to-entry. After a long discussion at the kitchen table, my mother reluctantly handed me the keys to borrow her brand-new baby blue Jeep Wrangler (the only automobile in our household that met Uber’s stringent car requirements — my “well-loved” Subaru was deemed too old), and I excitedly sped off to the Uber Greenlight headquarters in Downtown Cleveland to receive my certification and get to work.

Driving for Uber was equal parts intoxicating and maddening. Hearing the “ding, ding, ding!” of a new trip entering my queue made my heart skip a beat, and watching my daily earnings climb into triple digits often compelled me to drive through the wee hours of the night. And nothing could beat the exhilarating high of receiving a massive tip. However, these fleeting moments of joy were separated by vast stretches of anxiety and frustration as I sat in parking lots waiting for the app to summon me. Demand was highly variable — some days I grossed over $25 an hour, while other days I made $6 — and watching my seventeen-mile-per-gallon chariot drink away my profits quickly sobered me up. Today I look back fondly on my time as an Uber driver, but there’s no way I would ever do it again.

This is the complicated new world of employment that NYU economist Arun Sundararajan attempts to analyze in his 2016 thought-leading text The Sharing Economy. Like my experience with Uber, this new frontier, according to Sundararajan, is full of contradiction — he points out that the sharing economy is both rooted in socialism yet highly capitalist, disenfranchising yet empowering, and dependent on a lassiez-faire ethos yet in need of widespread regulation. Big tech platforms and end-consumers receiving a lower-priced product both stand to benefit immensely from the sharing economy’s mass adoption, but the peer-to-peer workers participating in this new sector of employment are at the forefront of Sundararajan’s analysis. He ultimately concludes that our future policy decisions regarding the sharing economy will determine whether it represents a great boon or a monumental loss for these workers. Despite this ambiguity, Sundararajan’s final chapters contend that an on-demand, contractor-based workforce could represent a viable path forward for the American middle class given the increasing trend of outsourcing and automation, and he recommends a three-pronged policy approach — the institution of a national UBI, the funding of an extensive governmental social safety net, and the creation of new inclusive corporate ownership structures — to develop the necessary infrastructure for the sharing economy’s supposedly inevitable proliferation.

Yet, despite my historical bias in favor of the sharing economy, I didn’t walk away a believer. Sundararajan lumps many dissimilar forms of peer-to-peer commerce all under the same broad umbrella of the “sharing economy,” failing to recognize that the myriad forms of sharing each result in highly variable economic impacts and disparate levels of risk for parties involved. Given this lack of nuance, Sundararajan’s sweeping endorsement of all subsets of the sharing economy seems unsophisticated and misleading, and he never fully grapples with the negative consequences on contractors implicit in many sharing economy platforms. Thus, Sundararajan’s text provides valuable context and macro-level analysis of the sharing economy’s effects, but his vision for its future is too generalized and incomplete to make a convincing impression on the discerning reader.

Clarifying a Definition

Before diving deep into the merits and shortfalls of Sundararajan’s argument, it is important to first settle on a common definition of the sharing economy’s scope. Both Sundararajan and I can agree that an occupation is part of the “sharing economy” if it includes three key characteristics. First and most obviously, the worker must not be a legal employee of the platform they are working for. In my earlier anecdote, I certainly made money as an Uber driver, but I was not on Uber’s corporate payroll; I was merely an independent contractor. Second, the worker must be fully dependent on the digitally-enabled platform to generate business. For example, both Airbnb hosts and bed-and-breakfast owners offer the same product, but a traditional bed-and-breakfast is not part of the sharing economy since it can and has existed without the internet for centuries, while an Airbnb host is a sharing-economy worker because her or she needs the platform to receive guests. The same is true with brick-and-mortar artisans versus Etsy sellers and pizza delivery boys versus Postmates drivers — the former can survive without big tech, the latter cannot. Third, for all industries where dollars change hands, the platform must take some monetary cut from the transaction as payment for arranging it. For example, a handyman may use Facebook to advertise his services, but only TaskRabbit counts as a “sharing economy” business because it actively matches the worker with a client and charges both parties a percentage for its efforts. Even with these limiting criteria in mind, however, the sharing economy’s breadth is massive, and instead of generalizing impacts of this peer-to-peer economic trend as Sundararajan does, we instead must look at three subcategories of the sharing economy — asset sharing, information sharing, and labor sharing — and analyze their effects independently.

Asset Sharing: Full Speed Ahead

Sundararajan’s analysis of the positive impacts of asset sharing represents his most robust and compelling subpoint, as he does an effective job rebutting popular objections and weighing pros and cons. While Sundararajan never explicitly categorizes these industries as ‘asset sharing,’ he describes a litany of platforms such as Airbnb and Getaround that allow consumers to extract value from their idle assets by renting them to their neighbors at a fraction of the typical corporate price. Under this model, according to Sundararajan, everybody wins. For the lessors of cars, tools, and spare rooms, they carry very little risk by participating, as their assets would otherwise be simply collecting dust. For lessees, asset sharing enables a new level of economic efficiency. Instead of tying up capital buying a house with numerous guest bedrooms or purchasing a gas guzzling off-roader for a once-a-year camping trip, participants can rent these goods from strangers on-demand and invest their precious paychecks in more lucrative options. Sundararajan also proves that, in a world of peer-to-peer asset sharing, the spoils don’t just go to the rich, as low- and middle-income Americans are empirically most likely to be early adopters and beneficiaries on both sides of asset-sharing transactions. Most Getaround listings are not billionaires renting out their Ferraris but instead single moms sharing their Honda Civics with their neighbors to generate a little extra cash.

This move away from conspicuous consumption sparks objections from some critics who worry about peer-to-peer asset sharing lowering our national GDP, a cohort whom Sundararajan rebuts thoroughly and skillfully. Sundararajan first argues that raw GDP is an imprecise metric, as it does not account for the heavy concentration of capital in the hands of the super-wealthy and the negative externalities associated with overconsumption in certain sectors (for example, too many cars on the road creates traffic jams, which in turn lowers our GDP). Next, he introduces the theory of “consumer surplus” — the idea that buyers are more likely to spend money in general when there’s a more diverse marketplace of options specialized to what they’re looking for. He also contends that consumers are more likely to buy high-value items when they have the potential to offset the purchase price by renting it out. Finally, Sundararajan does an effective job in describing how the few unarguable harms of asset sharing — such as Airbnb raising urban home prices and Getaround lowering demand for used cars — are simply short-term growing pains outweighed by broader future environmental and socioeconomic benefits. In the category of asset sharing, I was thoroughly convinced by Sundararajan’s analysis of its benefits.

Information Sharing: Proceed with Caution

I was less convinced, however, by his argument exalting the benefits of crowd-sourced information-sharing in lieu of traditional respected publications, championed by the ethos “reputation replaces regulation.” While information-sharing does not always involve a monetary transaction, Sundararajan contends this democratization of data is nonetheless integral to shaping our economic decisions, and he cites the creation of the information-sharing platform Wikipedia in 2001 as the birth of the sharing economy. He draws a more modern parallel in the recent emergence of cryptocurrencies, claiming that the large-scale public oversight and legitimization of bitcoin by early adopters represented a new form of crowd-based validation in replacement of traditional financial regulation.

In this subpoint, Sundararajan uses a metaphor of Yelp reviews replacing traditional health and quality inspections at restaurants, as he claims that a large enough volume of peer-sourced reviews will be sufficient to self-regulate both businesses and individual contractors. Yet he fails to acknowledge that reviews and reputations are far more malleable than top-down enforcement. In 2017, Vice reporter Oobah Butler proved how reputations can be fabricated and manipulated when he used a series of TripAdvisor reviews written by his friends to elevate an entirely fake restaurant in his home to become ranked #1 in all of London (Butler, 2017). Our current national discourse over “fake news” in politics is further testament to crowd-sourced information’s perceived unreliability. Moreover, as Sundararajan even acknowledges, the stakes are much higher today than in the earliest sharing economy industries — a typo on a Wikipedia page might make your book report look less credible, but when customers are trusting crowd oversight to validate their physical safety and financial wellbeing, the consequences are much more dire when things go awry. Crowd-sourced data, then, is quite effective as a supplementary tool, but it certainly should not replace existing well-respected publications and become our primary form of information consumption as Sundararajan argues for.

Labor Sharing: Do Not Enter

While asset sharing replacing traditional forms of ownership and information sharing supplementing traditional forms of regulation both offer some level of objective economic benefit, the advantage of labor sharing is undoubtedly the least developed aspect of Sundararajan’s thesis. Ferrying passengers for Uber or lending your expertise as an MBA contractor on Mark-Cuban-backed Catalant may seem tempting due to their ease of access and tremendous flexibility, but Sundararajan fails to consider that the platforms managing these transactions ultimately don’t have their contractors’ best interests in mind.

Throughout the text, Sundararajan glorifies “markets replacing hierarchies” as one of the key tenets of the sharing economy, implying that a level playing field of contractors is more equitable than a tiered corporate structure. In this assertion he is horribly misguided, as the sharing economy does indeed create a hierarchy, and a worse one at that. Contractors are not a “market” but rather a distant bottom level in a two-tiered hierarchy. Instead of eight or ten levels at a company separated only slightly, sharing economy businesses feature only the platform providers and the contractors with no managers or supervisors in between, separated by a massive gulf in education and pay. Given this huge gap, moving between the two levels of this cruel hierarchy becomes impossible; my time driving people around for Uber provided no transferrable skills or knowledge to earn me a job at Uber HQ, and my documentation of contracting for Uber thus sits at the very bottom of my resume. Subsequently, a mass shift to labor-sharing eliminates the age-old trope of “climbing the corporate ladder” and throws away a key mechanism of social mobility for entry-level workers.

Companies like Uber would never describe themselves as inhibitors of social mobility, though. Slick marketing campaigns depict peer-to-peer services as progressive tools for empathizing and connecting with your fellow man through a more personalized experience. Pragmatically speaking, however, this intimate person-to-person business model is largely a Trojan Horse for corporate risk outsourcing. Peer-to-peer labor sharing platforms take a commission every time their contractors engage in a successful transaction, but for all the instances when contractors pay the monetary cost of a huge capital expenditure or the opportunity cost of not receiving work, the same platforms share none of the loss. This model stands in stark contrast to traditional corporate structures, where wealthy shareholders and investors are the primary risk-takers while their employees retain financial stability.

Another point of conflict arises through the misalignment of objectives between big tech and their contractors. Sharing-economy workers profit most when they are in relative scarcity, while platforms like Uber and Postmates want to see an overabundance of contractors and are perversely incentivized to see their workers sit idle under a demand-based price model, as it allows them to charge less to their end users. As a result, delivery and rideshare algorithms punish frequently inactive contractors by giving them less trips per hour than full-time workers in an effort to coerce them into spending more time available on the app (Livni, 2018). Thus, while these apps may portray themselves as social mobility vehicles, they really use sharing mainly as a mechanism of offloading risk to their already economically vulnerable contractors.

But what about the more creative labor-sharers — the Etsy sellers, the Spotify musicians, the Patreon content creators — who use these platforms to further an entrepreneurial goal rather than simply make quick cash? While these models may appear more sustainable than traditional labor sharing at first glance, creativity-based sharing platforms provide little upside for even the few artists who achieve some level of success. For example, Spotify pays artists less than half a cent per stream, meaning a song with 1.5 million streams would only generate a little over $6,000 for the artist (Sisario, 2013). Moreover, standing out and gaining market share in a globalized marketplace becomes a much more difficult task, as creators now must compete with the whole world for clicks and attention. Resultingly, only 2% of content creators on Patreon, a popular crowdfunding platform for creatives, make more than the federal minimum wage, and less than a third make more than $100 per month (Knepper, 2017). YouTube is home to millions of channels that monetize views through ad revenue, yet only around a thousand generate a living wage for their creators (Kaufman, 2014). There are, of course, the handful of rare success stories of creators making millions through sharing economy platforms. But for the vast majority of sharing economy jobs, contractors must recognize that the sharing economy offers them very little upside if they succeed but brings along a tremendous amount of risk if they fail.

Not only are labor sharing platforms subtly passing along the majority of the risk to their contractors, they’re also taking steps to automate and eliminate these contractors altogether. For example, Uber and Lyft, the two dominant players in the rideshare industry, contract with over 1.5 million drivers, yet both companies are investing in fully automating their fleet with self-driving technology. Indeed, paying contractors is the biggest financial burden for Uber (who has not turned a profit since inception), so the company recently invested $400 million into Aurora, a Silicon Valley self-driving car startup, with plans to exclusively license the technology to replace its network of drivers (Cogner, 2020). The same trend is true of logistics giant Amazon, who, in August 2020, received F.A.A. approval to begin testing its fleet of drones in lieu of traditional delivery contractors under the end goal of universal thirty-minute delivery (Leon, 2020). Thus, while career academics like Sundararajan might see the sharing economy as a long-term solution to fight back against automation, executives in industry view it as more of an intermediary step on the path to full automation, and the labor contractors of the sharing economy are first up on the chopping block.

Moving Forward

Given that the effects of the sharing economy are so mixed, developing one single blanket recommendation for a path forward, as Sundararajan does, seems nearly impossible. Based on his zoomed-out lens that overlooks the negative repercussions of labor-sharing on contractors, Sundararajan asserts that policymakers ought to develop the social infrastructure, such as universal basic income and a massive government-sponsored social safety net, to facilitate a greater reliance on sharing-economy-based employment. In making this argument, Sundararajan seems to have naively bought into the pathos-based marketing of sharing economy platforms. Optimists may perceive Silicon Valley’s support of a UBI as an enlightened move to help the lower classes, but big tech may also be fighting for such a strong safety net to make their own gig-economy contractor positions seem like more viable career options, increasing the supply of workers and thus lowering their end prices to consumers. From this more cynical lens, a UBI is nothing more than a form of workforce pacification — a means to give contractors just enough to feel like they’re getting a good deal but not enough to empower them or provide financial freedom (Petaccio, 2017). This, in turn, would be incredibly destructive for workers nationwide; all but the most educated would be confined to lives as mindless contractors anxiously scurrying between labor-sharing platforms to eke out their next dollar to supplement their meager governmental incomes.

I would instead suggest framing the narrative of the sharing economy in a different light. Asset-sharing and information-sharing are gradually gaining mass adoption, and based on their gains in economic efficiency and social equity, policymakers should indeed take steps to ensure their proliferation (for example, converting underused city-owned parking garages into carshare docking stations). However, in both meeting other Uber contractors as a fellow driver as well as in chatting with Uber drivers as a customer, I’ve noticed more and more drivers are choosing to make rideshare their full-time occupation. This is an incredibly worrying trend, since, while gig-economy contracting is convenient and comparable in pay to most entry-level positions, these jobs are highly unstable, most susceptible to automation, and least likely to allow social mobility. Labor sharing undoubtedly still should exist, but as was the case in my time with Uber, it should be preached as a fun, flexible supplement to someone’s income or a temporary gig rather than a legitimate long-term career.

Besides reframing the narrative on how sharing economy jobs are portrayed to potential contractors, we must also be judicious in how we reform our economic policy for a more sustainable future of employment. Sundararajan is completely correct in sounding the alarm over the destructive potential of automation; a 2017 McKinsey study reports that between 400 and 800 million workers worldwide will find their jobs automated away by 2030 (Manyika, 2017). The same study contends that unpredictable physical labor and customer interaction positions — the two primary industries of sharing economy contractors — will be the first jobs to go. Designers, technologists, and teachers, on the other hand, have the most stable future employment, and much of the future’s economic activity will stem from the emerging high-pay, high-skill industries of green technology research, urban infrastructure in developing markets, and health innovation for an aging global population. Educating our workforce to be the industry leaders in these sectors will therefore be key to maintaining economic competitiveness on a global landscape. Furthermore, a 2019 study from the National Bureau of Economic Research confirms that investments in education have historically yielded the highest ‘marginal value of public funds’ (i.e., the most economic bang-for-the-buck on taxpayer dollars) compared to general welfare programs that often waste money on adults who don’t need it (Hendron, 2019). The solution to fight automation, then, isn’t to push more of our national workforce into an obsolete economic sector but rather to invest in specialized education to prepare our workforce for the dominant industries of the future.

Beyond emphasizing the most in-demand skills in our public schools and universities, we must also invest in retraining those already in the workforce with continuing education programs to keep pace with today’s climate of rapid technological progress. Time is essential in retraining our national workforce; if those displaced by automation can upgrade their skills and find a new job within a year, McKinsey’s model shows total employment will stay high and our overall economy will continue to grow, but if retraining instead takes several years, economic stagnation could deter international investment and shift the tide in favor of our overseas competitors. With this in mind, a 2020 Brookings Institute meta-analysis prescribes a viable path forward, contending a two-pronged approach of free, universal community college coupled with government sponsorship of continuing education and job retraining programs would maintain a healthy American middle class in the face of automation (Casey, 2020). Governmental revenue is a zero-sum game, and if we choose Sundararajan’s path of universal basic income as our saving grace to fight automation, we lose the opportunity to invest in other more sustainable programs like education and job retraining that keep us competitive on a global landscape.

Sundararajan’s text was published in 2016, at a time when the sharing economy was a fresh novelty and optimism was high. With five more years of reflection and experience, though, we can see the sharing economy is much more complicated and multi-faceted than his analysis portrays it. Sundararajan provides an eloquent and insightful chronology of the factors contributing to the rise of the sharing economy, but given his focus on breadth over depth and his failure to recognize that there is not one single unified sharing economy but instead at least three separate sharing economies, his generalized recommendations of investing in a UBI and a huge social safety net seem naïve and shortsighted. While on the surface Sundararajan’s thesis appears incredibly optimistic of the potential of the sharing economy, his book is, in reality, quite cynical in accepting that the sharing economy is our only path forward in a rapidly changing economic landscape. Through our current policy decisions, we have the power to change this trajectory and build the economic future we hope to see. Focusing on education and retraining would allow more of our population to be the innovators rather than simply the servants to them, paving the way for sustainable, scalable employment growth. That is surely the world I want to live in, but this idealistic future becomes an impossibility if we abide line-by-line with the advice in Sundararajan’s The Sharing Economy.

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