Summary Of Eric Morath’S Article “When The Supply Of Uber And Lyft Drivers Rises, Their Earnings Fall”

In his article, Eric Morath discusses the current state of ride-hailing services, namely Uber and Lyft, compared to the point when they were starting out in 2013. He notes correctly that the income from these services has seen significant reduction over time, so that drivers currently make about half what they used to make then. He attributes this situation to the large influx of drivers who have come on board over the years as participants on these online platforms. This situation has caused an increase in supply and therefore reduction in earnings. This is a classic case of the relationship between supply and the price of commodities: When the supply of a commodity increases, its price reduces.

It is to be noted that the increase in supply of Uber or Lyft participants did not come about by chance but as a consequence of easing the regulations for market entry. Earlier, the regulation and licensing requirements were such as made it possible for only a few people to enter the market due to the high costs that such a move demanded. This is in such stark contrast to today where one need not even be hired to earn a job on these platforms.

As for the reduction in earnings, Morath notes, it could be attributed to several factors: smaller fares and lower-cost offerings on apps, competition which makes it take longer to pair drivers with riders as well as low unemployment which means drivers are working more hours at regular jobs than at part-time gigs, and ride-hailing services may well be classified as such. The result has been a significant increase of on-demand-work, as many users have preferred to use the platforms on the side, to earn extra income, with some users doing under ten hours each week.

In examining the economic dynamics of supply and prices of commodities therefore, it is essential to explore issues critically since many factors come into play as has been seen from the case study of the Uber and Lyft services. Particularly, the issue of market liberalization stands out because it is what set the stage for the large influx of drivers and subsequent plummet in earnings. Thus, while liberalization is good, it may prove detrimental to the economy if not rightly manipulated.

On the subject of the larger gig economy, basing his argument on findings by JPMorgan Chase Institute on the online platform economy, Morath poses that such platforms do not represent the immediate future of work even though a significant amount of household income is drawn from online work. This further suggests that gig work only fills in for spells of unemployment or when one is working fewer hours at their regular job. Ms. Farrell of JPMorgan Chase asserts that the Online Platform Economy thrives due to unemployment, and that a decrease in unemployment will very likely result in a corresponding decrease in the number of participants. She attributes this to the high turnover of participants owing to the fact that work on the Online Platform Economy is neither as supportive nor as sustainable compared to regular jobs.

11 February 2020
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