To The Teacher:
As the internet expands and the reach of social media widens, we have seen the growth of what has been dubbed the "sharing economy." Services such as Uber and Airbnb, operating through phone apps, have marketed themselves as efficient ways to link people who have something to share (such as a ride in their car or a spare room in their house) with people who need these services.
But the sharing economy is not without its critics. Uber and Airbnb have come under fire for hurting workers in the taxi and hotel industries, skirting public interest regulations, and unfairly avoiding taxes. While proponents defend sharing economy apps as tools for cutting red tape from and facilitating person-to-person interactions, critics argue that these businesses simply represent a new form of exploitation.
This lesson consists of three short readings that aim to familiarize students with the debates surrounding the sharing economy. The first reading provides some background on the sharing economy and its critics. The second and third readings take a closer look at the specific cases of Airbnb and Uber. Following the three readings are a list of questions for discussion.
Reading 1
The Birth of the Sharing Economy
As the internet expands and the reach of social media widens, we have seen the growth of what has been dubbed the "sharing economy." Services such as Uber and Airbnb, operating through phone apps, have marketed themselves as efficient ways to link people who have something to share (such as a ride in their car or a spare room in their house) with people who need these services.
A March 9, 2013, article in the Economist provides a broad definition of the "sharing economy" and offers an economic defense of apps such as Uber and Airbnb:
Before the internet, renting a surfboard, a power tool or a parking space from someone else was feasible, but was usually more trouble than it was worth. Now websites such as Airbnb, RelayRides and SnapGoods match up owners and renters; smartphones with GPS let people see where the nearest rentable car is parked; social networks provide a way to check up on people and build trust; and online payment systems handle the billing.
Just as peer-to-peer businesses like eBay allow anyone to become a retailer, sharing sites let individuals act as an ad hoc taxi service, car-hire firm or boutique hotel as and when it suits them. Just go online or download an app. The model works for items that are expensive to buy and are widely owned by people who do not make full use of them. Bedrooms and cars are the most obvious examples, but you can also rent camping spaces in Sweden, fields in Australia and washing machines in France. As proponents of the sharing economy like to put it, access trumps ownership....
Such "collaborative consumption" is a good thing for several reasons. Owners make money from underused assets. Airbnb says hosts in San Francisco who rent out their homes do so for an average of 58 nights a year, making $9,300. Car owners who rent their vehicles to others using RelayRides make an average of $250 a month; some make more than $1,000. Renters, meanwhile, pay less than they would if they bought the item themselves, or turned to a traditional provider such as a hotel or car-hire firm. (It is not surprising that many sharing firms got going during the financial crisis.) And there are environmental benefits, too: renting a car when you need it, rather than owning one, means fewer cars are required and fewer resources must be devoted to making them.
But the sharing economy is not without its critics. Uber and Airbnb have come under fire for hurting workers in the taxi and hotel industries, skirting public interest regulations, and unfairly avoiding taxes. While proponents defend sharing economy apps as tools for cutting red tape and facilitating person-to-person interactions, critics argue that these businesses simply represent a new form of exploitation.
In an August 25, 2015, article for Salon.com, former Secretary of Labor Robert Reich argued that sharing economy apps are part of a troublesome shift in the economy. Although they offer people a way to make money, they are part of a trend in which stable, long-term jobs are disappearing and people must rely instead on unpredictable, short-term work. Reich writes:
It’s the biggest change in the American workforce in over a century, and it’s happening at lightning speed. It’s estimated that in five years over 40 percent of the American labor force will have uncertain work; in a decade, most of us....
Uber and other ride-share drivers earn around $25 per hour, more than double what the typical taxi driver takes home.
The problem is workers don’t know when they’ll earn it. A downturn in demand, or sudden change in consumer needs, or a personal injury or sickness, can make it impossible to pay the bills.
So they have to take whatever they can get, now: ride-shares in mornings and evenings, temp jobs on weekdays, freelance projects on weekends, Mechanical Turk or TaskRabbit tasks in between.
Which partly explains why Americans are putting in such long work hours - longer than in any other advanced economy.
And why we’re so stressed. According to polls, almost a quarter of American workers worry they won’t be earning enough in the future. That’s up from 15 percent a decade ago....
Such uncertainty can be hard on families, too. Children of parents working unpredictable schedules or outside standard daytime working hours are likely to have lower cognitive skills and more behavioral problems, according to new research.
For all these reasons, the upsurge in uncertain work makes the old economic measures - unemployment and income - look far better than Americans actually feel.
As we will see, a closer look at two prominent "sharing economy" companies—Airbnb and Uber—reveals that the benefits of new technology must be weighed against a number of potential negatives.
Reading 2
Bringing the Sharing Economy Into Your Home: The Case of Airbnb
Airbnb is a popular sharing economy app that allows people with a house, apartment, or extra room to rent out space in their home to people looking for a short-term place to stay. In essence, the app allows individuals to operate micro-hotels (B and Bs, for "bed and breakfast") in their own homes. Since it was founded in 2008, Airbinb boasts that it has served more than 60 million guests in nearly 200 countries.
In principle, Airbnb's economic logic makes a great deal of sense: Many people have some extra space in their living quarters that would otherwise go unused. Airbnb sees itself as a way for people to access this untapped source of value. As Airbnb says on its website: "Whether an apartment for a night, a castle for a week, or a villa for a month, Airbnb connects people to unique travel experiences, at any price point... And with world-class customer service and a growing community of users, Airbnb is the easiest way for people to monetize their extra space and showcase it to an audience of millions."
However, Airbnb has come under fire in several cities for worsening the housing market. As Los Angeles Times reporters Tim Logan, Emily Alpert Reyes, and Ben Poston wrote in a March 11, 2015, article, some Airbnb landlords have taken apartments that used to be for rent long-term and turned them into short-term Airbnb rentals. These landlords have tried to make more money by catering to tourists looking for brief stays rather than city residents in need of stable housing.
Critics of Airbnb argue that this is worsening housing shortages and driving up rents. Logan, Reyes, and Poston write:
As short-term rental websites such as Airbnb explode in popularity in Southern California, a growing number of homeowners and landlords are caving to the economics. A study released Wednesday from Los Angeles Alliance for a New Economy, a labor-backed advocacy group, estimates that more than 7,000 houses and apartments have been taken off the rental market in metro Los Angeles for use as short-term rentals. In parts of tourist-friendly neighborhoods such as Venice and Hollywood, Airbnb listings account for 4% or more of all housing units, according to a Times analysis of data from Airbnb's website.
That's worsening a housing shortage that already makes Los Angeles one of the least affordable places to rent in the country.
"In places where vacancy is already limited and rents are already squeezing people out, this is exacerbating the problem," said Roy Samaan, a policy analyst who wrote the alliance's report....
A letter last fall from the Venice Neighborhood Council to city officials estimated that the number of short-term rental listings in the area had tripled in a year, citing a "Gold Rush mentality" among investors looking for a piece of the action. That's hurting local renters, said Steve Clare, executive director of Venice Community Housing. "Short-term rentals are really taking over a significant portion of the rental housing market in our community," Clare said. "It's going to further escalate rents, and take affordable housing out of Venice."
Although Airbnb presents itself as a "win-win" for both renters and landlords, affordable housing advocates have cast doubt on these claims.
Reading 3
Sharing a Ride: The Case of Uber
Before the internet, if you didn't have your own car and you didn't want to take public transportation, you probably had to find a commercial taxi if you wanted a ride. Today, Uber offers an alternative. Users simply open the app on their smartphones, request a ride from their current location, and are alerted when a private car has arrived. In essence, Uber allows anyone with a car to become a taxi driver and offer people rides.
Uber argues that its service makes it much easier for people to get a ride when they need one and allows those who want to use their car to give rides to have way of making some extra money. "Much more than a catchy name," wrote John Patrick Pullen in a November 4, 2014, article for Time, "Uber has managed to capture its share of the market through a great app, excellent social media marketing, and aggressive courting of drivers. The background technology is remarkable, connecting riders and drivers with a smooth interface that rarely reports errors." (http://time.com/3556741/uber/)
However, many taxi drivers in the U.S. and abroad are protesting Uber. They see the company as skirting regulations, avoiding taxes, and operating in an unsafe manner. As economist Dean Baker argued in a May 27, 2014, article for the Guardian:
Uber is currently in disputes with regulators over whether its cars meet the safety and insurance requirements imposed on standard taxis. Also, many cities impose some restrictions on the number of cabs in the hopes of ensuring a minimum level of earnings for drivers, but if Uber and related services (like Lyft) flood the market, they could harm all drivers' ability to earn even minimum wage.
This downside of the sharing needs to be taken seriously, but that doesn't mean the current tax and regulatory structure is perfect. Many existing regulations should be changed, as they were originally designed to serve narrow interests and/or have outlived their usefulness. But it doesn't make sense to essentially exempt entire classes of business from safety regulations or taxes just because they provide their services over the internet.
Going forward, we need to ensure that the regulatory structure allows for real innovation, but doesn't make scam-facilitators into billionaires. For example, rooms rented under Airbnb should be subject to the same taxes as hotels and motels pay. Uber drivers and cars should have to meet the same standards and carry the same level of insurance as commercial taxi fleets.
The expansion of the sharing economy is likely to continue for years to come. Yet concerns about the impact of these businesses on the common good are stirring a public debate that is also likely to intensify.
Questions for Discussion
- How much of the material in these readings was new to you, and how much was already familiar? Do you have any questions about what you read?
- What is the "sharing economy"? What are some of the benefits of sharing economy apps such as Uber and Airbnb?
- Critics of Airbnb contend that it is making housing less affordable. What do you think of their argument?
- Why do some people believe that Uber is not contributing to the public good? What do you think of their criticisms?
- Overall, do you think that the sharing economy is generally positive or do its downsides outweigh the benefits? Defend your position.
- Sharing economy apps often take advantage of loopholes in established systems of public oversight and regulation. What do you think should be done about this?