The Utter Economic Ignorance of Tech Web Sites

Despite my advancing years, I still like to stay on the bleeding edge of tech, at least tech gadgets (in fact I would argue that I am of an age I have a hard time taking anyone seriously who calls themselves a hard-core programmer that hasn't had to write in assembly language, as I did back in college).

So I enjoy having 20-something's regale me on new tech goodies at sites like Gizmodo and Engadget.  But a running theme through all these sites is their shocking economic ignorance.  A good example was yesterday at Engadget with Sean Buckley writing on a decision in California to declare Uber drivers as employees of Uber rather than independent contractors.  Months ago I described a similar decision as signalling the death of Uber.  Buckley writes: (my emphasis added)

If you ask Uber, none of their drivers are employees -- just independent contractors who happen to use their network to get fares. If you've been watching the news though, you know some drivers disagree: filing lawsuits both in California and the UK for the right to be recognized as employees. Those drivers just got some vindication, by way of the California unemployment office. According to the Employment Development Department, at least one former Uber driver qualifies for unemployment benefits.

According to Reuters, the EDD decided that a former Uber driver in southern California was an employee; the decision was held up twice by a administrative law judge when Uber appealed. Apparently, Uber's control over the driver was a deciding factor -- the company gets to define fares, bar drivers from picking non-Uber passengers and can even charge drivers a cancellation fee for choosing not to pick up a fare. That's "in fact an employer / employee relationship," according to the decision.

Uber says this ruling doesn't have any impact on pending litigation, but it's certainly a feather in the hat of drivers who want a more traditional relationship with the company. We'll have to wait and see how that turns out as the class-action lawsuit moves forward.

I won't repeat what I wrote here, but suffice it to say that I think Uber is a dead duck in the long run if forced to treat drivers as employees.

The amazing line to me is the highlighted one.  What gives the author confidence that most Uber drivers "want a more traditional relationship with the company."  Is that what you want, more timeclock-punching and 100-page employee manuals?  My experience is that most Uber drivers value the fact that it is not a traditional job environment, and gives them a ton of flexibility on work hours, productivity rates, etc.    And why, by the way, is it assumed that every job must offer the same kind of employment relationship?  If someone doesn't like Uber, there are plenty of companies that will happily treat them like a mindless drone if that is what they like rather than being treated as an independent actor.

By the way, beyond the economic and liberty issues involved, I also think the California decision is just plain wrong in terms of the control Uber exercises.  Sure Uber sets standards for its drivers, but everyone does that for their contractors.  They key thing it does not do is set work hours and productivity rates.  They don't care when you work and they don't care how many passengers you carry in an hour, because you just get paid when you drive a customer.  Can you imagine a company that doesn't care when its employees show up for work or how hard they work when they do show up?  Neither can I, which tells me that this is NOT an employer-employee relationship.

Remember the conversation a few weeks ago over the NY Times article that tried to make Amazon out to be some kind of employer ogre because it sets tough productivity standards for employees?  That is what companies do when they have to pay by the hour (which is essentially how all employees, especially after Obama's most recent changes, must be paid).  So if you don't like companies that set tough productivity standards for workers, then why are you trying to kill labor models that don't require those kinds of standards?


  1. Another_Brian:

    In my experience, most people that identify themselves as working in IT are leftists. I think some of this is because anyone working a phone support line likes to claim they work in IT, while they're pretty much just minimum wage cogs that are subject to all of the rhetoric that any other minimum wage cog is likely to buy into. Meanwhile, those that actually work in IT in the US are primarily residents of California, and I've never really heard anyone from California describe what I would consider a rational understanding of the role of government. For a while, IT was seen as a sort of libertarian frontier where government was too slow to keep up with the pace of technology and people created for the love of creating and had no desire to join a union. As technology companies spend more time lobbying governments for favors, we're going to see more and more people enamored with the power of government as long as it's put into the hands of the people they think wield it better than everyone else.

  2. Matthew Slyfield:

    "And why, by the way, is it assumed that every job must offer the same kind of employment relationship?"

    Because otherwise they fall outside of existing employment law.and the EEOC bureaucrats can't stand the thought of somebody who has a job outside of their purview.

  3. Dan Wendlick:

    I've worked in IT for a number of years and I think there are three reasons for your observations:
    1. Most, if not all, of the big IT companies (IBM, HP, Lockheed Systems, Perot Systems, etc.) rely on big government contracts to meet their overhead. Cutting the size or scope of government directly takes money out of their pockets.
    2. The newer companies in the industry are still largely run by their first generation of management, many of whom were the dreamers who wanted to make the world a better place more than make money. Their idea is to leverage the big institutions of the world to make the kind of idealistic changes they want, and the more of them that exist, the more resources that can be borne on their pet issues. Rather than spend $10 mil of their money on their pet cause, they see it as more effective to spend that $10 mil to lobby a government to spend $10 billion.
    3. Given their success, it is real easy for these guys to fall victim to the technocratic conceit: Things would be much better if more people like me were in charge. All of these problems are due to silly people making silly decisions and doing silly things. Put us smart people in charge, and we can fix it tomorrow. That's why collectivist systems hold such great appeal, in that they too are based on the proposition that there are some destined to rule and most are destined to be ruled.

  4. dullgeek:

    I'm confused.

    The article says:

    ...but it's certainly a feather in the hat of drivers who want a more traditional relationship with the company

    Coyote says:

    The amazing line to me is the highlighted one. What gives the author confidence that most Uber drivers "want a more traditional relationship with the company."

    I assume that there is some subset of Uber drivers who do want a more traditional relationship with Uber. I have no idea how big that subset is. Maybe it's only one driver. But for that subset it is a feather in their hat. I don't see how Coyote gets to "most Uber drivers". The article doesn't seem to say that to me.

    In general, I agree with Coyote. All of my income comes from computer programming and I also find myself dumbfounded by a large number of tech sites that seem to be willfully ignorant of the economic impacts of some of their favored policies (e.g. net neutrality). But, I'm not seeing the issue in the article quoted.

  5. ECM:

    A more accurate title for this post would be:

    "The Utter Economic Ignorance of Millenials."

  6. jdgalt:

    Apparently, Uber's control over the driver was a deciding factor -- the company gets to define fares, bar drivers from picking non-Uber passengers and can even charge drivers a cancellation fee for choosing not to pick up a fare. That's "in fact an employer / employee relationship," according to the decision.

    As a tax professional I have to say that sounds convincing, except for its similarity to the "owner-operator" relationship used by many truck drivers, which shares all three of the cited characteristics and yet is defined in federal law as making the driver an independent contractor.

  7. Not Sure:

    If people didn't like Uber, they wouldn't use Uber. How much time and how many millions of dollars is the government going to waste to try to get in the middle of this? "Your tax dollars at work", indeed.

  8. STW:

    It's a shame no place on earth has ever been able to get the right people in charge yet. Of course the "people like me" types are up against the wall once their initial usefulness is over. They are an unneeded and easily solved distraction to that one guy ruthless enough to make "I should be in charge" reality.

  9. Kyle Lyles:

    For a similar case that is even closer to Uber, see the FedEx ex-RPS owner/operator lawsuit.

  10. Kyle Lyles:

    The former Perot Systems and the former EDS were extremely conservative! I used to work closely with them and I am so conservative, I make most of the people on this site cringe. Yet I fit in well where old Ross Perot used to tread.

    I would say that the majority of Lockheed people tend to fall on the right edge of middle of the road, as do the IBMers. I can't remember a leftist in either company.

    HP is a walking zombie filled full of washed up management that fits middle of the road to leftist, but mainly brain dead IMHO.

  11. bilbo:

    "Can you imagine a company that doesn't care when its employees show up for work or how hard they work when they do show up?"

    A company, no, but that sounds like government.

    Also, do you think these Uber lawsuits are filed by taxi interests who signed up with Uber solely to sue them?

  12. mesocyclone:

    I agree. I was the first or second employee of EDS that was allowed to have facial hair! I was there during a company wide discussion on whether to allow pastel dress shirts or stick with all white shirts. Although I bypassed this through an unusual entry into the company, normally an employee's wife was also interviewed.

    EDS was very conservative. Ross Perot is conservative (but a bit of a nut case) and a patriot. He showed me a flag in his office that was signed by every POW who came back from Vietnam, in tribute to his efforts.

    Perot systems was not quite as uptight as EDS, but the leaders were former EDS (except Ross Jr) so they were probably quite conservative. I worked closely with them during Perot's 1992 campaign, and was told by one of his friends that his campaign was revenge for George H. W. Bush's refusal to endorse a Perot POW initiative in 1976.

    So... EDS's dependence on government did not make them into lefties. They didn't believe in big government, but they certainly tried to do a good job furnishing services to it.

  13. mesocyclone:

    I have been in IT since before it was called IT. It didn't used to be leftist - it used to be fairly conservative, although the hard core systems programmers (like myself at the time) were a pretty eclectic bunch. This was also before It was dominated by Silicon Valley.

    Today, it seems very far to the left. A number of IT folks think they are Libertarian, but they are really big government libertines. I attribute this to two factors: the dominance of Silicon Valley, and the way industry leaders leap from academia to top management without any real world experience. The top dogs of SV have mostly never had a real job other than executive, and they have no clue how most of the country lives.

  14. jdgalt:

    I wouldn't rely on the FedEx case as precedent. It sounds like the company could have won on appeal but it got too expensive to pursue.

  15. jdgalt:

    This situation is inevitable once a job-with-power is created. The only way to prevent abuse of power is for the constitution not to grant that power in the first place. (And even that doesn't work if judges ignore the constitution and get away with it.)

  16. obloodyhell:

    }}} So if you don't like companies that set tough productivity standards for workers, then why are you trying to kill labor models that don't require those kinds of standards?



    I KNOW!!!
    I KNOW!!!

    "Because you're a freaking liberal idiot with no grasp of cause and effect!"

    What do I win?

  17. obloodyhell:

    }}} In my experience, most people that identify themselves as working in IT are leftists.

    I don't know what kind of drugs you are on, but can I have some?

    IT people are only marginally less likely than engineers to be conservative or libertarian. They tend to be grounded, necessarily, in a real world that things either work or they don't, so they understand the importance of things that work.

    No doubt there are exceptions -- probably the whole of your own skewed statistical universe -- but in more than 35 years of working with computers -- including, currently, a large company (15k worldwide, 200+ at my worksite) where most of the employees are half my age -- the VAST majority are anything but liberal.

    Some of them are, granted, "nascent libertarians" -- they have the thought processes down such that, when you talk to them about such-and-so their responses show a strong libertarian leaning even if they aren't very political yet. You'd also be surprised at the number who regularly spend time after work in Bible study (suggesting a conservative bent)

    But liberals? Feh. A small handful at best.

  18. xtmar:

    Why would they have to lease their vehicles from Uber to be o-o's? Couldn't they continue using their own vehicles, and then just use Uber as a fare matching service?

    I think the easiest thing for Uber to do is to drop the exclusivity clause, and let them work for Lyft, etc, at the same time, which makes the ethereal nature of their relationship more clear. As I understand it, many drivers do work for both services, but I believe it's technically against the policies of the respective companies, though I could be wrong on that.

  19. Craig Loehle:

    Contradictory policies much? How about a law that says you must check citizenship and a company that gets fined for doing so. How about not being allowed to check applicants for felonies by a government that won't hire those with felonies. How about explicit decisions that you can film the police and getting beaten for same. How about making fun of people who support chastity before marriage in a country where a 17 yr old with a 16 yr old girl friend becomes a sex offender for life. Oh yeah, so easy to know how to stay out of trouble...

  20. Onlooker from Troy:

    Yep, I'm certainly suspicious of just that kind of thing going on. It would be very easy to do.

  21. joe:

    Apparently, Uber's control over the driver was a deciding factor -- the company gets to define fares, bar drivers from picking non-Uber passengers and can even charge drivers a cancellation fee for choosing not to pick up a fare. That's "in fact an employer / employee relationship," according to the decision.

    A couple of observations
    1) charging the driver / employee a cancellation fee typically would be contrary to employment law in virtually every state
    2) the decision was by the california EDD administrative appeals board, Not exactly an independent administrative board. Its really nothing more than rubber stamping the EDD's policy position. Until there is an article III court hearing the case (or the equivalent in CA state law), the administrative appeals ruling remains effectively un-adjudicated.
    3) under to old 20 factor test, the determination of employee/independent contractor is based on a weighting / analysis of all the factors. It would appear that the EDD administrative appeals board took the position that if any of the 20 factors existed, then there is an employee/employer relationship, while ignoring all the other factors that demonstrate independent contractor status.

    As another tax professional, I dont see anything that remotely suggests an employee/employer relationship exists.

  22. vikingvista:

    I much prefer being an independent contractor. My income waxes and wanes, but I'm never "laid off". I take time off pretty much when I choose. If I don't like a client, I simply do not return. I can work with multiple clients simultaneously for multiple independent streams of income. If I want to work nights, weekends, or holidays, I can--or if I don't, I won't. My rates and work times are exclusively dictated by me and my "employer", with no meddling by distant lard-brained politicians.

    I buy my own health, life, and disability insurance, that has no attachment to any employer. I manage my own tax-deferred retirement accounts (which amounts to a yearly purchase of life cycle ETFs). And I don't feel obliged to attend tiresome meetings, or dreadful company bonding events.

    Yes, taxes are a royal pain in the ass for me, even with an expensive accountant, but for my clients, hiring me requires almost no overhead, and no long-term commitment--so in many cases I'm more competitive than those looking only to be employees. Win-Win.

    There are some jobs where an employer feels he simply must dictate every aspect of the job, so then an employee status I suppose is required. But independent contractors know they need to please their trade partners if they wish to maintain the arrangement, so an employer only need let it be known what he wants, without requiring it. Independent contractor status is much closer to a free labor market, and reduces a lot of the state-imposed obstacles that only serve to reduce and congeal overall employment.

    Employers and employees would be better off if the *only* government-recognized labor status was as an independent contractor (and even better off if the government had nothing at all to say about it). Labor politics has needlessly and expensively corrupted the employee-employer relationship.

  23. Rick C:

    "I assume that there is some subset of Uber drivers who do want a more traditional relationship with Uber."

    Perhaps those people should consider becoming regular taxi drivers.

  24. jdgalt:

    Why would they have to lease their vehicles from Uber to be o-o's? Because it's part of the federal definition of an o-o. I don't know why the truckers have to do it either -- except that some trucking companies insist on having speed governors and/or satellite radios installed for the time you're hauling for them.

  25. jdgalt:

    I'm using EDD's criteria to try to draw the line.

    Offhand, questions 1 and 5 lean toward showing that an Uber driver is independent, as do the secondary questions 7-13. Questions 2, 3, 4, and 6 lean toward showing he is an employee. But page down to the interpretation section and I think one has to conclude he is an employee.

  26. jdgalt:

    Ayn Rand predicted all this 60+ years ago.

    “Did you really think we want those laws observed?" said Dr. Ferris. "We want them to be broken. You'd better get it straight that it's not a bunch of boy scouts you're up against... We're after power and we mean it... There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What's there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced or objectively interpreted – and you create a nation of law-breakers – and then you cash in on guilt. Now that's the system, Mr. Rearden, that's the game, and once you understand it, you'll be much easier to deal with."

  27. markm:

    EDS was socially conservative, but were they for smaller government, against gun control, etc.? When Perot was running for office (after making a billion on government contracts), he sure sounded to me like a government insider pretending to be an outsider, and an anti-libertarian.

  28. Tom Lindmark:

    In all the discussion I've seen about this issue, I have yet to read any analysis of the revenue effect. At both the federal and state levels the gig economy seems to pose a real threat to the tax base. Independent contractors cut in half the payroll tax remitted to the feds and state unemployment and workers compensation payments are virtually eliminated. For all the posturing by government about the need to protect workers, it is reasonable to suspect that they are in reality reaching to protect their cash flow.

  29. Captain Profit:

    "Independent contractors cut in half the payroll tax remitted to the feds"
    Not according to Schedule SE they don't.

  30. jdgalt:

    Schedule SE makes you pay both the employer's and employee's share of Social Security and Medicare taxes -- but it does not cover the other payroll taxes. Federal unemployment tax (anywhere from 0.8% to 8% of your first $7,000 in a year, depending on the state you're in) and various state payroll taxes are paid by the employer without you ever seeing them -- but self-employed people don't have to pay them.

    This is why working SE makes you ineligible for unemployment benefits.

  31. Tom Lindmark:

    Right! I wrote and thought too fast. But - SE does allow you to subtract 50% of your payroll tax liability from AGI, so there is a revenue loss. Thanks for catching my error.

  32. jdgalt:

    That's not a revenue loss. If you were working for someone else, the employer's share of social security and Medicare tax would not be included in gross income either. The employer pays it in addition to gross income.

    This is why Schedule SE has you multiply your total SE income by 0.9235 before calculating the self-employment tax. (Aside: That is, and always has been, a slight error in your favor by the IRS. The employer's share of social security tax is 6.2% of gross, and the employer's share of Medicare tax is 1.45% of gross, the same as your share of each (assuming you don't make more than $150k, causing ObamaCare's additional Medicare tax to kick in). But since these are percentages of gross, and are not supposed to be included in gross, schedule SE ought to begin by having you divide your total SE income by 1.0765, rather than multiply it by 0.9235!)

  33. Bruce Zeuli:

    I think the point of all these cases is simply to get Uber to keep 50% of each fair instead of the 20% they do now. Government wants 30% of every transaction and will get it or will find a way to close you down.
    I think it is important to know that California Taxi drivers (in SF and other places) are also independent contractors. Their relationship is much more like employees with scheduled work hours, routes, assigned cabs and revenue requirements. No courts interested in changing this situation however. Can't understand why.

  34. markm:

    Not _from_ Uber but _to_ Uber - although IMO that would weaken rather than strengthen the argument that the driver is an independent contractor. If a truck driver is an independent contractor because he owns the rig, although he can only drive it for one company, then an Uber driver who owns a car that is not so restricted, is certainly an independent contractor - IF they were judged under the same rules.

    However, they are neither under the same laws nor judged by the same agency - or any kind of actual judge. Trucking companies and their drivers often cross state lines, they are federally regulated, and this preempts most state regulation. The Uber decision came from a Californicating state agency under Californicated state law - and it's neither a court nor any kind of transportation agency that rendered it, but rather the state _unemployment_ agency. Uber's near freedom from regulation means there's nothing to preempt this. There should be some way to challenge it in court, but that would be quite expensive and take years. Meanwhile they'll have to pay unemployment, or get out of CA entirely. Which every geek living in CA that ever voted Democrat richly deserves...

  35. markm:

    2 depends on the details of the Uber contract; can the drivers be "fired" for any reason at any time, or does it give them some protection?

    6 I score for independent. The driver has an investment in the business, his car. He probably didn't buy it specifically for Uber (and it would probably not be a good idea to do so unless the contract protects you against arbitrary termination), but once you start using an asset in business, it becomes a business asset. The value of all the drivers' cars vastly outweighs Uber's corporate capital. On the basis of who owns the business assets, Uber looks like a sales agent for the drivers, not an employer.

    Nor would I say that #1 and 5 only "lean" towards independent; they are definitely for independent. The Uber driver selects his hours, and selects the fares he is willing to pick up; there is no more supervision in that relationship than there is when you tell the plumber that you _must_ have the toilet working by 4 pm or you'll call the next guy in the phone book. The driver makes many decisions affecting profitability: He is 100% in control of costs. He decides where to buy fuel and where to take the car for repairs. In the case of major repair, he decides whether to repair or replace the car. He also has substantial control of revenues; he decides when he will work, and he decides whether it is worthwhile to drive across town to pick up a fare.

    That leaves possibly #2 and definitely # 3 and 4 for employee status, and everything else against it. It's 3:3 or 2:4 on the major factors and 0:7 on the minor ones. To get employee status from that score, the EDD must be biased towards employee status..

  36. CAS1167:

    I was thinking more like some labor activists that signed up in order to sue Uber.

  37. joe:

    JD - The EDD criteria you cited is the California's government/administrative agency's interpretation of the law. Hardly an unbaised position.

    Secondly, you have to weigh the relative factors based on the facts and circumstances, Each factor does not carry equal weight, and with each case, different factors will more important than in other cases. As I previously mentioned, who owns the tools and who has the risk of loss carry a huge amount of weight. (at least in all the cases I have worked). Those two factors are going to significantly outweigh the pro employee factors 2, 3 & 4. Your point with respect to 6, (continuing relationship) it is more indicative of a contractor status. With an employee, once you quit, you seldom get rehired. With Uber, it is common to work a couple of months, take a sabbatical, work again, etc.

    The third point is that the EDD administrative appeals board appears to have simply rubber stamped the EDD's official policy position. This is quite common with many state administrative appeal boards.

  38. Joe:

    Mark as mentioned to JD, EDD administrative appeals board is biased. They are a division of California's EDD. They are supposed to be independent. Like, the IRS appeals division which is supposed to judge the case based on the hazards of litigation, If the position is contrary to the Agency's policy, you have zero chance of wining at the administrative appeals level.
    It appears obvious to me that the State of California has taken a position that they will not back down from until the lose in court. The case is likely to eventually wind up in the CA Supreme court, unless there is a pro-independent contractor holding fro the drivers in federal court. The possibility of getting to federal court is remote since it would require the IRS to be willing to litigate the employee/independent contractor issue - with volumes of case law supporting the independent contractor position - the IRS aint going to litigate this one.

  39. dullgeek:

    Probably. But that wasn't the point of my comment. The point was that Coyote attributes something to Buckley at Engadget, that Buckley didn't say.

  40. JW:

    Their readers are even worse now.

    My parting shot to the new residents of Ars technica, where I started at 1999, was a solid finger to them. Little more than warmed-over Fabians.