How much do Uber drivers value flexibility?

Uber drivers often explain why they choose to drive for the company in terms of more flexible working arrangements. Last month, an independent poll revealed that 80% of Uber drivers in the UK would prefer to remain as contractors, but the unions campaigning to give these drivers worker status don’t seem to care about the views of the people they’re claiming to help.

In most U.S. cities, Uber’s ride-hailing model provides greater flexibility than traditional taxi models because (among other things) it doesn’t use a medallion system. Most taxi companies make money by renting medallions to drivers, who pay a daily or weekly fee for the right to drive. Instead, Uber charges a percentage commission on each journey, which means drivers who only want to do a few rides can do so without losing out. To assess how much drivers value the commission fee model over the medallion system, two MIT economists and an in-house economist from Uber offered 1,600 randomly selected Uber drivers in Boston the opportunity to lease a virtual medallion that eliminates Uber’s commission-fee. People might be sceptical of a working paper co-authored by an Uber economist, but their study was released on the reputable, non-partisan NBER last month. The other co-authors are also eminent, non-partisan economists.

The researchers offered Uber drivers a range of medallions at different prices, recording their opt-in rates and logging the amount they worked. Using this data, they were able to estimate how much these drivers prefer Uber’s commission model to a traditional taxi medallion system. This can be expressed in monetary terms as “compensating variation” (CV): how much money it would take for Uber drivers to be indifferent between the commission model and the taxi medallion system.

Using the most realistic estimates of wage gaps between Uber and taxi drivers, as well as medallion costs, the study finds that average CV is $437 per week. Boston’s Uber drivers place significant value on a more flexible commission model. For Uber drivers who don’t spend many hours working per week, this makes intuitive sense. The fixed cost of a medallion would outweigh the gains from driving fee-free. But even among drivers who would have expected to earn more per week with a medallion system, many did not opt to use it. This could be explained by a combination of loss aversion and risk aversion: the former being the idea that “the decision to buy a lease may be a gamble that drivers hate to lose” and the latter being drivers’ reluctance to gamble money upfront in exchange for uncertain gains during the week.

Although the study’s conclusions are more directly relevant to U.S. lawmakers, they are also a reminder to UK regulators that Uber’s more flexible working arrangements are highly valued by its drivers. They care about having greater freedom to choose their own hours: so much so that they are willing to trade off potentially higher earnings in order to preserve that freedom. The same is also true of Uber's customers, who benefit from the influx of supply during predictable peak hours that Uber's flexible surge-pricing model makes possible. If Uber loses its appeal against last year’s ruling that its UK drivers are workers rather than contractors, many of the benefits of flexibility will be lost.

We do think it's unkind of The Guardian to do this to Owen Jones

Owen Jones mounts that high horse to denounce the partiality of the British press:

Finally: there’s a debate about media bias. It’s becoming an unfortunate missed opportunity, though, because so far it’s only focusing on the leftwing blogs that have emerged in the past couple of years. Whatever the failings of, say, the Canary, it only gained traction because there is a substantial body of opinion in Britain which feels marginalised, unheard, and attacked by the broader media.

The reason for that is this. Britain’s press is not an impartial disseminator of news and information. It is, by and large, a highly sophisticated and aggressive form of political campaigning and lobbying. 

This is, apparently, a new finding. The thing is, on the very same day, over in the media pages of the same newspaper, Roy Greenslade (who knows quite a bit about this) tells us that

Sure, it was always the case with newspapers. No one reading newspapers down the years can have been in any doubt how their political stance has influenced their content. Our press has been proudly partisan. The result has been blatant bias. It is an understatement to call it spin. Heavily angled stories and headlines are the norm.

Comment articles merely underline the prejudice in the so-called “news” items. They are indistinguishable. Nor is there the slightest embarrassment about omission, about failing to inform readers about news that, for one reason or another, fails to fit the editorial agenda.

This is the way that it has been for years. Owen also makes this point:

The distinction between “news” and “opinion” throughout much of the British press is blurred. I write opinion, and it goes in the opinion section of this newspaper. The press abounds with writers who are just as opinionated as me, but their opinions go in the news section. I am a political activist, but so are they: they, too, use their “news” writing as a means to advance political aims and causes, even if they pretend otherwise.

Any impartial reading of The Guardian's environment pages will prove the veracity of that statement.

The point being that Owen really shouldn't be surprised about this at all. That very partiality is what he owes his own employment to after all. This is all worthy of a certain snigger of amusement of course, but there is indeed a solution:

A media so weighted in favour of the status quo makes progressive, campaigning journalism a necessity. Much of modern journalism exists – often aggressively so – to defend the way society is currently structured. And yet when what remains a small, marginalised counterweight emerges, to make the case for a different form of society, it is portrayed as a dangerous threat to journalism.

Yes, some leftwing blogs exhibit problematic approaches to journalism: but then there’s the likes of Novara which is at the cutting edge of new left ideas. But if the mainstream media catered more for views which challenge the existing order of things, a vacuum would not have been left to be filled. In this year’s election, four out of 10 voters just opted for a Labour party offering an unapologetically socialist platform. It is a travesty that the ideas represented by that manifesto remain fringe opinion in the British press. Our media has a straightforward choice. Cater for the growing demand for dissenting views – or be challenged by new media outlets that do.

That's rather the case we've been making for many decades now. The demand for something calls forth the supply of it in a market based system. If people want more left wing and campaigning journalism then presumably they'll be willing to pay for it and so it will indeed arrive as a result of that profit motive. That is, the very system Owen dislikes so much is the very one giving him what he wants, the desires of the populace reflected in what is offered to the populace.

Why change what works? 

 

No, socialism is still a really bad idea, even with a spine

The Guardian treats us to a long read about what socialism should be for the future. There's something of a pity to it as John Quiggin is usually better than this. The definition of neoliberalism wanders around too much, equating at times the US meaning (let's be good progressives but use markets to do so) to our own full on embrace of and cheerleading for markets and economic liberty globally.

The definition of socialism similarly changes, at some point meaning just a bit more redistribution, at others wholesale restructuring of everything. But there is still the one great glorious error:

A socialist program would allocate much less economic activity to big business, and more to other forms of organisation. In deciding what kind of economic activity belongs where, a range of considerations are relevant.

This is to be the Fat Controller with the economy (no, Quiggin has lost weight, this is not that insult). It is to think that we can allocate across the economy in this manner. And the truth is we cannot, which is the great failure of exactly this sort of socialist planning of it.

We can most certainly change the rules. We could make coops more privileged over more capitalist forms of organisation, certainly. We can change how much redistribution we do. Raise or lower tax levels, there are all sorts of things feasible. But allocation isn't one of them.

For people react to changes in those rules - that being a useful description of economics itself, how do people react to changes in incentives? One of the rather important points being that the reactions can be different from those envisaged. Making food nice and cheap by fiat doesn't lead to cheerful farmers delivering the stuff up, it leads to them not growing any. Allocating a sector to small business rather than large isn't going to work well. For there's clearly a good reason why it's being done on a large scale in the first place, isn't there? 

We've tested the idea of socialist planning and allocation to destruction, we generally refer to that experiment as the 20th century. There are still useful discussions to be had about making the world a better place but a return to that failed idea isn't one of them.

Are markets efficient?

Today is a very good excuse to post this video, which I also came upon today, posted on Twitter on the occasion of Richard Thaler winning the Nobel Prize in economics. Thaler and recent Nobelist Eugene Fama have a very pleasant, wide-ranging, and clear discussion about, and debate over, market efficiency.

This is also a good excuse to link to an essay on the history of the divergence between experimental and behavioural economics. The differences between the two might seem to be superficial, but they turn out to be fundamental.

To the late, great, Bob Bee

Robert Bee, 1925-2017

We were sad to hear of the death of Bob Bee, 92, former Chairman of the Adam
Smith Institute. He was a US citizen, but moved to London in 1978 to become
chairman of the London Interstate Bank. As a fervent supporter of liberty and free
markets, he joined the board of the Adam Smith Institute and soon became its
Chairman. He used his extensive City contacts to bring the ASI to the attention of
big names in business and industry, and encouraged them to participate in our
activities.

It was under his chairmanship that the ASI rose to prominence as a leading
exponent of the market oriented policies that ultimately unpicked the Keynesian
postwar consensus and lifted Britain out of the nightmare of rent controls and
nationalized industries.

Like others in the ASI, he had a mischievous sense of humour and was an
unfailing optimist and enthusiast, seeing problems as opportunities. It was only
gradually that we came to know that he had fought as a teenage GI in the Battle
of the Bulge, winning a bronze star.

Bob Bee2.jpg

His previous career had included a stint in the foreign service of the US Treasury,
and in Wells Fargo's International Division. Bob’s work in international finance
included posts in Ankara, Turkey, Bonn, Germany, and Karachi, Pakistan, where
he was Acting Director of the US Agency for International Development's
mission.

He took part enthusiastically in ASI activities, befriending its young staff. One of
their annual highlights was the dinner at his house, at which many different ice-
creams and sauces were served from a giant silver Indian dispenser originally
used for serving different spices. He accompanied ASI personnel to Downing
Street on several occasions as guests of the Prime Minister.

After he retired with wife, Dolores, to San Francisco, he continued his
association, and looked forward on regular visits to London to meeting the ASI's
youngsters over lunch. He told us many times how privileged he felt that he had
been able to play a role in events that shaped history. We in turn were privileged
to have known him and to have benefitted from the massive help and support he
gave.

As we thought there would be, there's a problem with this shared parental leave

We should note that this idea of shared parental leave is something that stemmed from this very blog at least in its British incarnation - the incarnation of the policy, not the blog of course. We pointed out a number of years back, and have repeated ad nauseam, that we don't in fact have a gender pay gap. We've a pay gap caused by the gender bias in primary child carer within a family. This was picked up by varied LibDems and so we got shared parental leave.

If 50% of fathers become the primary child carer and only 50% of women do in their familial arrangements then that gender bias will disappear as will the gap. That is also pretty much he only way that the gap is going to disappear.

So, shared parental leave. Unfortunately, not many are taking it:

Launched in April 2015, the government scheme is supposed to help mothers go back to work and allow fathers to take a larger role in caring for their children by permitting parents to split almost a year of leave between them.

Yet the take-up has been pitiful. Just 1% of eligible parents took advantage of the scheme in the year to March, according to HM Revenue & Customs, and one of the biggest reasons so few are doing it is that it doesn’t make financial sense.

The reason it doesn't make financial sense is because there are two different sets of people paying maternity/parental leave.

There is the statutory amount, perhaps £140 a week, which is largely (some 90%) paid out of national insurance receipts - by the reduction in taxes paid by the employer. Then there is enhanced pay which is as with a normal wage cost to said employer. It's them paying some amount to retain the services of the employee and is just a regular cost to them of doing business, paying the workforce.

That enhanced pay is generally only on offer to women, men generally only being offered the statutory amount. Economic logic thus leads to many fewer men taking up the offer. Although, of course, we can be curmudgeonly about this and point out that if men don't value a cut in pay for months of their new child's life then they don't value being there for those months all that much.

The demand is now becoming that men should be offered that same enhanced pay as women. But that then runs into a horrible problem - for the enhanced pay is a cost the employer, not us all through the tax system, has to bear. We can, entirely righteously, all vote on how our tax money is spent, we cannot righteously insist upon how others spend their own money. 

At which point all is best left to the market itself. Just as with that enhanced pay to women of course. Employers pay it because they think it worth it to retain their employees. As and when enough fathers are interested in the same then they will no doubt be offered it - for exactly that same reason that women are. Because it benefits employers to do so.

This is, after all, how we solved the problem before so why not sue that same solution again?  

If payday loans were ripping people off then there'd be a better profit margin than this

For the provision of a good or a service to be ripping people off it is necessary for someone to be making more than a normal profit or income out of that provision. If everyone doing the providing is, instead, just making the normal sort of money then it tells us that this good or service, whatever its price, is just expensive to produce or provide.

At which point some interesting numbers from the payday loan industry. Agreed, these are for the US but still, they're a useful insight:

A federal agency on Thursday imposed tough new restrictions on so-called payday lending, dealing a potentially crushing blow to an industry that churns out billions of dollars a year in high-interest loans to working-class and poor Americans.

The rules announced by the agency, the Consumer Financial Protection Bureau, are likely to sharply curtail the use of payday loans, which critics say prey on the vulnerable through their huge fees.

Currently, a cash-strapped customer might borrow $400 from a payday lender. The loan would be due two weeks later — plus $60 in interest and fees. That is the equivalent of an annual interest rate of more than 300 percent, far higher than what banks and credit cards charge for loans.

OK, agreed, this is expensive. But in order for this to be preying there does have to be some evidence of outsized returns.

The operators of those stores make around $46 billion a year in loans, collecting $7 billion in fees. 

OK, fees include the costs of running the stores, paying the staff - and no, we don't think that's a highly paid job - covering the defaults and so on.

The restrictions, which have been under development for five years, are fiercely opposed by those in the industry, who say the measures will force many of the nation’s nearly 18,000 payday loan stores out of business.

There are many such stores, we'd expect competition to rather lower the profits of the industry.

A dropoff of that magnitude would push many small lending operations out of business, lenders have said. The $37,000 annual profit generated by the average storefront lender would become a $28,000 loss, according to an economic study paid for by an industry trade association.

We've 18,000 stores each making an average of $37,000, that's total profits of $660 million, a lovely number for something considered so perfidious. There're $46 billion of such loans a year, making the profits 1.43 % of the amount advanced. That's not in relation to capital employed of course but a 1.43 % reduction in interest charged - or fees - would seem to wipe out the industry as a profitable enterprise.

At which point we've our answer, which is that this isn't a rip off as there is no excess profit or income from the provision. It's just a very expensive service to provide.

As to what that means should be done, well. We think that consenting adults should indeed be able to live their lives as they wish. Others apparently don't. But there still isn't any justification about rip offs here to justify that second attitude.

In designing a welfare system - pay cash please

An interesting piece in The Guardian which underlines an important point about welfare systems - they should be paying out cash.

No one doubts that we're going to have some form of welfare system, the arguments are only about how much and how generous. But underlying the basic discussion we really do have to insist that however wide the system is it should be one which pays out real money which the recipients can then determine how to spend themselves:

We all have our own ways of dealing with the insecurity of poverty. For my father, food was a point of pride. No matter how close the wolf got to our door, we ate well. Food stamps helped, but my dad was also thrifty. To make up for splurging on pine nuts, we ate quick sale meat, government cheese, and tuna from dented cans. His resourcefulness paid off. We’d sit down together and eat chicken cacciatore and handmade pasta with garden salad with my mother’s special vinaigrette. He’d survey the table with an expression that seemed to say, “We may be poor, but we eat like kings.”

...

But the facade was deceptive. We weren’t the only family feeling the pinch. In the early 1990s, the Oregon logging industry was in freefall due to increased mechanization and changes in federal environmental policy. Logging jobs evaporated and the mills shut down one by one. When I looked at my classmates, I saw the facade: all-American kids in name-brand jeans and basketball shoes. It didn’t occur to me that other parents were scrimping and prioritizing, buying the kids Nikes and putting off paying the phone bill.

That choice was a matter of pride. Just as my dad attempted to protect us from food insecurity, my friends’ parents were protecting their kids from social scrutiny.

One part of this is that the poor value agency, just as the rest of us do. We are richer by being able to decide how our limited resources - and they are limited for all of us - are deployed to maximise our individual utility. And do not forget that utility is indeed individual.

This is not a universal - there are those we really do think are incompetent to make their own decisions and we also know that we're going to have to take many to most for them. But that's a very small part of any welfare state that is going to exist in any likely political reality. Outside that little arena whatever it is we do as either redistribution or simple social support should be provided in those interchangeable ration coupons called cash - even if these days that will be digital or in a bank account.

There's a flip side to this. US Census, which measures such things, readily agrees that the value to the recipients of Medicaid, food stamps, Section 8 vouchers and the rest is less than the cost of providing them. We could make all such recipients as well off as they are at lower cost, or make them better off at the same cost, by simply providing money rather than coupons, goods or services.

This should then inform our own design of whatever it is we're going to do therefore. Like, for example, housing benefit rather than council houses - in the absence of our actually solving the problem by liberating planning control of course. 

For the truth is it is always more efficient to subsidise people rather than things, agency is indeed valuable and money allows the poor, like the rest of us, to maximise utility within our budget constraints.

Treth Twristiaeth? Dim diolch!

There has a been a lot of news recently so it might have passed you by but something genuinely staggering happened in this country last week. It wasn’t the Prime Minister bungling the most important speech of her life. Nor was it Theresa May getting confused between support for the free market and intervening in it. No, it was the Welsh Government’s budget – with the first taxes to be levied and collected by a separate authority in Wales in nearly 800 years.

Nationalists in Wales will be glad of this fact in and of itself. But should we be? Well powers for their own sake aren’t that interesting, it’s more about what’s done with them.

One of the things that came out of the budget wasn’t actually a plan to use them to create a power but a shortlist of potential new taxes. Mark Drayford, the economy minister of the Welsh Labour government in Wales, set out some possibilities. Among these were a new tourism tax and a new disposable plastics tax.

There is good reason to support disposable plastics taxes and Wales has a good track record on them. Wales was the first place in the UK to introduce a tax on carrier bags and the subsequent drop in use was a cornerstone of the argument in getting it adopted by other parts of the UK. Devolution as it should be – experimenting with good governance, working out what we want less of and using price incentives to change a negative outcome (after all there are some pretty nasty externalities that come out of plastic bags).

The problem is, that makes the second one on the list quite bizarre. Presumably the Welsh government thinks that tourists are a good thing for Wales, it certainly likes to appeal to them to come (and spend their money in local communities). But as we alluded to above we mostly use taxes, like plastic bag taxes, to get less of something.

Tourist taxes make sense where demand is inelastic – there’s only one Sagrada Familia and one Parthenon for tourists to visit after all. And taxing people that free-ride on public costs of keeping places like Venice afloat (literally), makes sense. But where demand is elastic, where it is responsive to price changes, then taxing tourists just makes the numbers coming fall and it reduces the economic benefits of tourism.

While the Tourism Alliance measures elasticity of the UK as a whole, it doesn’t give exact numbers for Wales. Yet there are some proxies that we can use that suggest the Welsh tourism sector is elastic and that this tourism tax would be a pretty poor idea.

The first is simply that the Welsh government advertises heavily both internally and externally - if you get high numbers of visitors turning up regardless of the money you spend telling people to then you wouldn’t bother (you’d hope).

The second is that the Welsh government themselves collect figures of visitors and their and Visit Britain’s own analysis shows swings with big increases in tourist numbers during the recession and dropping after as well as when the weather in the UK is poor (2012 was a particularly rainy summer in Wales and was just as the UK was recovering from the financial crisis).

Thirdly the falling value of the pound has had an enormous impact on numbers coming to Wales. In the past year tourism numbers are up 11%, following a drop in the pound after the Brexit vote.

The tourism sector supports 40,000 jobs in Wales, boosts GDP by £4.8bn per annum and the evidence suggests this (and the numbers of tourists coming in the first place) is price sensitive. If the Welsh Government wants to use a sector as a cash cow then tourism really isn’t the one to go for. Maybe it would be good for Wales to wait another 800 years before adding any additional taxes?