The idea for Uber reportedly came on a snowy evening in Paris in 2008, when Travis Kalanick and Garrett Camp were having trouble finding a taxi.
They asked themselves, “What if you could order a ride just by tapping your phone?” They co-founded Uber based on an idea that has seemed so obvious for years, but seemed virtually impossible just 20 years ago, before the invention of the iPhone and the increasing proliferation of smartphone technology.
In “Driving the Gig Economy” (NBER Working Paper 32766, August 2024), Katharine G. Abraham, John C. Haltiwanger, Claire Y. Hou, Kristin Sandusky, and James Spletzer dig up some government statistics on the evolution of the ride-sharing market over time.
There is the so-called North American Industry Classification System (NAICS), which can, among other things, determine the total number of employees by industry. The authors examine self-employment in the taxi and limousine industry, which is coded as NAICS 4853. Here is the employment trend:
The authors focus on the factors and effects of this labor market entry and compare patterns across cities. From the abstract:
New entrants were more likely to be young, female, white, U.S.-born, and combine their ridesharing earnings with wages and salary. Displaced workers found ridesharing a much more attractive alternative than taxi driving. Ridesharing also impacted the existing taxi driver workforce. Low-income taxi drivers’ exit rates increased after ridesharing was introduced in their city; high-income taxi drivers’ exit rates were barely affected. In cities without regulations limiting taxi fleet size, both groups of drivers suffered income losses after ridesharing was introduced. In more regulated markets, these losses were mitigated or eliminated entirely.
Here, I want to focus instead on a different angle. Around 2009, there appeared to be an untapped pool of more than a million people willing to give others a ride for a fee. But many of these potential drivers valued the flexibility of being able to manage their own time. There were millions of potential riders willing to hire these drivers. But both sides needed assurances. Would the fare and route be set for the rider before the driver arrived? How long would it take for the driver to arrive, and how long would the ride take? Was the driver guaranteed to pay for the ride by credit card before the ride began? Could the route and destination be known in advance? Was it safe for a driver to give someone a ride—or at least safer to give someone a ride with a rideshare account than someone who waved at you from a street corner?
Today, we tend to take rideshare services for granted. For me, rideshare companies provide an occasional but significant convenience gain; for the elderly, the disabled, the drunk, those who can’t afford a car, those who need to get to a doctor’s appointment where it’s better not to drive, and others, rideshare can be a lifeline. I have family members who rely entirely on rideshare services. In my area, when the Minneapolis City Council threatened to regulate rideshare services out of Minnesota, it was potentially a disaster for existing users and drivers.
Here’s my question: If someone in the private sector like Kalanick and Camp hadn’t started a ride-sharing company, would it have happened? After all, there was no technological barrier preventing existing taxi companies from offering a similar phone app. Yet many cities restricted entry into the taxi market in the early 2000s, mostly due to claims about safety and quality of service, but in practice this also helped keep supply low and increase the income of existing taxi drivers.
It seems to me infinitesimal that existing taxi companies would have changed their existing business model in the early 21st century by more than ten times the number of drivers or by guaranteeing routes and fares in advance, as is common in ride-sharing. The likelihood that a government transport authority would have pioneered this decentralized approach is even smaller (if “even smaller” is even possible).
Many of us take the widespread availability of ridesharing for granted. In fact, many people take the restless innovation and energy of markets in general for granted. Real-world ridesharing has its advantages and disadvantages, just like the earlier taxi system and all real-world institutions. But ridesharing seems to me to be a dramatic welfare gainer overall for the million-plus drivers who participate and the many millions of riders who share. And without the disruptive pressure of market forces, it would have taken years, decades, or perhaps not happened at all.
