Gig economy expert on ride-hailing labor shortages: Uber, Lyft created this problem

Driver shortages are taking a toll on the ride-hailing industry. Aquent CEO John Chuang joins Yahoo Finance Live to discuss.

Video transcript

BRIAN CHEUNG: And John, big picture question-- this idea of how these ridesharing companies compensate their gig workers has been a controversy since the founding of these companies, essentially whether or not they should be classified as part-time gig workers under certain state laws or not. How do you think that the labor market challenges that we're facing today put an onus on these ridesharing companies to perhaps change their business model and their approach to the way they pay their drivers?

JOHN CHUANG: Yeah, great question. They absolutely own the problem that they have right now. They created this problem. They created it in multiple ways. One, they have very low wages. And they are very undesirable job. Now that we have seven million less employed workers in America right now, you know, the first jobs to go are the undesirable jobs. And unfortunately, their jobs are undesirable. Why? Because the pay is low. Because they give no benefits. Because you have no Social Security net underneath you. And so workers are voting with their feet. And they're leaving these gig economy jobs.

Second of all, they created it because they asked for so much government assistance. As you know, most companies pay into unemployment insurance, but Uber refuses to do that. So when the pandemic came around, they wanted the government to provide unemployment. They wanted the government to apply and pay for sick pay. And they wanted their drivers to be eligible for loans. Well, now that their employees got all these things, lo and behold, they're not coming back because they have these benefits.

And lastly, Uber has always been arguing about the flexibility of their workers. Well, you know, during a pandemic, when it's not safe, when 40% of Americans might never get a vaccine, a lot of drivers are deciding to stay home. So they absolutely created the mess they're in now.

Now the question is, is, will there be a reckoning? Will they change their ways? Will they suddenly become a good employee? I would not hold your breath for that. I think if anything, they are doubling down on the gig economy. And, you know, they are creating-- you know, they're trying to create a super app.

AKIKO FUJITA: Uh-huh.

JOHN CHUANG: And--

AKIKO FUJITA: Well--

JOHN CHUANG: --so I don't think they're changing much.

AKIKO FUJITA: John, you know, the other question seems to be, how far do these companies need to go in order to bring those drivers back to the platform? I mean, to your point, certainly drivers in the case of a company like DoorDash, for example, I mean, delivery workers, they certainly feel like they have a little more leverage, just given the demand that's in the market right now. But what will it take? Because it feels like we're talking increased pay is not enough. And there's already a demand for benefits. What more does Uber and Lyft, these gig economy companies, need to shell out to get the workers back?

JOHN CHUANG: I think it's-- what they're talking about now in terms of career opportunities and education, I really think that misses the point. What workers really want is a good job at a reasonable wage with flexibility, which is their calling card. Unfortunately, they don't do that.

Now what's happening right now with Uber paying $250 million extra in incentives, they call it a Uber stimulus to get drivers on. Unfortunately, they are probably making an extra $1.2 billion. So Uber might make $1.2 billion, but the majority of that money is staying with Uber. So unfortunately, they are not letting that money to the drivers. So we will persistently have these shortages.

And again, this is a policy issue for the United States. Because transportation is a critical infrastructure that all cities needs. In good times, we let Uber go and put severe strain on public transportation, severe strain on other cab companies. And now we can see that Uber model, which has never-- they've never been profitable-- is not really sustainable. So now that we are out of the pandemic, you can see that Uber is not able to provide the services that our country needs. And so that is a problem. We cannot be reliant on the Uber board of directors to run critical aspects of US infrastructure.

BRIAN CHEUNG: John, now at the same time, there have been some anecdotes, at least in some cities-- this might not be the case in all cities-- of rising wages for these Uber drivers or Lyft drivers. And they've been saying that yeah, maybe that's one reason to entice them back. But at the same time, we are still seeing a shortage there. So are wages not the only answer in that case? And we also have to contextualize this within the broader labor market, because wages are going up not just in this industry, but a number of other industries as well.

JOHN CHUANG: Yeah, no, think about it. When you-- who's their al-- what's the alternative competition in this low wage worker area? You know, you have companies like Amazon, who are not only paying $15 of significantly more wages than minimum wage, but they provide benefits. They provide health insurance. And because people are actual employees, they're under the social safety net of the United States. So they get unemployment. They get workers' comp. They get Social Security. They probably get a retirement plan, a 401(k) that you could invest in.

So it's this whole range of benefits that Uber does not provide. And that is definitely hurting them. So today, with seven million fewer employees, you can see that people are voting with their feet. They are joining other companies that are paying a reasonable wage and giving reasonable benefits. And Uber does not want to do that. And as a result, they have no drivers.

AKIKO FUJITA: So, John, what does that ultimately mean for the user experience on these platforms? As tough as it's been for drivers, you've got the flip side, right? Which, obviously, Uber and Lyft are certainly concerned about, which is to say that there are a lot of people who are saying, look, it's just not worth paying these prices anymore. It's just too high.

JOHN CHUANG: Yeah, people are getting-- their customers are getting sticker shock. I mean, you have to wait. Here in Boston, you're waiting a very long time, if at all it's even possible to get an Uber to the airport. And the prices are double, triple that of what they used to be. And, you know, so what we can't do is allow companies like Uber who are subsidized essentially by society because they don't have to pay fair wages, they don't have to pay or follow US labor laws-- so in other words, they get a lower cost business model.

But this lower cost business model isn't sustainable. And their lower cost business model wreaks havoc on the public transportation system and on existing infrastructure of our transportation. Now it would be great if all this disruption actually was a sustainable, profitable enterprise that we can rely on. But it isn't. So the problem here for society is we are subsidizing a business model, the gig economy model, for transportation services. But those services are not sustainable.

And that Uber has never made money. In fact, no ride sharing company makes money. Whether it's the Ubers of the world or the DoorDashes of the world, or the Grubhubs of the world, they do not make money. And so this is something that's a policy issue.

The solution for this is clear. The solution to this is let normal labor laws that we've had in our country for 100 years apply to the gig economy companies. That will kind of raise the playing field so they can compete against other companies. And then the free market works. The best solution will provide. But right now, by subsidizing Uber, by giving them a lower cost model, which is unsustainable, we're just damaging US transportation infrastructure.

BRIAN CHEUNG: An ongoing conversation that's not going to have an easy answer, but John Chuang, CEO of Aquent, thank you so much for joining Yahoo Finance.