Join the Sharing Economy to Save More and Work Less

Card Image
Posted by The Savvy Retiree on June 8, 2016 in Uncategorised

“Creative destruction is the essential fact about capitalism.”
— Joseph Shumpeter

Joel Bowman, writing today from Sicily, Italy…

We’re setting out across the island today, so we’ve no time for lengthy musings.

Regular readers will recall that we tried this journey once already earlier in the week…only to have our rental car bite the dust halfway down the winding valley.

Yes, yes…we know what you’re going to say. “Hey, you should’ve taken an Uber!”

Funny you should mention it…

For those who are unfamiliar with the ride-sharing platform, Uber is a company that basically connects riders with drivers via a handy app you can download right onto your phone. (We wrote about it in Paris last week, see here.)

It’s part of what some people are referring to as the “sharing economy,” where individuals connect directly with one another to “share” goods and services without the many layers of bureaucracy in between. (Airbnb is another example…where hosts and guests “share” their resources directly with one another.)

Of course, the “sharing economy” has its detractors, typically those whose own businesses face disruption and, ultimately, destruction. And, as is usually the case, those losing ground in the race to better serve customers have taken their complaints to Big Gov to ask for protection.

And Big Gov, which does a nice little side business selling protection to these firms in the form of licenses, typically wants to help out with layers and layers of red tape and regulation.

(If you’re drawing the obvious metaphor between government protected rackets and Sicilian-style mafiosos, you’re on the right track…)

But for the moment, and in spite of Big Gov’s best efforts, the “sharing economy” is delivering a range of benefits to voluntary market participants.

So whether it’s supplementing your monthly income with some flexible work…renting your own place out while you’re on holiday…or tapping into one of the literally thousands of new and innovative shared economy opportunities, there are plenty of ways you can leverage this trend to your advantage.

In today’s essay, guest columnist Charles Hughes discusses some of these topics.

For now, it’s time for us to set off…again. Hopefully today’s effort is more rewarding than our last attempt. We’ll let you know how it all goes next week, regardless.

In the meantime, please enjoy Mr. Hughes’ excellent column, below…

***

Who Is Your Uber Driver?
By Charles Hughes

The rise of new business models in online platforms and the sharing economy have inevitably been met with calls for more regulations. In his most recent budget, President Obama proposed to expand funding for efforts to “crack down on the illegal misclassification of some employees as independent contractors.” Policymakers at the state and local levels have also called for more stringent regulations on these new business models.

Recently in Austin, voters failed to overturn the city council’s ordinance that would impose a series of new regulations on ride-hailing companies operating in the city, from requiring drivers to go through fingerprint-based background checks, to restrictions detailing where drivers can stop for drop-offs and pickups.

In light of this rush to regulate, it is important to consider the people who rely on the opportunities made available by the new online platform economy. People utilize these platforms in different ways. Some participants offset fluctuations in traditional income to maintain their standard of living, while others use the platforms to rent out assets to supplement earnings from their traditional jobs.

People from every age cohort and across the income distribution earn money through these new business models. New regulations that obstruct the development of the online platform economy could harm the many different people who choose to utilize those opportunities.

In one report from the JPMorgan Chase Institute, the authors analyzed anonymized data from 260,000 customers with earnings from any of 30 established online platforms and found that a growing number of people are participating, but that their reliance on these platforms has not increased. In other words, more people are using these new models, but not as full-time jobs.

Earnings represented 33 percent of monthly income in labor platforms, in which participants are connected directly to customers, like Uber or Lyft. In the capital platforms where participants rent or sell to customers, like Airbnb, earnings represented only 20 percent of monthly income. So in neither component are most participants relying on earnings from these platforms as the majority of their income; for most people these aren’t full-time jobs.

Participating in the labor platform allows people to weather variations in their monthly income, as they can choose to work more hours to offset dips in other earnings. In months participants actively used the labor platform, those earnings accounted for an additional 15 percent of income, offsetting the 14 percent shortfall in non-platform income in those same months.

As the authors note, this is in most cases a more attractive option than the old ones: look for a supplemental traditional job, reduce spending, or take on more credit. The capital platform is slightly different, in that those earnings tended to supplement traditional income, rather than replace it. So participants generally used the capital platform to try to increase their monthly income and raise their standard of living by utilizing the assets available to them.

In a related report released last week, the authors find that while the percentage of adults with earnings from the online platform economy is fairly consistent across income quintiles, participants in the lower income quintiles are more reliant on these earnings, at least in the labor platform.

Labor platform earnings account for more than 28 percent of total annual income for participants in the lowest quintile, compared to roughly 20 percent in the highest. Capital platform earnings, on the other hand, represent between 10.5 and 11 percent of annual total income across all quintiles.

Percentage of Annual Income Earned Through Open Platform Economy, by Income Quintile and Type of Platform

4TP Walden

Source: JPMorgan Chase Institute

 

People of all ages and across the income distribution participate in the online platform economy. These business models have given these people new options and opportunities: some people use these platforms to replace unexpected reductions in other income that could otherwise cause serious problems. Older participants are turning to these platforms as a way to supplement their earnings and maintain their standard of living as they transition out of the workforce.

Need a Way to Fund a New, Better Life?

Join our Savvy Retiree Daily e-letter today and you’ll hear from us daily, telling you about ways you can gain the freedom to live where you want, travel when you like and create a life you love. We’ll also send you a FREE Report Fund A New, Better Life With These 6 Portable Careers…