The Hidden Benefits of Uber

In developed nations, the so-called gig economy has become a controversial and polarizing topic. The argument in favor is well known, especially for consumers: Uber has made it easier to hail a ride; TaskRabbit provides instant armies of plumbers, painters, and cleaners; Postmates delivers gourmet food to one’s door; and so on. The gig economy provides obvious benefits for workers, too: flexible hours, an efficient workday, and a giant marketplace for labor.

But it also comes with numerous drawbacks. Workers in the gig economy have no job security and, in most cases, lack common workplace benefits, including pensions, life insurance, and health care. There is no natural career progression as there would be on a typical corporate ladder. Capital expenditures — such as car maintenance or purchasing plumbing tools — are the sole responsibility of the worker, and wages can be quite low; nearly half of all Uber drivers in the United States, for example, make less than the minimum wage after expenses. Data suggest that freelance workers are especially vulnerable to workplace bullying and sexual harassment. Perhaps unsurprisingly, in a survey of millennials conducted by the accounting firm Deloitte, 70 percent of respondents in developed economies said they would prefer a regular full-time job over a freelance one.

Such debates about the pros and cons of the gig economy are important. But it’s no accident that they’re being held primarily in developed markets. In poorer nations, there is less controversy — largely because the benefits for the workers, and countries, are so much more obvious.

Take India for example, a country with an average annual per capita income of $1,670, barely 3 percent of the $56,850 per capita income of the United States. Uber says its drivers in India can expect to make anywhere between $5,000 and $12,000 a year — a range that falls in the top 10 percent of earners nationally. Through a now discontinued incentive scheme, the service used to offer even more generous pay, but it is still fair to say that many of its drivers qualify as upper middle class. They enjoy an air-conditioned cocoon for an office while most blue-collar workers toil in the heat and dust of a farm or street. Such status stands in sharp contrast to the fate of an average New York City Uber driver, who is likely struggling to pay rent.

One might think that an Indian with access to a car is already sitting atop the income hierarchy. After all, in 2015 only 6 percent of Indian households owned cars (compared with 88 percent of households in the United States). But Uber drivers in India are not, for the most part, existing car owners freelancing on the side. They are largely aspiring professional taxi drivers who have taken out auto loans or leases, often provided by gig companies, specifically to make the high incomes on offer. That helps explain why the growth in this sector of the job market has been spectacular. Since arriving in India in 2013, Uber has created some 350,000 driver jobs. Ola, a local rival, now counts more than a million drivers in its workforce. (By comparison, the government-run Indian Railways — in operation since 1853 — employs 1.3 million people.)

There is, however, a vigorous global debate about whether the gig economy is a net creator or destroyer of jobs. One side of the argument goes that apps are steering workers to the very livelihoods — delivery, driving, and warehousing work — most in danger of being made redundant by automation and by advances such as driverless cars and drone-based delivery systems. But while those innovations may seem imminent in the West, they remain almost unimaginable in many parts of the developing world. For the time being, India’s potholed roads and winding lanes will likely defeat the best driverless cars, and the future when India will be able to build and sustain high-quality infrastructure remains purely hypothetical. Meanwhile, human job opportunities in warehousing, logistics, and deliveries are set to boom. As more Indians purchase products online — thereby growing the app and gig ecosystem — the banking giant HSBC forecasts a net gain of 12 million jobs by 2025.

But beyond job creation and salaries, there is a hidden byproduct of the gig economy that uniquely benefits developing countries such as India: formalization of the labor market. One of the problems that has long dogged Indian governments is the fact that much of the economy operates in what is known as the informal sector — a euphemism for a system of no paperwork, contracts, taxes, or benefits. The International Labour Organization estimates that close to 90 percent of workers — farmers, plumbers, electricians, drivers, roadside vendors, household help — function solely in the informal economy, leaving no paper record for any of their transactions.

This phenomenon hurts the country in two important ways. First, it means there are too few taxpayers. According to India’s latest economic survey, just 59.3 million Indians — 4.5 percent of the population — are registered to pay income tax. Second, India collects just 17 percent of its GDP from tax revenues — compared with an average of 34 percent for members of the Organization for Economic Cooperation and Development. But a change could now be underway in the world’s largest democracy. While a regular taxi driver can easily pocket a fare and choose not to report it, an Ola or Uber driver can no longer do so, because the companies create an electronic record of each transaction. All kinds of work ordered online, including cleaning, catering, and deliveries, are automatically recorded for posterity — and for the government.

Informal labor is less of a problem in developed economies, but in countries such as India, it is one of the greatest obstacles to government spending on critical priorities, including infrastructure, health care, and edu-cation. And while the gig economy (and digital transactions more broadly) is still very new to India, there are signs that a formalization of the tax system has already begun. According to the Indian government, 10.1 million people filed taxes for the first time in the last fiscal year — up by 40 percent from the average of the previous six years. Some of this progress is because of other government measures: In 2016, Prime Minister Narendra Modi announced a recall of all 500- and 1,000-rupee currency notes — and replaced them with new bills — to slash the amount of so-called black money, or untaxed income, in the market. The heavy-handed move targeted rich traders who had accumulated cash hordes without declaring their incomes. But whether the ploy worked or not, Modi can’t take credit for the underlying digital economy trends that have boosted India’s tax receipts.

With the gig economy, all the pros and cons that exist in the West apply to developing markets as well. The added layers are the hidden benefits we see in places such as India: higher relative incomes, more jobs, less corruption, and, eventually, a formalization of the labor market. Part of the reason for these rapid improvements is the fact that India is starting from a low base, but the other factor is the surging growth in people getting online. The number of Indian internet users has soared from 100 million in 2010 to 462 million in 2017. The nearly 1 billion Indians projected to be online by 2025 will breathe new life into India’s economy — largely by ensuring the virtues of gig work stay at the very center of it.

This article originally appeared in the July 2018 issue of Foreign Policy magazine.