Technomics – are apps killing income?

Technonomy is the new technology economic model we need to embrace

In 2014, in the city of Seattle, home of Microsoft and where Meg Ryan once had a problem sleeping, a $15 an hour minimum wage was announced. But for the city’s army of freelancers, things are not so simple. And for Uber drivers, a $15 an hour wage may feel like a pipe dream.

John Straw TechnonomistEconomic theory says that wage is a function of the marginal physical productivity of labour. But how do you value output? Answer: the markets decide. And if the market decides an hourly rate that is less than $15 an hour, then that is what is paid.

John Straw - TechnonomistUber has particular issues. For one thing there are the costs each Uber driver must bear. There is fuel, insurance, the commissions paid to Uber itself, not to mention the cost of the car a driver is using. So it makes things devilishly difficult to quantify. Even if you wanted to set a minimum fare for Uber drivers to ensure they get their $15 an hour, it is not so easy working out what the fare should be.

In any case, there is another problem faced by all freelancers, dead time. Even if Uber drivers did earn $15 an hour net of costs while they were driving, they are not going to be paid while they are idle, waiting for a booking. As a consumer, you want there to be plenty of capacity, you don’t want to have to wait too long for your taxi. But for this to happen, it means by definition that drivers are not busy all the time.

For Uber drivers to truly receive a wage equal to the Seattle minimum wage they need to receive a fee that is not only $15 an hour greater than their costs, but one that covers them for slack time.

For this reason, Seattle City Council have passed rules allowing Uber drives to unionise.

But rules granting union power to employees do not provide the answer.

Uber, like many services such as ‘peopleperhour’, that enable freelancers to sell their services via the internet, calculates price and wage by algorithm. It matches demand and supply with a degree of precision once impossible. It is the embodiment of economic forces working the way text books say they do.

And when the algorithm is boss, there is no room for judgments on fairness, on humanity. Rewards are set according to the forces of the markets.

Ever since the subject was first defined, and the likes of Adam Smith, David Ricardo and Leon Walrus provided the theoretical foundations to economics, critics have been legion. They say that economic theory assumes a degree of rationality to us humans that simply does not exist. If you like, you could say that economic theory believes in the concept of Homo Economicus. But Homo Sapiens are not like that.

In the brave world of the sharing economy and freelancer services online, where algorithms rule, the world looks different. Maybe we need to look beyond economics to the study of the technonomy.

In some ways the world is closer to a Walrasian utopia, but whether Thomas More, who penned the book Utopia, published in 1516, would recognise it as such, is quite a different matter.

The riddle of the technonomy: if technology destroys jobs, how will it grow?