Recently, a California court ruled that Uber has to treat its drivers as employees, with all the regulatory costs that entails. Most people think that this will hamper Uber a bit but not kill it. But a few, like Megan McArdle, think that the ruling spells Uber's demise. What if McArdle is right? What do we conclude?
First of all, it's important to point out that Uber might die for reasons totally unrelated to the California decision. Companies die all the time for reasons totally unrelated to regulation. Recent financial statements show Uber taking a pretty big loss at some point in the recent past, which might mean that competition has been a lot stiffer than expected. So if Uber dies, disentangling causality will be very difficult.
But IF the California ruling, and others like it, are what put a stake through Uber's heart, then I think we conclude two things:
1. Uber wasn't actually that amazing of an idea.
2. Our labor regulation is too stringent.
Why do we conclude #1? Because there are lots of ideas that absorb the cost of labor regulations and manage to keep on turning a profit. Wal-Mart does it. McDonald's does it. If you can't even clear that hurdle, your idea wasn't really creating that much value.
Why do we conclude #2? Because Uber is providing lots of people with work. Many people who would not otherwise be driving taxis are now becoming Uber drivers. That they are choosing to do this means that Uber is good for labor markets. In the interests of improving our labor markets, we should reduce regulations that keep people from doing jobs they'd be willing to do, as long as those jobs are safe and meet other minimum standards of quality (such as paying overtime). Assuming that Uber driving is a safe job that meets minimum standards of quality - which I'm willing to assume - we don't want to regulate the job out of existence.
I suspect that neither (1) nor (2) is true. I suspect that Uber actually creates more than a tiny sliver of value, with its network effect and its circumvention of the local monopoly of taxicabs. And I also suspect that American labor regulations are not so onerous that they are putting large numbers of people out of a job.
Thus, I predict that the California ruling will not kill Uber. Uber may still die of other causes, but I don't think that being forced to call its employees "employees" will do it in.