TOPICS > Economy > Making Sen$e

The new ‘sharing economy’ can enrich micro-entrepreneurs but at what cost?

October 10, 2014 at 6:35 PM EDT
The growing American "share economy" makes use of people's preexisting and underutilized assets and time. Hospitality website Airbnb helps turn empty guest rooms into makeshift hotel rooms. But what happens to actual hotels and bed and breakfasts that have to conform to greater regulation and charge higher prices? Economics correspondent Paul Solman reports.

JUDY WOODRUFF: Back in 2008, few travelers had heard of a new start-up called Airbnb. Its current value is said to be about $10 billion. Now others are copying Airbnb’s business model, part of an emerging sector of the economy that’s taking advantage of technology and peer-to-peer consumer services.

Our economics correspondent, Paul Solman, looks at the good and the bad. It’s part of his ongoing reporting, Making Sense of financial news.

PAUL SOLMAN: Last week, we reported on Uber, a smartphone app that allows passengers to summon freelancers driving their own cars. But ride-sharing is just part of a fast-growing phenomenon, the so-called sharing economy.

Its main attractions, says NYU’s Arun Sundararajan:

ARUN SUNDARARAJAN, NYU Stern School of Business: Efficient use of capital, of assets and labor.

PAUL SOLMAN: A peak efficiency economy, that is, putting idle resources to work, like a car, or your own idle time. Cook a meal for strangers on Feastly or work a freelance gig in your downtime on oDesk or Elance.
And speaking of idle, how about that empty space in your house? The app DogVacay lets you rent it out to bored canines. One of the most popular sharing economy platforms extends that idea to humans, Airbnb, now turning the hospitality industry on its head.

So, what’s it like to consume idle resources? We decided to book a room on a farm in Northwestern Massachusetts. Out back, artist Janice Sorensen has built a literal Airbnb, a tree house. The stairs were something of a challenge, but inside it was sweet, definitely a room with a view, working for guest and host alike.

JANICE SORENSEN, Airbnb Host: We have two kids in college, and it’s a huge expense for us, and I thought to myself, what are my assets? This beautiful home and our beautiful property, this is one of my greatest assets.

PAUL SOLMAN: And the number is the tree house, which she rents out at $80 a night.

Unheated, a bit chilly this time of the year, but it was bracing, as was breakfast the next morning in the main house, a very egalitarian sharing economy experience. That’s how Janice Sorensen felt, sharing.

JANICE SORENSEN: I never feel that like I’m waiting on you. I feel often like I’m just entertaining a house guest.

PAUL SOLMAN: Which is how I felt, so I would rate Sorensen high on the Airbnb Web site.

But that could hurt the one official bed and breakfast in town just minutes down the road, the Bird’s Nest. Nearly a dozen Airbnbs have sprung up in town in the past two years and business at the nest is down a third, laments artist owner Cyndy Weeks.

CYNDY WEEKS, Owner, Bird’s Nest: I was just writing off the loss of business to an economy crash and then it started coming back. And I’m going, why has our economic dropped to the level that we could actually get food stamps?

PAUL SOLMAN: Weeks and her whole family moved here from Detroit 13 years ago, bought and lovingly refurbishing the house, appointing it with the fascinating boxes she makes. Weeks sees Airbnb as unfair, unregulated big business.

CYNDY WEEKS: Airbnb is the Wal-Mart model of bed and breakfast that’s actually killing the mom-and-pops.

PAUL SOLMAN: And though my Airbnb Janice Sorensen is a mom, it strained their friendship.

CYNDY WEEKS: It’s injured personal relationships. It has. This is very personal to me. I gave up everything in my life, and it’s killing us.

PAUL SOLMAN: Weeks is not alone in her despair. Now that Airbnb boasts over half-a-million listings in 192 countries, economist Dean Baker fears that these low-cost, unregulated competitors will hasten the race to the bottom.

DEAN BAKER, Center for Economic and Policy Research: If we have the one old-fashioned traditional hotel, they meet the regulatory standard. If they can’t compete with people renting out rooms through Airbnb, then you will see a lot of those people end up losing their job.

PAUL SOLMAN: But hold on, says NYU’s Sundararajan. They will eventually find another.

ARUN SUNDARARAJAN: There’s no clear way of predicting that people are going to lose their jobs in the long run. There’s definitely going to be a shift, in the same way that a century ago, like, 25, 30 percent of the United States worked in agriculture. Today, it’s less than 1 percent.

PAUL SOLMAN: As for regulation, says Nick Grossman (ph), whose venture capital firm invests in sharing economy firms, they’re self-regulated by the customers who publicly rate them.

MAN: The major invasion that all of these platforms have centered on is this idea of generating trust and safety. If you’re a bad actor, we will know. And if you’re a great actor, people will know that, too.

PAUL SOLMAN: Aimee Schurrman is a case in point. She earned high ratings doing dozens of jobs through TaskRabbit, a Web site where you hire freelancers to do just about anything.

AIMEE SCHURRMAN: What can I help you with today?

PAUL SOLMAN: I want to create a sign that appeals to people’s better selves.

At $25 an hour, I hired Schurrman to design a “Please Clean Up” sign to for the off-littered tennis courts I frequent. She also went to the sign store, got me a quote.

MAN: On corrugated plastic, you would be looking at $21.50.

PAUL SOLMAN: Meanwhile, back at home, TaskRabbit handyman Shane Windstorm tried to silence a beeping Verizon FiOS backup battery that was driving me mad.

SHANE WINDSTORM: Verizon, in their wisdom, thought that you might like the fact when the power goes out, you would be afforded an extra eight minutes of landline.

PAUL SOLMAN: Sherman and Windstorm also top-rated, are independent contractors paid by hour, not TaskRabbit employees, though the company takes it cuts as the middleman.

SHANE WINDSTORM: So, if I gross $500, TaskRabbit takes 20 percent of that, I make $400, I would be doing great.

PAUL SOLMAN: And what’s the most demeaning job you have done?

SHANE WINDSTORM: You always have the option of not taking a job. Spring is here. Clean up our dog poop. I haven’t done that one. Had a great party last night. Filled up a bucket. Could you come and empty it? Not taking it.

PAUL SOLMAN: So worker flexibility and idle resources put to work to supposedly make us all better off.

Dean Baker likes the idea, but many regulations are in place for a reason, he says, and in an increasingly unequal economy:

DEAN BAKER: These services can put downward pressure on wages in general. In many cases, you get people working full-time or near full-time for them, and as it’s structured now there’s no guarantee what sort of pay, what sort of pay rate they get.

PAUL SOLMAN: To NYU’s Arun Sundararajan, however, a revolution is under way, and there’s no stopping it.

ARUN SUNDARARAJAN: I fully expect that, in a decade, more than half the American work force will not have a full-time job. They will be doing multiple things. In some sense, they will be micro-entrepreneurs.

PAUL SOLMAN: Making a living on platforms like Uber, Airbnb, TaskRabbit and who knows how many more.