The sharing, or peer-to-peer economy, has been all the buzz recently as numerous startups have sprung up in the wake of Uber and AirBnB. In the peer-to-peer economy, a company serves as an intermediary and coordinates transactions or creates a marketplace in which direct transactions between individuals can occur. For example, Uber pairs independent drivers with individual passengers, and AirBnB creates a marketplace for property owners to offer short-term rentals to potential guests who would otherwise book a hotel room. There are now hundreds of start-ups seeking to exploit this growing market and make the lives of consumers more convenient across many different aspects of daily living.

The peer-to-peer economy definitely has many positive attributes for the users and patrons of these platforms. There are, however, some important downsides to the peer-to-peer economy.

Disruption To Existing Industries

Much of the pushback against peer-to-peer economy companies has been from the traditional industries that they seek to dislodge. The taxi and livery industry feels threatened by Uber, Lyft and other ride-sharing services, and the hotels and lodging industry feel similar pressure from companies like AirBnB and HomeAway, Inc. (AWAY).

Some of the arguments these groups make against the peer-to-peer economy is that private drivers or privately owned residences may not conform to existing regulation or pay the required licenses or taxes. Taxi drivers, for example, carry extra insurance and liability coverage in case they injure their passengers in an accident. Additionally, in most cities they must purchase or lease a medallion, which gives them license to conduct business legally. If regulators bend to increasing pressure to allow peer-to-peer economy services to operate freely, these industries could find themselves in financial trouble as many patrons will look elsewhere for better deals or a more unique travel experience.

An unintended consequence of the proliferation of peer-to-peer services could be the loss of jobs in these sectors. The hotels and lodging industry employs over one million people in the United States, including desk clerks, managers, maids and service providers. Taxi drivers and chauffeurs account for almost a quarter of a million American workers. Not only does the potential for the loss of these jobs exist, the economic output that these sectors provide, especially at tourist hot spots, could also be diminished. (For more, see Winners And Losers In The Sharing Economy.)

Workers Lose Rights

Unlike traditional employers, peer-to-peer economy companies only serve to mediate transactions and, as such, merely hire independent contractors on a per job basis; these workers are largely freelancers. As a result, these companies do not have the obligation to treat the people who work for them as regular employees and all the rights and privileges that come with it. These workers are not offered health insurance, retirement accounts, tax withholdings or other services provided to most regular employees.

Moreover, these workers are required to go out and purchase their own equipment or supplies in order to do the work. An Uber driver needs to own and maintain his or her own vehicle, pay for its insurance and be personally held liable in the case of an accident or injury.

Journalist and podcaster Benjamin Walker has released a compelling three-part series via his ”TMI” podcast in which his assistant worked for as many peer-to-peer economy companies as possible in San Francisco, with that work serving as his sole income for the length of the experiment. The experience is chronicled and reported in the podcast series, and the picture it paints for sharing economy workers is bleak. After taking expenses into account, most sharing economy workers end up making less than the minimum wage and are forced to work multiple gigs that dominate most of their free time. Furthermore, income can be unstable and the job itself might disappear. Many experts also fear that the potential for wage degradation exists due to previously unemployed workers turning to peer-to-peer economy jobs rather than seeking traditional employment.

Some workers are already banding together to seek legal injunctions against these companies to classify themselves as regular wage employees. Uber drivers have filed lawsuits, and peer-to-peer home cleaning service HomeJoy was forced to shut down recently after an injunction said it must classify its gig workers as employees. (See also: How Would Raising Minimum Wage Change the Economy?)

The Bottom Line

The peer-to-peer economy is revolutionizing the way people do business with each other. The benefits for consumers or end users are obvious, as it promises to make their everyday lives more convenient and efficient. The companies that are facilitating these peer-to-peer transactions have become the darlings of Silicon Valley, raising record amounts of venture capital funding and sky high valuations.

The picture is not entirely rosy, however. Disruption to traditional industries, such as hotels and taxi and livery, pose a real threat and could cost the economy both revenue and jobs. At the same time, the workers who take on these peer-to-peer gigs often find themselves at a great disadvantage, lacking the protection and benefits regular employees have. The peer-to-peer economy can also lead to wage degradation as these contractors must purchase and maintain their own supplies and equipment as well as bear all of the risk and liability associated with doing their jobs.

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