Uber and Lyft should offer their drivers better pay

By Leonid Bershidsky / BloombergTravis Kalanick, the Uber founder, has set up a fund to invest in companies involved in “large-scale job creation.” That would seem to be right up his alley: Uber has created lots of jobs. The question, though, is whether they are the kind of jobs that benefit society or, in the final analysis, their holders. A recent academic argument advances the search for an answer to this question.

The Center for Automotive Research at Stanford released a paper last week suggesting that Uber and Lyft drivers in the United States made $3.37 an hour. Dragging down their wages in the estimate was work-related expenses like wear-and-tear on the vehicle and fuel. Some 30 percent actually lost money driving for the “gig economy” companies, while 74 percent of drivers made less than the minimum wage in their state.

Facing an avalanche of bad press, Uber moved quickly to eviscerate the study. Jonathan Hall, the company’s chief economist, pointed out an error in the way the Stanford team adjusted drivers’ gross earnings as reported by them in a 2017 survey, which led to a drastic underestimation of net earnings. Uber Chief Executive Officer Dara Khosrowshahi tweeted, “MIT = Mathematically Incompetent Theories (at least as pertains to ride-sharing).”

Stephen Zoepf, the director of the research center and lead author on the report, admitted the error and said he’d rework the paper. MIT took it down (it’s still available via Google cache, though). Case closed?

Not really. In his critique of the Zoepf paper, Hall said its estimate of drivers’ costs was “very much in line” with previously reported data. The estimate, for the median driver, is $0.30 per mile. According to a recent paper co-authored by Hall, “a typical Uber driver covers about 20 miles in one hour.” That paper claimed the driver earned $18 an hour gross, which would leave her with $12 net after depreciation, repair and fuel costs. If, however, we use the average gross earnings from The Rideshare Guy survey, used in the Zoepf paper and not disputed by Uber — $15.68 per hour — the net will amount to $9.68 per hour.

Zoepf himself used two different methodologies for a back-of-the-envelope recalculation and came up with $8.55 or $10 an hour of pre-tax income. 

Putting the net earnings by an Uber driver in the $10 per hour neighborhood is an important finding. In a 2016 paper, Arne Kalleberg and Michael Dunn attempted to sort gig economy jobs by the two criteria that are most important to workers: wages and worker control. Uber ended up in the high wages/low worker control corner of their matrix: Kalleberg found its drivers traded off being rather tightly controlled for relatively good pay. “Workers are generally able to earn higher than minimum wage,” Kalleberg and Dunn wrote.

At $8.55-$10 per hour, though, that generalization doesn’t hold. That’s below minimum wage for 41 percent to 54 percent of drivers, Zoepf wrote. Add the absence of any social benefits or worker protections, and the quality of the Uber jobs sinks below the worst permissibly exploitative positions in fast food and retail. These are the kinds of jobs that, in the days before “tech disruption,” only the shadow economy used to provide to the most desperate seekers.

One can argue about the exact amount of net profit and the value of flexible hours, but drivers tend to vote with their feet soon after they find out what working for ride-hailing companies is really like. As Hall and collaborators wrote earlier this year, 65 percent of those who start driving are no longer active on the platform six months later. Among women, the six-month attrition rate is 76.5 percent. The U.S. fast food industry’s staff turnover rate, averaging 150 percent a year, implies an average attrition period of 8 months.

The large-scale creation of these hellish jobs is of questionable value to anyone except firms such as Uber and politicians who can point to rising employment rates. And yet they’ve been created on a massive scale. 

In his critique of Zoepf, Hall wrote that “more than 750,000 people drive with Uber” in the United States. Note the preposition use: “with,” not “for” — an important detail for the preservation of Uber’s myth, struck down by the European Court of Justice late last year, that it’s just an intermediary platform for drivers and riders, not a giant taxi company. The myth provides Uber employees with a calming rationalization: The company’s creation of terrible jobs is actually something else, like giving people a way to practice their hobby and earn a little money on the side.

Call me a socialist — or call me cautious to the point of cowardice — but I’m prepared to pay more for a taxi ride just to know my driver is making at least the minimum wage. I don’t really care whether the cab is an Uber, a Lyft or one of their traditional rivals that have also learned to use nifty apps to pick up fares. Higher taxi prices are not a tragedy, just a slight inconvenience and sometimes an argument in favor of other forms of transportation. As for job creation, it can be a symptom of market failure sometimes. To atone for what he built at Uber, Kalanick ought to invest in quality job creation for a change.

Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website

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