Last week, an MIT study came out (which they’ve now said is not correct) making the salacious claim that rideshare drivers were earning a profit of just $3.37 per hour. The study was quickly refuted by Uber and Lyft, and my first impression was that the number seemed too low. And I should know because the MIT study used the same dataset from my 2017 survey of 1,150 drivers. Uber’s CEO wasn’t too happy about the study either:
MIT = Mathematically Incompetent Theories (at least as it pertains to ride-sharing). @techreview report differs markedly from other academic studies and @TheRideshareGuy recent survey. Our analysis: https://t.co/S2aAqCuDR0
— dara khosrowshahi (@dkhos) March 3, 2018
Thanks for the shout-out Dara, but this tweet seemed a little out of character for Uber’s new CEO. Not sure if Travis Kalanick got a hold of his Twitter account, but Uber doesn’t have the greatest track record when it comes to drivers and earnings claims. And while Khosrowshahi actually had a valid point, the way he expressed his dismay was not becoming of the new image he’s been working hard to build. So what’s going on with this study and how much do rideshare drivers really earn after expenses?
My 2017 Rideshare Driver Survey
In my survey from January of 2017, I asked drivers the question ‘How much do you earn per hour before expenses?‘. Based on that question, Uber drivers reported earning $15.68 per hour and Lyft drivers reported earning $17.50 per hour, almost two dollars more per hour. I refer to this number as a driver’s gross earnings since it’s after Uber/Lyft’s commission but before expenses. Expenses can vary wildly but based on our research, my estimate of expenses has always been around $3-5 per hour.
The MIT study also tackled the question of earnings and expenses, but they found gross earnings of nearly $7 per hour using the same dataset, so why were the two numbers so different? Uber did a good job explaining the discrepancy in their response to the survey here:
The Rideshare Guy survey asks a number of questions about how much drivers earn and how many hours they work per week. The most important are questions 11, 14, and 15.
Q11: “How many hours per week do you work on average? Combine all of the on-demand services that you work for.”
Q14: “How much money do you make in the average month? Combine the income from all your on-demand activities.”
Q15: “How much of your total monthly income comes from driving?”
The problem in this case is inconsistent logic on the part of the paper’s authors. Consider this: for question 14, the authors assume respondents are reporting income from *all* sources, not just on-demand work. As a result of this assumption, the authors discount the earnings from Q14 by the answer to Q15, “How much of your total monthly income comes from driving?”
For example: if a driver answered $1,000 to $2,000 to Q14, the authors would interpret that as $1,420.63 according to their methodology. If the respondent then answered “Around half” to Q15, the authors conclude this driver made $710.32 driving — half what they actually earned from driving with ridesharing platforms.
However, and perhaps just as important, the authors also assume that drivers understood Q11 perfectly well and that the hours reported only applied to on-demand work. As a result, they divide an incorrectly low earnings number by the correct number of hours.
This inconsistency leads to flawed methodology that results in hourly earnings numbers that are far, far below what any previous study has found.
Since I’m the person who wrote the question, I can confirm that in Q14, I was only asking about a driver’s Uber and Lyft income and not about other sources of income. This probably wasn’t the best wording and for my 2018 survey, I re-worded it to ‘How much money do you make before expenses in the average month from ALL of the on-demand companies you work for?’ before all of this came out. But I could definitely see how someone could misinterpret the question if they didn’t read the second line (trust me this happens a lot).
Uber’s response goes on to say that if they adjust the numbers to account for this, gross earnings are actually $16.53 per hour, right in line with my methodology that resulted in $15.68 per hour.
So Who’s Right?
I think my question could have been worded better, but I still think that most of my readers took it as it was intended and the $16.53 per hour number that Uber came up with also lines up with the $15.68 number I got using the more direct methodology.
The report was released as a working paper and according to Wikipedia, ‘Often, authors will release working papers to share ideas about a topic or to elicit feedback before submitting to a peer reviewed conference or academic journal.’ I spoke with Stephen Zoepf, the lead author of the report, and he’s agreed to re-work the numbers using this revised methodology.
But this controversy has stirred up a lot of passionate opinions, as there are some who feel strongly that rideshare drivers are severely underpaid. One of the unique things about driving for Uber and Lyft is that everyone gets paid different amounts. There’s a ton of variability on the earnings side and how much money you make depends on factors like driving city, time of day/night and even experience.
In addition, there’s also a ton of variability on the expenses side, since you have some drivers who were able to pay cash for a 3 year old Prius and are operating at a cost of around 20 cents per mile and others with poor credit, who had to take out a high APR loan and are driving UberX with a gas guzzling SUV, and operating at a cost of around 50 cents per mile!
How are Uber Drivers Supposed to Figure This Stuff Out?
My big takeaway from this whole story is that if academics at MIT and economic experts at Uber can’t come up with an agreed upon number about how much drivers really make, how are we supposed to figure it out? Uber’s earnings numbers have been all over the place over the years and I remember when they once tried to tell us that the average New York City Uber driver, working 40 hours a week, was making $90,766 per year and the average driver in SF working 40 hours a week was making $74,191 per year!
So if we believe that and combine it with Uber’s mantra that
lower rates means higher earnings (sorry in 2017, they started saying that driver pay stays the same whether they raise rates or lower rates – see how this can get confusing to a driver?) aren’t drivers supposed to be making the same amounts these days? Very confusing, but safe to say Uber doesn’t have a ton of credibility with me at this point when it comes to driver earnings.
There’s a short term benefit/incentive to Uber advertising inflated driver earnings since more people will sign up to drive (to be fair, Uber is not the only on-demand company that does this). And we know that driver supply is a large constraint to the company’s growth, so you can see how tempting it is for Uber to push the higher earnings narrative to potential drivers. But as I’ve found out firsthand from talking with tens of thousands of drivers over the years, a lot of drivers quit because they end up making less than they expected.
Uber often sets unrealistic expectations and I don’t think we’re going to see a marketing campaign anytime soon that says:
Come put 1,000 miles a week on your car driving for us! You’ll also get to make monthly trips to the auto shop for oil changes and a brake job every few months instead of every few years!
Okay, that type of transparency might be asking a little too much of Uber, but a lot of drivers get into this gig looking to make just a few hundred bucks a week, yet they don’t realize that they are actually running a business. And running a business is hard – you have to think about things like rideshare insurance, liability issues, taxes and more.
Also, when you add a quickly depreciating asset like a vehicle into the mix, things can get complicated fast. Even Uber sucks at this, just look at their recent failed foray into the leasing of cars. They lost $9,000 per vehicle with the Xchange Leasing program, and leased 40,000 vehicles over the program’s lifetime. So somebody at Uber fudged up the math and cost the company $360 million – whoops.
Let’s Get Some Better Data!
I think there’s a lot more that Uber and Lyft can do to set realistic earnings expectations and help drivers figure out their true profit. Uber and Lyft have all the data necessary to do this, and I think what we’ll see is that, yes, some drivers do earn below minimum wage, but others may be earning over $20 per hour.
There’s a lot of variability with this job but that doesn’t have to be a bad thing. Driving for hire isn’t the perfect fit for everyone and if drivers aren’t able to earn enough money, there are plenty of other jobs out there.
But until these companies start taking earnings seriously, amateurs like myself are going to keep making guesses and sometimes we’ll be right and sometimes we’ll be wrong.
Readers, what do you think of what’s going on with this study and its findings? Did it seem strange to you, too?
Burnt Out Talking To Passengers? Deliver Food With Caviar!Click to Sign-up!
-Harry @ RSG
Latest posts by Harry Campbell (see all)
- Day 3: Applying For Your First Business & Gas Credit Card - October 15, 2018
- RSG081: Meet Uber’s Fixer, Bradley Tusk - October 11, 2018
- Gas Credit Cards – Best Cards for Cash Back on Gas Purchases - October 10, 2018