Uber raises fares so drivers can earn more money per trip. Sometimes Uber cuts fares to attract more riders. Uber offers bonuses to drivers for being active throughout the week. But: It turns out that no matter what Uber does to make things better for drivers, they tend to earn about the same other than bonuses.
That’s the conclusion of a recent study conducted by Uber and a New York University professor. Regardless of the rates, drivers tend to average about the same earnings over time. Other studies have shown drivers aren’t getting rich. Many are making just above minimum wage.
Earnings Equilibrium in 8 Weeks
Uber has long said that lower fares yield more passengers and drivers’ earnings don’t fall. The conclusion is a bit more complex, according to the study, “Labor Market Equilibration: Evidence from Uber,” written by John Horton, NYU assistant professor of information, operations, and management sciences; Jonathan Hall, Uber’s chief economist; and Daniel Knoepfle, an Uber senior economist.
Regardless of whether Uber lowers or raises fares, driver income reaches the same in about eight weeks as before a fare change. If Uber cuts fares, riders flock to Uber, and drivers get more rides and less downtime. If Uber raises fares, more drivers make themselves available, but they may not get as many rides. According to the study:
We find that the driver hourly earnings rate—essentially the market equilibrium wage—moves immediately in the same direction as a fare change, but that these effects are short-lived. The prevailing wage returns to its pre-change level within about 8 weeks. This return is achieved primarily through permanent changes in driver “utilization,” or the fraction of hours-worked that are spent transporting passengers. Our results imply that the driver supply of labor to ride-sharing markets is highly elastic, most likely because drivers face no quantity restrictions on how many hours to supply and new drivers face minimal barriers to entry.
Because Uber drivers are considered independent contractors, at least in the US, it’s easy to choose to drive or not drive, or even spend more hours driving for competitors such as Lyft. Drivers supply the car and pay for fuel, insurance, and repairs. The study also found that drivers of SUVs and other low-mpg vehicles prefer times of higher fares and potentially lower supply of riders.
One thing that keeps Uber drivers on the road is incentive payments. Most commonly, Uber offers a bonus for being on the road a lot. If a driver completes 120 trips in a week — equal to three trips an hour over a 40-hour week — Uber might pay a bonus of $ 500. That’s costly for Uber, which is potentially worth billions once it goes public circa 2019, but has racked up $ 4 billion in losses over the past year and a half. This week Softbank Group Ltd. of Japan reached agreement to invest several billion dollars in Uber.
Drivers also get some customer-paid or no-cost incentives: fees for long wait times, in-app tipping, and better routing that cuts the time to get to the destination.
Nobody Gets Rich Driving for Uber
The NYU-Uber study didn’t try to quantify how much the typical driver earns. A study by loan company Earnest and cited by Money magazine found the average Uber driver earned $ 364 per month while the median driver — half above, half below — earned $ 155. That was fourth best among sharing economy jobs, behind Airbnb, TaskRabbit, and Lyft. For Lyft, the average was $ 377, the median $ 210. The discrepancy between the average (mean) and median suggests a minority of Uber and Lyft drivers did relatively well. Earnest did not ask if those were earnings before or after deducting expenses.
Uber internal spreadsheets leaked to Buzzfeed last year showed Uber drivers in late 2015 averaged $ 13.17 after expenses in the greater Denver area, $ 10.75 after expenses in Houston, and $ 8.77 after expenses in Detroit, “less than any earnings figure previously released by the company.”
According to Harry Campbell, a rideshare driver and author of the Rideshare Guy blog, driver income falls off with age. Uber / Lyft drivers age 18-30 average $ 17.98 gross earnings, while those 61-plus average $ 14.57. He attributes that to younger drivers willing to work more and later hours, which are often peak-demand with higher rates.