Uber and the Gig Economy: How Many Are Earning How Much?

Uber is the most prominent member of a group of companies that offer opportunities for people to earn money by contracting (often quite informally) to perform tasks for a given price.  In Uber’s case, drivers use their own vehicle to drive passengers from one location to the other.  Uber provides the platform that connects the driver and passenger, collects a fee for this service, and manages the payment process.  The drivers are considered independent contractors (thus far) and are responsible for meeting their expenses of doing business including tax requirements and providing any benefits, such as healthcare, that may be required.  This is a common situation for those in the gig economy.

Many, particularly those involved in providing such platforms, think of this as a job creating environment in which workers benefit from controlling their schedules and work habits.  Critics denounce such arrangements as converting full-time work into day-labor jobs in which workers collaborate with businesses in order to perform tasks for as little pay as possible.  Uber, as a provider of employment, has been studied by many academics, but the results have been confused by differing assumptions about compensation and expenses for its drivers.  Lawrence Mishel has attempted to put all the various studies on the same basis in order to eliminate the disparities.  His work was published by the Economic Policy Institute as Uber and the labor market: Uber drivers’compensation, wages, and the scale of Uber and the gig economy.

Mishel provides a detailed analysis of the compensation issues for Uber drivers.  Here, only his conclusions are presented.  Uber begins by taking about a third of the charges paid by the customer to cover the service it has provided the driver.  The actual cost of the service is determined by Uber.

“Uber driver compensation—the income drivers get after deducting Uber fees and driver vehicle expenses from passenger fares—averages $11.77 an hour. This average Uber driver hourly compensation is substantially less than the $32.06 average hourly compensation of private-sector workers and less than the $14.99 average hourly compensation of workers in the lowest-paid major occupation (service occupation workers).”

The figure of $11.77 per hour does not include payroll taxes (Social Security and Medicare) that the driver is required to pay, nor does it include the expense of any benefits such as healthcare.  After payroll taxes are deducted the figure falls to $10.87.

“Uber driver “discretionary compensation”—the income drivers get after deducting Uber fees and vehicle expenses and the mandatory extra Social Security/Medicare taxes that self-employed drivers must pay—averages $10.87 an hour.”

Mishel further estimates a wage that is comparable to those of traditional workers who usually receive at least some benefits from their employer.

“The Uber driver “wage”—comparable to the wages (reported for employees on federal tax Form W-2) earned by regular W-2 employees—averages $9.21 an hour. (We calculate this W-2 equivalent wage by deducting the following in order, from passenger payments: all Uber fees, such as booking fees and commissions; vehicle expenses; and the cost of a modest benefits package, including mandatory employer-side payroll taxes. Our estimate also takes into account expense and benefit interactions with the federal tax code).”

The net wage to compare with other types of employment then drops to $9.21 per hour.

“The Uber driver W-2 equivalent hourly wage is roughly at the 10th percentile of all wage and salary workers’ wages, meaning Uber drivers earn less than what 90 percent of workers earn. The Uber driver W-2 equivalent hourly wage falls below the mandated minimum wage in the majority of major Uber urban markets…”

Given these results, Uber, as a representative of the gig economy, is not promising as a creator of jobs.  Who needs a technology that produces minimum wage or below jobs?  But is Uber actually creating jobs, or is it merely a platform by which those with an income can add to it by working additional hours for Uber?

“Uber drivers have high turnover and, on average, work only part of the year (an average of three months) and part time (an average of 17 hours per week).”

Converting Uber drivers’ participation in the economy to a full-time equivalent (an FTE, 40 hours per week for a full year), Mishel finds that Uber activity is a tiny part of the overall employment figure.  He also takes Uber’s estimated two-thirds share of the gig economy and concludes that the entire gig economy is also tiny both in terms of employment and economic activity.

“There are about 833,000 Uber driver participants in a year. If one weights participants by their weeks worked and their weekly hours, then Uber drivers amount to 90,521 full-time, full-year equivalent (FTE) workers and account for just 0.07 percent of national FTE employment. We scale this proportion by Uber’s two-thirds share of the gig economy (according to research by Seth Harris of Cornell University and Alan Krueger of Princeton University) and find that the entire gig economy—online platform employment—accounts for just 0.1 percent of national FTE employment. Uber and the entire gig economy are not a significant portion of the national economy despite several years of rapid growth.”

“Uber drivers’ aggregate compensation, based on total hours worked and hourly compensation, is roughly $5.0 billion, or 0.022 percent of aggregate national compensation (one-fifth of 0.1 percent). Adjusting for Uber’s two-thirds share of the gig economy, we find that the total compensation for the entire gig economy—online platform employment—accounts for just 0.034 percent of total national compensation.”

While Uber is big enough to generate disruption in the traditional taxi market, it and its siblings don’t seem to be heralding a revolution in the economics of employment.