The rideshare industry has come a long way since 2009 when Uber was first launched.
Dozen’s of additional transportation companies have been launched including driver favorites like Via and Juno. New services like Uber Pool and Lyft Line have been championed, and unfortunately, driver fares for the most part, have gone down while the supply of drivers has skyrocketed.
These fluctuating rates and a rapidly changing industry have begged the question: How much are rideshare drivers really making? Well, over the past few months and years we’ve received a number of answers from various scientific studies and surveys that have come up with different answers to that question along with different reasoning.
We want to better understand what the economic landscape for rideshare drivers is, so we took a deep dive into the various studies of the rideshare industry to try to gain a complete understanding of how much rideshare drivers are making and WHY rideshare drivers make what they make.
The Gig economy is one of the most heavily researched industries in the world today because of how little we currently know about it.
Questions like, what would happen if Uber dissolved, how does discrimination affect the gig economy, and what is the tax impact of the gig economy have economist rushing to understand who is involved and how it affects the macro and micro-economic landscapes. As a result, we can see public studies like these.
- The Gender Earnings Gap in the Gig Economy: Evidence from over a Million Rideshare Drivers
- 2018 Uber and Lyft Driver Survey Results – The Rideshare Guy
- 2018 MIT Uber earnings study
- Revised 2018 MIT Uber earnings study
- The Ridesharing Revolution: Economic Survey and Synthesis
- Labor Market Equilibration: Evidence from Uber
Each of these studies helps us piece together the past and present of the rideshare industry and gives us clues into the future of the rideshare industry.
Let’s start our analysis of these reports by seeing how these reports answer everyone’s most burning question.
How much do drivers make?
Over the past few weeks, Uber has found itself in a PR nightmare caused by MIT’s initial study that claimed rideshare drivers made a mere $3.37 per hour after expenses with a whopping 74% of drivers making less than minimum wage.
In response, Dana Khosrowshahi, Uber’s new CEO following the departure of Travis Kalanick, criticized MIT by calling it the University of “Mathematically Incompetent Theories” while noting that various other studies have significantly different findings.
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
So who’s correct here? Let’s look at the data.
Driver Earnings Data
Various studies, reports, and surveys have found the following results:
- Rideshare guy 2018: $16.93
- Rideshare guy 2017: $15.68
- Stanford Pay Gap Study 2017: $21.07
- Princeton Labor Market Analysis 2015: $19.04
- MIT Study #1 2018: $3.37
- Revised MIT Study 2018: $8.55 – $10.00 (profit after expenses)
The differences in each one of these reports or studies can stem from a number of different factors including most notably when it was taken, who was in the sample, and survey method.
The clear outlier here is MIT’s initial study that revealed that drivers were making on average $3.37 after taxes and was publically scrutinized by Uber’s Chief Economist, Jonathan Hall in a medium post.
The issue that Hall pointed out in MIT’s study was an unclear question which he claimed caused a $6 difference in total profit per hour.
See a deeper explanation of the claimed question error below:
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 $1,420.63² 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.***
Stephen Zoepf, co-author of MIT’s study, recognized that the criticism from the rideshare industry was, in fact, valid and made changes to his methodology. In his second attempt at analyzing these figures, MIT found that median after expense profit rose to $8.55 an hour.
Here is my statement regarding the recent CEEPR working paper “The Economics of Ride Hailing.” pic.twitter.com/lHJkaB0frX
— Stephen Zoepf (@StephenZoepf) March 5, 2018
These figures are more in line with what previous studies have found such as those from the Rideshare Guy.
Given this data, we can see that earnings before expenses for rideshare drivers can range from around $15 per hour to $21.09 per hour according to these reports. This is an incredibly wide range, so what factors most commonly effect driver earnings?
Well, location is one of the largest factors in how much you make before and after expenses. A driver in New York has traditionally made as much as 2x more than what a driver in any other city has made. Hard city by city data has been difficult to obtain, however, we do have a 2015 survey from Sherpashare that found the following:
Aside from location, we can look to Stanford’s gender pay gap study to help explain why some drivers make more than others.
Driving experience means everything
In my opinion, the most important graph for every rideshare driver to understand comes from Stanford’s gender pay gap study. The graph plots total earnings against the number of trips a driver has given.
Stanford’s study attempted to find out if there was a gender pay gap in the rideshare industry, and if so why? Well, the report found that there was a 7% difference in pay between men and women, however, this wasn’t discriminatory in nature, it was based on experience and driving speed.
The study found that women are less likely to stick with Uber or Lyft for a long period of time. In fact, the 6-month attrition rate for women was 76.5% while the 6-month attrition for men was just 65.0%.
This means that women are less likely to obtain the amount of experience that a driver needs to be able to understand their city, find the best driving routes, times, and locations.
We can also see that in the Rideshare Guy’s 2018 survey which finds that experience is a heavy factor in driver earnings.
With a lack of experience comes significantly more downtime as a driver, which a study completed by NYU’s John Horton with help from Uber’s Jonathan Hall and Daniel Knoepfle, called “Labor Market Equilibration: Evidence from Uber” shows is extremely important.
Let me explain
Transportation companies have consistently and publicly reduced fares multiple times over the last few years. See a graphical representation of the fare reductions below.
However, despite these fare decreases the Rideshare Guy’s 2017 and 2018 surveys find that drivers are making slightly more. If we look at the two academic studies done by Stanford and Princeton, we again see that drivers are supposedly making more per hour despite fare decreases.
The study completed by NYU’s John Horton with help from Uber’s Jonathan Hall and Daniel Knoepfle, found that a change in the base fares had little to no effect on how much a driver gets paid.
This because of Supply and demand.
When fares decrease, drivers may be paid less, but there is also a flood of riders on the system which results in more available rides for drivers. If fares increase, drivers get paid more, but passengers are scared off and will find other ways to travel.
The bottom line is that when transportation companies decrease fares, driver earnings ARE NOT likely to change because drivers spend significantly less time idle than they otherwise would.
This shows that preventing idle time by understanding where you are driving will do more to increase your earnings per hour than almost anything else.
Stanford’s gender pay gap study takes this even further by noting that how fast drivers travel during trips can significantly effect earnings.
Men on average drove faster than women, which means they were able to drive more miles with passengers. This resulted in men having more trips per hour and making more per hour. This is likely again due to men on average having more experience behind the wheel.
What can drivers do to stay ahead?
Now that we know how much the average driver is making and why, we can look at how drivers can stay ahead of the curve.
1. Don’t sweat price hikes and increases
As we saw in a labor study report conducted in part by Uber’s own Chief Economist, rate hikes, and decreases do little to effect a drivers earnings. Uber and other ride-sharing services understand that they must rely heavily on incentive payment programs like “quests” to increase driver earnings.
2. Do take advantage of bonuses
Just as the rideshare companies understand that incentive programs are the biggest factor in increasing driver income, so should you. When you have a bonus or quest opportunity that does not interfere with you making your normal amount, take it.
3. Focus on open roads
It can be tempting to always drive in downtown areas, however, if traffic is bad that may not be the best option. If the amount of traffic is slowing you down and decreasing your trips per hour, you’re likely to find more success driving in another area even if that means driving Pool/Line or accepting shorter rides.
4. Track every last mile
What has often been missed in MIT’s study is their reporting that up to 74% of a drivers income can go untaxed.
From the study:
On a monthly basis, mean profit is $661/month (median $310). Drivers are eligible to use a Standard Mileage Deduction for tax purposes ($0.54/mile in 2016) which far exceeds median costs per mile of $0.30/mile. Because of this deduction, most ridehailing drivers are able to declare profits that are substantially lower. Mean drivers who use a Standard Mileage Deduction would declare taxable profit of $175 rather than the $661 earned. These numbers suggest that approximately 74% of driver profit is untaxed.
This goes to show the extreme importance of tracking every last mile. Not just what Uber or Lyft sends you, not what you estimate, but every last mile that you are driving for a transportation company.
5. Drive smarter faster
As we saw time and time again when reviewing these various reports, driving experience is paramount. It is very difficult to be a profitable driver if you don’t have a keen understanding of where to drive in your city and when to drive in your city. New drivers can use Gridwise to help them immediately understand their city while also taking cues from blogs like this one, Ridster and The Rideshare Guy, along with city-specific Facebook groups and forums like UberForum.
Now we’re curious, are you seeing earnings in line with these various reports? What do you think is the biggest factor in your earnings success? Let us know in the comments below!