The City of Seattle has been working to create an equitable working environment for rideshare and delivery drivers in the Seattle area, so city officials sought to set a minimum wage for those who work as drivers in the gig economy.
Two studies came out of this endeavor: one sponsored by the City of Seattle, and the other sponsored by Uber and Lyft—and the findings were vastly different.
The study sponsored by Uber and Lyft found that drivers earned $23.25 per hour, while the study sponsored by the city of Seattle found the drivers made just $9.63 per hour.
In this post, we’ll discuss why these studies came to completely different results, explore the question of how much do drivers make, and ensure you know how you can make sure you know how much you’re making.
Our discussion will include
- What the report sponsored by the City of Seattle found
- What the report sponsored by Uber and Lyft found
- Why the two reports differ so significantly
- How much do drivers make, and how should that number be calculated?
What the report sponsored by the City of Seattle found
In order to arrive at fair compensation for drivers, city officials commissioned a study by economists James A. Parrott, from the Center for New York City Affairs at the New School; and Michael Reich, of the University of California, Berkeley.
Known as the Parrott-Reich study, it took into account driver earnings over the entire month of October 2019, and involved a survey of 7,400 drivers. In addition to considering driver earnings, Parrott and Reich, and reviewed driver expenses including fuel, maintenance, insurance, depreciation, cell phone, vehicle cleaning, licensing fees, health insurance, and taxes.
The Parrott-Reich study showed that drivers were making much less than the minimum hourly wage for workers in Seattle, which is $16.39 per hour.
Based on the economists’ data, they calculated that, after subtracting expenses, drivers earned approximately $9.73 per hour.
We’re stating the obvious, here… but that’s a huge gap.
What The Uber/Lyft study found
Somehow, Uber and Lyft learned about the City of Seattle’s intent to establish a fair minimum wage for drivers, and that Parrott and Reich would be conducting a study. So, while that research was underway, the companies commissioned their own study.
They turned to Louis Hyman, an economic historian with Cornell University.
Hyman, along with a team of Cornell researchers, conducted a study for one week in October 2019. The team was able to use data that had been directly harvested by Uber and Lyft, so they had a sample of 14,000 drivers.
Using that data, which was taken directly from drivers’ accounts, Hyman and his team concluded that drivers in the Seattle market were already netting $23.25 per hour. The study was delivered, unsolicited, to the City of Seattle, about a week before the Parrott-Reich study was published.
An interesting side note: The Parrott-Reich team wanted to have direct information from the rideshare companies’ records, but Uber and Lyft said they didn’t feel comfortable giving it to them for data confidentiality reasons.
Why the two reports differ so much
When the Cornell study was publicized and experts reviewed it, some questions arose about the researchers’ methodology; specifically, their omission of many expenses that are legitimate and necessary for rideshare drivers.
While in some cases the two studies were in agreement about driver expenses, on the whole, they also varied greatly in others. The Cornell study didn’t include many items that as drivers, we know we have to deal with, no matter how many hours we work.
Here’s a list of what the Cornell researchers omitted in their assessment of driver expenses:
- state of the art smartphone
- vehicle registration & fees
- vehicle cleaning
- health insurance
- self-employment and other taxes on income
As a result of omitting these expenses, the Cornell study claimed drivers had just $0.19 per mile in expenses while the Parrot-Reich study said drivers had $0.725 per mile in expenses.
Their reasoning was, according to Louis Hyman, who headed the Cornell study sponsored by Uber and Lyft, that 96% of drivers worked less than 40 hours per week, and would have had to pay for these costs whether they drove for Uber or Lyft or not.
By using driver data, directly obtained from the apps, combined with the omission of so many driver expenses, the Cornell team’s finding was that Seattle drivers made $23.25 per hour—much higher than the basic minimum wage Seattle set for workers, and exorbitantly higher than the $9.73 per hour that was calculated by Parrott and Reich.
Harvard labor economist Lawrence Katz is one expert who expressed concern about the expenses that were not taken into consideration by the Cornell researchers. During a July 2020 interview with the New York Times, Katz said:
“I think the expense number is just way too low.” He also raised the concern that the Cornell study only focused on a single week in October 2019, which he says “might have created an unrepresentative portrait of earnings.”
Meanwhile, Uber and Lyft offered a critique that insinuated the Parrot-Reich study’s data was not as “fact-based” as theirs was, because it was not collected directly from the drivers’ activity on the apps. Uber’s spokesperson said:
“(The Cornell study is) “an independent, data-driven picture of the full earnings experience of ride-share drivers,” and said, “We hope policymakers will take a fact-based approach as they consider new policy proposals by using the insights” from the work. Uber said the Parrott-Reich study “is based on incomplete data and flawed assumptions about drivers’ experiences that are unsupported by facts, evidence or reality.”
As you can see, there’s quite a gap between the numbers, $23.25 per hour according to the Cornell study and $9.73 per hour for Parrot-Reich’s study for the City of Seattle. How do we know which one is closer to reality?
How much do drivers make, and how should that number be calculated?
We’ve learned a lot from the Seattle situation. No one knows for sure what the final decision will be about drivers’ minimum wages there, but we do know that driver earnings will be key to the decision.
So, how do we know how much Seattle drivers make, after expenses? Well, this is different for every rideshare driver, so is difficult to calculate. However, we do know how much drivers in Seattle and across the nation earn per hour. This table shows median hourly earnings for Seattle drivers from October 2019-July 2020:
While it’s true, as the Cornell study assumed, that some of the costs associated with owning a car would be incurred by part-time drivers even if they didn’t use their vehicles for rideshare, any driver will tell you costs such as a first-rate cell phone, health insurance, extra fuel, cleaning, and maintenance are all part of doing business.
So, what about you? What do you actually earn?
Let Gridwise do the calculations
When you download the Gridwise app, it’s easy to track your wages, no matter how many platforms you include in your driving gig. Enter earnings for Uber, Lyft, Instacart, Postmates, Uber Eats, Doordash, Grubhub and more…and then you can figure out which app is making the most money for you. Then, you can determine where it’s wisest for you to spend your time.
On the Perks tab, check out more articles from the blog and get easy access to the dynamic and information-packed Gridwise YouTube channel. As always, Gridwise is here for you, letting you be more informed, and making your driving and delivery gig as profitable as possible.