MIT Professor Angrist Publishes Obviously Misleading Analysis of Uber Driver Economics….With Uber Chief Economist as Co-Author

It’s one thing for the captured technology press to engage in Uber boosterism and parrot misleading Uber corporate PR about the company’s and driver economics. It’s quite another for an MIT economics professor, Josh Angrist, to use his institutional affiliation to run Uber propaganda in the form of an obviously defective, apples and oranges analysis.

The VoxEU post, Uber versus taxi: A driver’s eye view, tellingly has Jonathan Hall, Uber’s Chief Economist and Director of Public Policy, as well as PhD candidate Sydnee Caldwell. We’ve reproduce the piece below in full so readers can verify our take.

The post presents itself as analyzing the economics of leasing a taxi versus driving for Lyft or Uber from the driver’s perspective. It reaches the seemingly not-as-Uber-positive conclusion thant you might anticipate, that full time taxi drivers do better. The paper contends that those who want to work part time do better with a ride-sharing. And the reason is lease arrangements are fixed cost, so you need to earn sufficient revenues to cover the lease charge and earn an adequate profit. That in turn sets up a general argument about the merits of the gig economy:

The contrast between Uber and taxi is a metaphor for all sorts of work and pay arrangements. Taxi-style fixed-lease contracts are common in many settings. For example, many hairdressers and beauticians rent chairs in a beauty shop by the day or week. On the other hand, many franchise owners pay fees proportional to sales to the owners of a product or brand.

This is rubbish.

First, as you’ll see below, the post abjectly misrepresents taxi leasing from a legal and economic perspective. The paper astonishingly mischaracterizes it repeatedly as medallion leasing, and explicitly promotes the Uber/libertarian line that medallion owners are engaging in rent extraction.

Taxi drivers who lease cabs are leasing not just the right to operate a licensed taxi (a “medallion”), they are ALSO leasing the car itself! The fleet operator is responsible for buying the vehicle, maintenance (like buying and rotating tires, the cost and downtime of oil changes), and having commercial insurance on the car. The article makes no attempt whatsoever to parse out the economics of the “medallion” versus that of providing and maintaining a capital asset for driver use.

In keeping with the misleading presentation of driver economics, the article omits the cost to Lyft and Uber drivers of providing and maintaining that capital asset themselves. As several readers who have driven for Uber have stressed in comments, Uber takes advantage of its drivers not understanding their own economics and not including the wear and tear on their vehicle in their costs.

An equally fundamental, related misrepresentation, is that (aside from “lease aversion”) that Uber and Lyft drivers are making rational decisions. If you don’t understand your costs, you can’t make good decisions. George Washington University scholars Katie Wells and Declan Cullen, along with professor Kafui Attoh of the City University of New York, performed one of the first large-scale studies of Uber drivers, based on surveys and 40 in-depth interviews. From an interview with Wells at CityLab:

We found that the cost of that flexibility is significant. Uber promises a lucrative job based on a flexible schedule, but drivers are basically responsible for all of the costs of running a car service. They have to pay for the car, insurance, cleaning, and whatever else comes up, while Uber retains control over the compensation….

It was shocking, but understandable, that drivers didn’t really understand how much they were earning. It’s a laborious process to figure what you need in terms of coverage, what you’re making, and, most importantly, your expenses. There were uncomfortable moments in our interviews when we asked drivers about their earnings. After we would go through a list of expenses, some drivers realized that they were making only a little more than minimum wage.

Wells stresses that most Uber drivers work part time because there aren’t enough windows in the day where they can earn enough to make it worth their while to work full time:

In addition, many of the drivers we interviewed conform to when Uber wants them to drive. Uber raises or lowers its pricing based on an algorithm that’s linked to supply and demand. So though Uber says you can drive whenever you want, drivers often only work from, say, 7 a.m. to 11 a.m. or from 3 p.m. to 8 p.m., because fares are too low at other times. Even then, drivers can have a hard time finding riders; those “dead miles” and “dead hours” cut into their earnings, and are hard to anticipate. Getting to decide one’s own schedule seems like a red herring because a driver ends up ceding control over the things that matter most.

It is also worth noting that the Angrist analysis is based on the Boston market, which has a particularly high level of licensed cabs per capita, nearly twice as high as New York City. That would seem to make it less attractive than other cities for leasing a cab.

On top of that, the Angrist piece makes other deceptive statements about Uber and Lyft:

Rideshare companies such as Uber and Lyft have changed the taxi market dramatically. For one thing, the rideshare revolution reveals the extent to which the medallion system has restricted supply – in the summer of 2016, Uber alone had almost 20,000 active Boston drivers. Rideshare has undoubtedly made urban transportation cheaper and more convenient for millions of riders (as suggested by analyses in Cohen et al. 2016, and Hall and Krueger 2017).

This bit of puffery makes it sound as if the increase in use is due to getting the evil taxi monopoly out of the way, as opposed to Uber and Lyft massively subsidizing rides. If you offer a product at well below cost, you can expect more people to use it. As Hubert Horan described in his Uber series, this situation isn’t sustainable. Uber will have to raise its prices to levels high than those charged by taxis if they are to become profitable and provide a return on capital. And what do you think will happen to ridership volumes then?

By Josh Angrist, Ford Professor of Economics and co-director of the School Effectiveness and Inequality Initiative, MIT, Sydnee Caldwell, PhD candidate, MIT Economics Department, and Jonathan Hall, Chief Economist and Director of Public Policy, Uber. Originally published at VoxEU

Ridesharing services like Uber and Lyft have disrupted taxi markets in many countries around the world. This column examines the differences between rideshare services and taxis from the driver’s point of view. It argues that the crucial difference comes down to the need to lease a medallion to drive a taxi versus the pro rata fee that rideshare services charge. Many high-volume drivers display ‘lease aversion’, opting for the pro rata rideshare service despite the lease model for taxis offering a better return.

In Boston and most other big US cities, taxi drivers must hold a medallion granting them the right to drive. Medallions are issued by city agencies like New York City’s Taxi and Limousine Commission. Medallions can be bought and sold, but because they are limited in number, they command a premium price. Boston’s Hackney Carriage Unit, for example, has issued only 1,825 medallions, a number that has been fixed since 1990, when it was increased from the original total of 1525 set in 1930. You need a medallion to drive a cab in Boston; even suburban medallion holders return empty from trips to Boston’s Logan airport (which is inside Boston city limits).

Not unusually for the US cab industry, some Boston drivers own a medallion, but most lease from someone else. Medallion owners may be investors, fleet owners, or former drivers who no longer wish to drive. In Boston in 2013, only 453 medallions were associated with owner-operated cabs. In Boston and elsewhere, most big city drivers lease by the shift (typically 12 hours) or weekly. After paying the up-front lease cost, drivers keep all trip receipts and tips collected while driving. As you might expect for an asset that until recently traded for around $700,000, leasing is expensive – before ride-share companies entered the market, Boston taxi drivers paid approximately $700 for a weekly lease. Even so, on the margin, a Boston cabbie drives for himself.

Rideshare companies such as Uber and Lyft have changed the taxi market dramatically. For one thing, the rideshare revolution reveals the extent to which the medallion system has restricted supply – in the summer of 2016, Uber alone had almost 20,000 active Boston drivers. Rideshare has undoubtedly made urban transportation cheaper and more convenient for millions of riders (as suggested by analyses in Cohen et al. 2016, and Hall and Krueger 2017). Should the drivers who provide urban transportation be happy too?

It’s All About That Lease

Rideshare entry increases the number of drivers competing to take you to the airport or elsewhere, so cab driver income may have fallen as a result of increased supply of ground transportation. This depends in part on whether drivers or medallion owners get the rents from limited medallion supply. In any case, however, rideshare has something to offer drivers as well as riders. In a recent paper, we argue that the most important economic difference between Uber and taxis from a driver’s point of view is the need for medallion leasing or lack thereof (Angrist et al. 2017). The work done when driving for Uber or Lyft is similar to the work done when driving a taxi (driving people around town), and in both scenarios drivers choose their hours freely. But rideshare drivers needn’t pay up front for the right to drive. Rather, they pay a proportion of their trip receipts to Uber or Lyft, a tax on their earnings that Uber refers to as the ‘fee’.

Drivers who drive only a few hours should find leasing unattractive, but high-hours drivers earn more by paying a fixed lease rather than proportional fees. We use this insight to compare the economic benefits and costs of rideshare work and traditional taxi driving. Specifically, we ask how much Uber drivers must be compensated for the loss of rideshare work opportunities if the goal is to leave them as well off as they were when they were driving for Uber. Our comparison uses the economic concept of compensating variation or CV. CV is the cash payment that makes an Uber driver whole in a world where Uber disappears. For some high-hours drivers, compensation is negative – taxi is better than Uber. But most Uber drivers drive part time, and will therefore be worse off under compensation schemes that require a sizable lease. These drivers require considerable compensation to make-up for the loss of rideshare earnings opportunities.

The contrast between Uber and taxi is a metaphor for all sorts of work and pay arrangements. Taxi-style fixed-lease contracts are common in many settings. For example, many hairdressers and beauticians rent chairs in a beauty shop by the day or week. On the other hand, many franchise owners pay fees proportional to sales to the owners of a product or brand. In some occupations, workers may negotiate a combination of proportional fee and fixed-lease-type arrangements in return for the right to pursue the earnings opportunities in their field. Our Uber-versus-taxi analysis provides an economic framework that can be used to evaluate and compare these sorts of arrangements.

Contractual Matters

Two parameters govern the rideshare–taxi face-off. The first is the driver labour supply elasticity. This elasticity tells us how much more drivers work in response to higher pay. Drivers who are unit elastic, for example, drive 10% more in response to 10% higher wages. Labour supply elasticities are relevant to the rideshare-taxi comparison because (other things equal) a taxi driver’s hourly wage is increased by not having to pay the rideshare fee. If the fee is 25%, for example, as it is for most Boston Uber drivers, fee removal raises wages by one-third, since drivers now keep a dollar of every fare dollar earned instead of 75 cents. Drivers who are highly responsive to pay benefit from this higher wage by driving more.

The second parameter governing CV is something we call lease aversion. This captures the extent to which drivers are averse to the gamble implicit in the decision to buy a lease. Our analysis shows that many drivers who would likely benefit from leasing nevertheless fail to buy one. We describe these drivers’ behaviour by scaling nominal lease rates up to a number that explains our data. A driver who has a coefficient of lease aversion equal to 1.5, for example, responds to a lease offer of $100 as if it costs $150.

Labour economists have long debated the labour supply elasticity of cab drivers. Some have even said this key economic parameter is negative. For example, behavioural economists like Camerer et al. (1997; see also Thaler 2015) have argued that cab drivers actually drive less when their pay is high. This is said to result from ‘target earning,’ a pattern in which drivers are seen as setting a daily income target and then quitting when they reach it. Labour economists like Farber (2005) are sceptical of such claims because this behaviour is irrational and immiserating. Target earners end up much poorer than drivers who rationally exploit the low-hanging fruit of temporarily high fares on a rainy day or in response to busy events that boost demand for transportation.

We estimated the rideshare labour supply elasticity by randomly assigning reductions in the Uber fee to a large sample of Boston Uber drivers (this experiment was pitched to drivers as an Uber promotion called the Earnings Accelerator).  Fee reductions amount to an increase in pay.  At the same time, we gauged the importance of lease aversion by offering randomly chosen drivers a virtual medallion – in return for paying an up-front payment of, say, $100, treated drivers avoid the Uber fee for a week. The elasticity and lease aversion estimates generated by our experimental treatments are then used to compute the CV required to convince Boston Uber drivers to lease a medallion and drive a taxi. Drivers who opted in to the Earnings Accelerator mostly did well as a result, saving an average of 126 dollars in fees after subtracting their lease costs.

Driven Drivers Prefer Taxi

Our experiment reveals that drivers respond sharply to changes in their hourly earnings. A 10% increase in hourly earnings causes drivers to drive about 12% more (Boston Uber drivers are more than unit elastic). As can be seen in Figure 1, average driver behaviour in the week before our randomised fare increase (fee reduction) and the week after the increase was unchanged. This suggests the driver response to higher pay is consistent with the intertemporal substitution hypothesis, which says that workers faced with a temporary wage increase should work more when pay is high, leaving their labour supply in other periods unchanged. Figure 2 shows that the entire distribution of hours driven shifts up when fares increase; we find no evidence of behaviour suggestive of target earning.

Figure 1 Participation effects on labour supply: Opt-in week

 

Note: This figure reports treatment effects on hours, earnings, and an indicator of any Uber activity for drivers who opted in to the Earnings Accelerator. Reported are estimates for drivers who accepted the opportunity to drive fee-free. Effects are computed by instrumenting experimental participation with experimental offers as described in the text.

Figure 2 Distribution treatment effects: Opt-in week (fee-free driving)

 

 

Note: This figure reports estimated CDFs of potential hours driven in treated and non-treated states for drivers who participated in the Earnings Accelerator. Shown are estimates for drivers who accepted the opportunity to drive fee-free during the opt-in week. CDFs are estimated by instrumenting participation with experimental offers as described in the text, using a grid of 200 points. CDFS are smoothed using a five-point moving average.

The strong labour supply response to higher fares favours taxi. Drivers who are inclined to take advantage of higher fares benefit from the higher wages earned without the Uber fee.

Lease Aversion

Offers of a taxi-style compensation contract reveal the extent of lease aversion. Drivers who drive a lot should prefer taxi because increased earnings from fee reduction more than cover the cost of our (inexpensive) virtual taxi medallions. Our taxi experiment reveals, however, that many high-hours drivers who would have benefitted from a contract that collects a fixed amount in place of the Uber fee failed to take advantage of this. Driver decisions as to whether to buy virtual medallion leases seem to be explained by a constant multiple of 1.5 – opt-in decisions are those we’d expect when drivers behave as though the offered lease is 50% more expensive than it actually is.

We interpret lease aversion as an expression of something behavioural economists call loss aversion. Gamblers are loss averse when their decisions to place bets are coloured by a tendency to suffer losses more heavily than they enjoy gains. Drivers offered a taxi contract must gamble that fare opportunities will be sufficiently strong to put them ahead of the default scenario in which they pay the proportional Uber fee. A world in which the pain of losing $100 exceeds the utility of $100 gained explains our data well. Perhaps surprisingly, simple risk aversion does not do the trick. Economists have repeatedly found that people are not nearly risk averse enough for risk aversion alone to explain the sort of behaviour we observe (primarily because the amounts involved are too small).

Compensating Taxi

Our experimental results suggest that Uber drivers must be paid an average of $437 to move to a $400/week leasing scheme with a 25% higher wage. This is average CV for Uber drivers who now pay a 25% fee and are offered a $400/week lease (historical lease rates are higher, but rideshare is pushing these down). Without this additional compensation, only 2% of drivers would prefer fee-free leasing. The CV amount of $437 is a measure of the average financial gain realised by Uber drivers from the opportunity to drive lease-free. Simply put, most Uber drivers benefit from the opportunity to provide rideshare services in an amount that far exceeds their take-home pay. Our CV calculation implicitly maintains the level of ground transportation services provided; riders are just as well off either way.

Broader Implications

The rise of the gig economy has given workers the opportunity to work under a variety of hours and compensation arrangements. Our analysis suggests most Uber drivers benefit from not having to pay up front for the right to drive. But we are not the first to discover this – the New York City Taxi and Limousine commission is all over it, having recently piloted an alternative proportion-to-fares leasing in place of the traditional fixed-fee arrangement.

See original post for references

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34 comments

  1. MK

    In Buffalo last weekend for a family event. Tried Uber and Lyft around 7 pm Saturday from our hotel in Cheektowaga to get to Town of Tonawanda. Not one single car available on either service. Call to taxi dispatch, taxi at our hotel in less than 10 minutes.

    Uber and Lyft absolutely failed in that scenario and left a poor impression for what would have been our first rideshare trip.

  2. Watt4Bob

    I drove a taxi for many years, and I now work in IT for a group of auto dealers.

    Last week, one of the general sales managers at work explained to me that people are ‘selling‘ cars to us in order to get out from under the expense of payments. Many of these people are ‘up-side-down’ in their loans, meaning they owe more than the car is worth. These folks are having to pay us to take the car off their hands, for example one customer paid us $8,000 to ‘buy‘ his car.

    Now understand that this is only part of the potential cost of attempting to make part of a living by driving for Uber or Lyft.

    You’ve wasted a year, making much less money than promised, you put 40K miles on your car instead of the average 20K, and you end up with a car that isn’t worth nearly what you owe on it.

    So now you’ve wised up to the fact that this is not a real ‘opportunity’, you’ve damaged your financial situation and you’re worse off than you were before.

    That nice car that was going to help you make a living is now a weight holding you down, it’s hard for you to even look at it, and you can’t afford to pay someone to ‘buy’ it from you.

    Uber and Lyft are fraudulent schemes based on selling false hope to desperate drivers on one hand, while promising investors the ‘opportunity’ of getting in on the ground-floor of a new, and ‘disruptive technology’, sure to become a profitable monopoly, and so make a fortune when it they take it public.

    It’s not a good job, it’s not a good investment, it’s not a ‘new and disruptive technology‘, it’s a scam, and anyone trying to sell any portion of it is a fraud.

    1. Wukchumni

      I’ve only taken Uber a few times, and when a Cuban-American fellow in Miami picked us up in his $40k new SUV and told us how Uber was going to be his way out of the rat race, I thought along the same lines as you, this is never going to work.

    2. Martin Finnucane

      It’s not a good job, it’s not a good investment, it’s not a ‘new and disruptive technology‘, it’s a scam, and anyone trying to sell any portion of it is a fraud.

      I think it’s worse than a scam. It’s a scam on the drivers and users, but I suspect that the investors know just what is up: destroy the taxi market, supplant it with Uber/Lyft, and enjoy your monopoly rents forever. Libertarianism indeed! That’s the ground floor they’re getting in on: entrepreneurial feudalism.

      Also, maybe that the way investment tends to work.

      1. Watt4Bob

        It’s a scam on the drivers and users, but I suspect that the investors know just what is up: destroy the taxi market, supplant it with Uber/Lyft, and enjoy your monopoly rents forever.

        Anybody who has been following this discussion here at NC knows that is the play, as it has been sold to investors, however, there is very little evidence that it will work to investors benefit outside of a profitable IPO.

        IMHO, that IPO has always been the end game.

        As has been pointed out previously, it will be very hard, maybe impossible to drive enough of the taxi industry out of business to create that monopoly, and thus make the IPO look enticing.

        My bet would be that Uber and Lyft miss that mark by a wide margin, and go down in history as a foolish misadventure on the part of investors.

        As the number of disappointed investors, and ex-drivers mounts up, it will be harder and harder to recruit new ‘sub-contractors’ and I wouldn’t rule out a class-action suit by drivers, investors, or both.

        1. Anon

          As the number of disappointed investors, and ex-drivers mounts up, it will be harder and harder to recruit new ‘sub-contractors’ and I wouldn’t rule out a class-action suit by drivers, investors, or both.

          Probably not from the drivers — Uber drivers for the last several years (~2013 or so, I think?) have been subject to an arbitration clause with a class action waiver. There is an opt-out provision (most likely in place only to support the ridiculous argument that the class action waiver doesn’t violate Section 7 of the NLRA because of the right, under Section 7, to refrain from participating in concerted activity) but no doubt the vast majority of drivers have not opted out and are probably unaware of it. The numerous class actions against Uber have either involved drivers who stopped working for Uber prior to their implementation of arbitration or have tried to attack the enforceability of the arbitration clause. Unfortunately, those arguments haven’t been, and the pending ones are unlikely to be, very successful. The argument involving Section 7 of the NLRA is currently pending before SCOTUS, but based on oral arguments, this looks likely to result in another 5-4 partisan split in favor of employers.

          1. Watt4Bob

            The argument involving Section 7 of the NLRA is currently pending before SCOTUS, but based on oral arguments, this looks likely to result in another 5-4 partisan split in favor of employers.

            Ah, yes, which brings up another matter;

            Q. When is an employer not an employer…

            A. …any time it matters to the ’employed’.

            1. Anon

              Most of the litigation regarding Uber drivers is predicated on proving an employment relationship, contrary to Uber’s assertion that the drivers are independent contractors. You are correct that asserting any rights under the NLRA will require proving a common-law employment relationship, which is unfortunately a more restrictive standard than the FLSA’s broad “suffer or permit to work” standard (and used by many state laws). This is actually being investigated by the NLRB, who has consolidated numerous charges filed by Uber drivers into a single investigation in the San Francisco region. Unsurprisingly, Uber’s response has been to hire Littler and Gibson Dunn to stonewall the investigation by playing games like ignoring NLRB administrative subpoenas, requiring the NLRB to petition a district court for an order enforcing the subpoenas. The order the NLRB sought was eventually granted by the court, but this game managed to delay the proceedings for several months. And with the NLRB now under complete Republican control, both on the GC and Board side, it’s hard to have hopes for a positive outcome for the drivers.

    3. Knifecatcher

      And there are even worse possible scenarios than making less money than expected. A friend of mine used a small inheritance ($5k or so) as a down payment to buy a new-ish car, with the idea of driving for Lyft. The hope was that he would at least make enough money to pay the note on his off-hours and have a more modern / reliable / fuel efficient car to get to his other 2-3 jobs. My friend is very much part of the precariat, so this felt like a win from his perspective.

      This went on for a couple of months or so and things went more or less according to his meager expectations, so he was happy. Until he got rear ended in his nice new car. The car was totaled, the guy who hit him uninsured. His cut rate insurance company paid off the car at 2k or so less than he owed on it. Of course he had no gap coverage to cover that, and his down payment is long gone. I let him borrow an old pickup until he was able to get the insurance sorted out and arrange another beater so he didn’t lose his other job(s).

      Damn the “sharing economy” to hell.

      1. Louis Fyne

        Absolutely this!

        In addition to the obvious costs (fuel) and abstract costs (depreciation), drivers have a non-zero chance of death, injury, or plain old fender benders. And I’d bet most drivers don’t take that into account.

        Zero workers comp, zero disability, and Uber’s collision insurance has a high deductible that guarantees risk is shifted onto its drivers, but for the long-tail crashes.

        Not to mention drivers have only a vague idea what demand is like at any given time, while Uber HQ has 100% perfect information on the level of demand and its algos can make a reasonable guess as to the near-term expected demand.

  3. Norbert Haering

    The biased Research that you take apart here, is part of a wider and worrying phenomenon. Uber Money is dominating economic Research on ride-hauling platforms. Uber is contracting with many top-economists with their close links to prestigous publication channels. Even reputable journals publish the resulting PR as if it was science. Critical Researchers have no chance to compete, because they will not get the exclusive Uber-data, which Uber-loving researchers like Angrist and Levitt can work with.
    There is an article in German Business newspaper “Handelsblatt” on this, http://www.handelsblatt.com/my/unternehmen/handel-konsumgueter/von-uber-finanzierte-studien-public-relations-oder-wissenschaft/20364132.html?ticket=ST-1630133-4TdJOLrZkvGWS3rsDDPg-ap
    which is translated and slightly extended here:
    http://norberthaering.de/en/home/32-english/news/920-uber-research

  4. Thuto

    The embedded assumption for this analysis is that the average uber driver owns their car outright (i.e. no vehicle finance/ lease repayments) and is available to work during peak demand hours. This idealised “be your own boss, set your own hours and make lots of money” myth has been shown up to be marketing fluff to attract gullible drivers who aren’t savvy enough to see through the obfuscated numbers uber presents at its driver recruitment seminars. I’d wager that depreciation and dead miles, because they bite ever so silently by piling on hour by hour, mile by mile without seemingly affecting earnings dropping down into drivers “bottom lines”, aren’t ever mentioned at such seminars. IOW, drivers naively believe that their net earnings are 75%, when they’re anything but.

    In my neck of the woods the situation is even more dire because uber has partnered with South African banks and car dealerships to offer leases to unsuspecting drivers seduced by the marketing cool aid and exaggerated earnings potential, with lease terms transferring the bulk (read all) of the transaction risk to the driver. This has the effect of immediately exploding the “work part time/set your own hours” myth because said drivers are now tethered to uber (and have their free time rapaciously confiscated) in order to make their monthly repayments to the banks. With obligations to the banks on a monthly basis top of mind, asset down time becomes the bane of most of these drivers tenures with uber, with dead mile upon dead mile driven in the hope of positioning oneself close enough to areas of peak demand (leading to oversupply in such areas), artificially boosting supply for uber while wearing out both asset and driver.

    These drivers are overworked, underpaid, deceived, exploited employees of uber all but in name, the independent contractor nonsense is bulls***. Tell me how this is a win for the driver??…

    1. Yves Smith Post author

      The assumption goes further than that. If you are depreciating an asset (wearing out your car), that’s a cost. Replacing tires more often, paying for a commercial car rider (which Uber riders are supposed to do but Uber does not enforce) are all costs that need to be included even if the driver owns his car outright.

      1. Thuto

        I totally agree, and I should have made it explicitly clear that even if you own your car outright the economics are junk owing to “hidden costs”. I was addressing specifically the tacit assumption this analysis hinges on to arrive at its conclusion that uber should be a no brainer in the decision calculus of a driver looking to drive part time. That depreciation and upwardly trending running costs are ommited in the analysis seems to me to be gross incompetence or willful deception by the authors.

  5. lyman alpha blob

    So though Uber says you can drive whenever you want, drivers often only work from, say, 7 a.m. to 11 a.m. or from 3 p.m. to 8 p.m., because fares are too low at other times.

    That is my buddy in Seattle’s experience with Lyft. He got laid off from his tech job and started driving after a lengthy unsuccessful job search but has no illusions about the “gig economy”, doing it mostly just to get out of the house. The other day he told be he’d driven over 4 hours for slightly over $50. That’s below the Seattle minimum wage and that’s before accounting for his expenses. He rarely even tries to drive during non-peak hours as there’s no money in it. Some fares earn him around $3 which is less than what it takes to ride the damn bus. I would never have dreamed of getting in a cab in Seattle and paying less than $5 to get anywhere in Seattle, and that was 25 years ago.

    People may like the cheap fares, but that’s only because they are heavily subsidized by flushing VC down the toilet and drivers working basically at a loss once expenses are considered.

  6. gk

    I’m not a frequent Uber user, but when I do I ask the driver what it’s like. All say that it’s much harder to make money now than it used to be. One driver actually attributed that to the ouster of Kalanick, on the belief that Kalanick had been ousted because he was pro-driver. (I didn’t argue). That same driver told me he was getting $8 of my $22 Friday night fare.

    I agree with the takedown of this piece, and the points previously made here about the economics of ride-sharing and the implausibility of Uber ever deriving Amazon-like network effects. I do think their app was a huge improvement over pre-Uber taxi dispatching (here in DC, call a phone number, hope someone answers, then hope a taxi shows up). Also, I think that it’s at least possible that a demand-based per-ride fare structure would (assuming good faith) better match supply and demand than traditional taxi time and distance-based fares. Operating the system that enables the demand-based fares wouldn’t be a ticket to world domination, but it might improve utility for drivers and riders.

    1. fajensen

      I do think their app was a huge improvement over pre-Uber taxi dispatching …

      The bar for “tech-disruption” is set pretty low with Uber. The local taxi companies (Taxi Skåne) all have one, even in backwards Germany, where they might not take any card payments but there is an app for getting a taxi wherever you are.

      *Anyone*, literally, doing steady business can afford to have a decent “Rendevous-app” made. Give a bunch of Norwegian teenagers … err App Development Company … three, six months and about 15-50 kEUR and it is Done.

      I can probably even get one to track my retriever on the app-store – but I don’t need it since she is a proper retriever, she finds stuff and comes back with it.

      So, I think The Point with Uber it that it is mostly a political research project. What those VC investors actually pay for is to test to what extent they can get away with undercutting wages, how agressive and blatant one can cut corners on legal compliance, what the consequences for doing this are in different regions. What are the stakeholders? How should these be managed/manipulated?

      The information gathered until Uber craters will be used to better tailor more serious parasitic business ventures. It is an investment in the Next-Thing.

      1. UserFriendly

        Just because they could develop an app doesn’t mean they would. Next to none of them did till Uber became a threat. Not that I’m a fan of Uber.

  7. Louis Fyne

    People complain about bitcoin energy use? Let’s talk about uber deadhead miles/idling. If you’re in a city where uber cars must wear trade dress Just stand at a downtown corner and watch all the empty cars drive by.

    Certainly not convinced ridehail is a net plus. Uber HQ would have that data…and if it is not a talking point, the data must not be good

  8. fajensen

    What a shame Uber is not a listed company. That is a short-indicator if there ever was one. At least Iceland could afford a real Harward Professor write a paper declaring the robust health of their economy right before it tanked.

  9. Jim H.

    The money mustache guy in Longmont, CO recently posted his experience as an “underground” uber guy. Seems to confirm what I’ve heard around here (Berkeley/SF) about it not being the pot of gold at the end of the rainbow. Certainly has added to the snarled traffic as people use them to avoid walking short distances and as drivers carry on like amateurs. They drive like part timers and stop in the middle of streets, rather than pulling to the side of streets.
    http://www.mrmoneymustache.com/2017/11/22/mr-money-mustache-uber-driver/

  10. Basil Pesto

    Recently in Australia I’ve noticed when my friends have been catching Ubers that they have been subject to surge pricing for little-to-no reason. I couldn’t help but wonder if this is a concerted effort by Uber to get their customers more accustomed to paying surge rates, for when Uber can no longer afford to subsidise the rides.

  11. Noni Mausa

    It has always seemed to me that the Uber business model could only exist in a transient economic situation — that is, a time where the economy had done poorly enough to leave many people unemployed, but before then had done well enough that many of those hard up people owned a private car. A business model that depends on transient conditions will yield, of course, transient business.

  12. Joel

    A small correction:

    the Boston market, which has a particularly high level of licensed cabs per capita, nearly twice as high as New York City.

    They’re talking about the City of Boston, which is only a tiny % of the Combined Statistical Area and has far more people than population during the workday. A better comparison than City of Boston-NYC would be City of Boston-Manhattan. I’m surprised that the City of Boston doesn’t have a much higher number of taxis per resident.

    Comparing different municipalities in the US rarely makes sense since the size of a municipality is so arbitrary. Combined Statistical Areas is a better focus since they’re standardized by social scientists working for the government.

  13. Mista T

    Knowledge is power, and drivers are given NONE.

    When a ride is requested the customer knows where they are going and about how much it will cost. Uber and Lyft have the same information. But the driver only gets a customer rating and an estimated time to pick up, and 10-15 seconds to decide if they will accept the ride. They are not allowed to call the customer and ask for the destination. If they cancel the ride, they are punished. When the driver shows up, the customer has up to five minutes to get in the vehicle before the driver can cancel on that person, and five minutes is a horrible waste of time to someone who is compensated pennies per minute for waiting. The driver has no idea how much the customer is actually paying (which is often a violation of state laws requiring full disclosure of fares). Drivers have no information, a very unfair economic reality.

    The service is a terrific idea, but the economics of it are not realistic. Currently the discounts are all being subsidized by a combination of VC money and drivers’ lack of knowledge.

    The companies are praying that elimination of drivers via automated vehicles will solve their financial problems, however I suspect that these companies are going to learn a hard lesson about the true cost of maintaining a fleet of hi tech vehicles.

  14. Joel

    The question that has always confused me: since Uber offers a nicer “experience” than taxis, why didn’t they charge a premium for that from the beginning? Why dedicate yourself to such an extreme burn rate?

  15. Race2Bottom Isreal

    Out in San Francisco proper the number of ridehailing vehicles with expired registrations has increased dramatically. Savvy taxi drivers and ridehailing drivers are earning less across the board. Drivers are coming from San Diego to drive in the SF Bay Area. Plateless toll evasion on the toll bridges has skyrocketed since ridehailing came on the scene.

    The situation is not sustainable. There are way too many vehicles out there. Generally there are less rides too now. Services like Chariot or Ford Bike share have reduced ridership for taxi/ridehailing. Apps like Tinder/Grinder reduce the need for barhopping. Services like Munchery or Uber Eats eliminate a round trip for going out to eat.

    Oddly enough Uber Eats competes against itself, UberX, as every delivery takes away two rides from the livery side of the equation. People that get a ride out to eat need a ride home.

  16. Bobby Gladd

    I love this blog. I cite and link it routinely. Glad the “commentariat” is back. The latest announced Uber goal of a 2019 IPO is just an effort to “Exit” the scam and foist the inevitable losses off onto the public via Wall Street. Lots of nice transaction fees to be had during the transition.

    Can’t wait to hear more Horan on this topic.

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