Sign up FAST! Login

The economics of “everyone’s private driver” — Medium

Stashed in: Economics!, Airbnb, Uber, Medium, Freakonomics

To save this post, select a stash from drop-down menu or type in a new one:

But what of these claims by Uber drivers that they are making less than minimum wage? The way I see it, that can actually be seen as a point in Uber’s favor, rather than against them.

For instance, let’s take an uberX driver in NYC, who instead of driving 40 hours a week drives just 5 hours a week for Uber. Then the driver’s gross income would be 5/40 of $90,766, which is $11,346. Subtract $5,774 in depreciation, $744 for gas, $679 for maintenance, and $2,676 for insurance, and you end up with net income of just $1,473. Divide that by 260 hours per year, and you get a pathetic $5.67 per hour. Definitely less than minimum wage.

But here’s the thing: on top of your $5.67 per hour, you also get, essentially,a free car. So here’s another way of looking at it. Let’s say you’re a New Yorker who has just bought a new Camry, you’re looking for a way to help make ends meet, and you can find five hours a week to work as an uberX driver. In that case, your income from driving will be $11,346, while themarginal cost of doing so is basically just the cost of gas: $744. Looked at this way, your net income is $10,602 for 260 hours’ work: that’s $40.77 per hour. Not so shabby.

Companies like Uber and Airbnb turn goods into services: they take resources like cars and housing which are often idle, and monetize them. Most cars spend most of their time just parked, taking up space and performing no useful function. If we could all drive the same number of aggregate miles but with a substantial reduction in the number of cars on the road, that would benefit everybody. That’s the promise of Uber, and Lyft, and even of Zipcar: they’re freeing up space on the streets by making it less necessary for people to own their own rarely-driven vehicles. And at the same time, people who do own their own vehicles can turn them from liabilities into assets.

This sounds like spin: We justify paying people below minimum wage by claiming the cars they buy to do their jobs are part of their compensation.