Now that Uber (UBER) is a public company, its drivers’ grievances have come under heavy focus.
The ride-hailing company priced its IPO at $45 a share on Thursday, raising $8.1 billion and giving it a valuation of over $82 billion.
There are various estimates of how much money Uber drivers make per hour, ranging from over $21 an hour to just $9.21 — less than minimum wage in some states.
A report last year from the Economic Policy Institute (EPI) found Uber driver pay averages only $9.21 an hour after deductions for Uber fees, vehicle expenses, payroll taxes, and the cost of a “modest benefits package.” Although the report was published in 2018, the information is “relatively the same,” Lawrence Mishel, the author of the report and a distinguished fellow at EPI, told Yahoo Finance.
“Wages for most workers have actually risen relative to inflation over the last several years,” Mishel said. “I’m not sure that Uber driver wages have grown along with it, so I think Uber drivers are probably falling further behind.”
His report indicates that nearly one-third of fares goes to Uber, rather than the driver.
The $9.21 hourly wage is less than the $13.51 average hourly pay that service workers receive, according to the report. It’s also far less than the average hourly pay for private-sector workers, which was $27.77 in April 2019.
Higher estimates for driver pay
To be sure, there are higher estimates out there of how much Uber drivers earn. A May 2019 study from Stanford University indicated that the gross hourly earnings for U.S. drivers between January 2015 and May 2017 was $21.07. However, Mishel pointed out that these findings didn’t subtract costs like gas, car depreciation, and Uber’s service fee.
“This is far from a measure of wages we can compare to BLS data for other workers,” he said. “It actually is quite exaggerated and misleading.”
His study starts with data from the Stanford report, but then deducts the added-on costs, including extra payroll taxes and benefits packages.
Annette Ribero, left, of San Jose, and Jeff Terry, of Sacramento, hold signs during a demonstration outside of Uber headquarters Wednesday, May 8, 2019, in San Francisco. (AP Photo/Eric Risberg)
“The reality in this country is that there’s a lot of people working for very low wages, and that’s because there’s not many choices,” Mishel said. “The number of good jobs available to people — it’s not an overwhelming amount. So, yeah, it’s been harder. As the recovery has gone on, the growth of self-employment has been slowed down remarkably because a lot of people aren’t doing it, and are just sticking to their W-2 jobs.”
Nearly 833,000 people drive for Uber each year, which accounts for 0.56% of all employment, according the report. Turnover for Uber drivers is high, Mishel says. “One of the important points is that the average Uber driver lasts on the job for about three months,” Mishel said. “And, the vast majority work very part-time, less than 10 hours a week. A minority of other drivers work full-time and actually contribute roughly half the rides, even though they represent about one-third of the workforce.”
‘Uber faces the following conundrum’
After Lyft’s (LYFT) disappointing IPO, all eyes will be on the original ride-hailing giant that is Uber. On Thursday, Uber priced its initial public offering (IPO) at $45 per share. At that price, the company raised $8.1 billion at a valuation of $82.4 billion.
“Right now, I think Uber faces the following conundrum,” Mishel said. “It’s locked into a price competition with Lyft and other potential companies. It’s only the size that it is because venture capitalists happened, subsidizing passenger fares quite substantially.”
Last year, The New York Times reported that Uber would entice drivers by promising they would make $5,000 during their first month — that is, until, they reduced rates.
“They dropped the price so much,” Pedro Acosta told the Times. “We have to work so many hours.”
“To have these low fares, even though subsidized, means that driver pay is very low, which means that it’s very hard for Uber to recruit new drivers, and especially [hard] for them to get bigger, because Uber drivers quit frequently,” Mishel said.
Because of the high turnover, Uber is constantly trying to find ways to attract new employees.
In a statement to Yahoo Finance, Uber said: “Drivers are at the heart of our service─we can’t succeed without them─and thousands of people come into work at Uber every day focused on how to make their experience better, on and off the road. Whether it’s more consistent earnings, stronger insurance protections or fully-funded four-year degrees for drivers or their families, we’ll continue working to improve the experience for and with drivers.”
Uber driver satisfaction could start to affect its path to profitability. (Graphic: David Foster/Yahoo Finance)
“They are caught between needing to keep prices low but not being profitable, and having pay low and having a hard time keeping drivers happy,” Mishel said. “So, it’s not clear to me what the path to profitability and a satisfied workforce is.”
This week, the New York Taxi Workers Alliance (NYTWA) called for a strike against Uber and Lyft, singling out ride-hailing companies for “denying workers of basic employment protections” and pushing drivers “into poverty and desperation.” It accused Uber and Lyft of having business models that weren’t viable.
And the NYTWA isn’t the first to point out Uber’s business model. Mishel weighed in on it as well, noting that Uber faces legal risks because it classifies its workers as contractors rather than employees.
“There’s a great risk for Uber that its way of hiring drivers will be rendered illegal,” Mishel said. “I think that would be good for the workers … but it’s a huge elephant in the room for this IPO.”
This story was initially published on May 9, 2019.
Adriana is an associate editor for Yahoo Finance. Follow her on Twitter @adrianambells.
