The Gig Economy Won't Save Workers At $3.37 An Hour
Erik Sherman Contributor
In this Friday, May 26, 2017 photo, a woman enter the Uber offices in Austin, Texas. Uber and Lyft, the ride-hailing company giants who left Texas's capital city in a huff a year ago over local fingerprint requirements for drivers, are set to return after state lawmakers stepped in. (AP Photo/Eric Gay, file)
Editor's note: The authors of the study discussed below have revised their findings. See story here.
It wasn't so long ago that a co-founder and CEO of Fiverr, a labor platform company, claimed that the so-called gig economy could save the American worker.
Making such a statement today would require an unreasonable amount of credulity. There are no benefits, no guarantees of volume of work, and the workers pay for their own business costs, which means employing companies are offloading what had been their own costs. A new study out of MIT shows the results, at least when it comes to Uber and Lyft. Drivers saw a median profit, after expenses, of $3.37 an hour while 74% of all participating in the study made less than their states' minimum wage rates and 30% lost money.
Four researchers at the MIT Center for Energy and Environmental Policy Research surveyed more than 1,100 Uber and Lyft drivers, looking in depth at what they brought in. A number of studies have done this in the past. What separates this research from previous studies are the details of what the drivers spent on insurance, maintenance, repairs, fuel, and depreciation.
The median income of a driver was $0.59 a mile and costs ran $0.30 a mile. Profit before taxes was the difference of $0.29 a mile, or $310 a month. The study didn't indicate how many hours drivers spent per week behind the wheel, but the hourly median figure, half of the federal minimum wage, largely eliminates that need. More trips would spread fixed costs, but increase maintenance, repair, and fuel. Are drivers supposed to pile on hour after hour of more work just make the numbers work a little better?
Even the national minimum wage of $7.25 an hour is far from enough money to allow people to support themselves in a reasonable way; $3.37 is a bad joke. Now consider the lack of paid sick days, healthcare insurance, or other benefits, let alone saving for retirement.
The numbers could be off, given that they were self-reported by the participants. In my experience, people in business for themselves tend to overestimate income and underestimate expenses. If anything, the median $3.37 per hour might be overly optimistic.
The only way a gig economy can work is if companies are honest about the costs and pass enough revenue to the contractors so they can gain a reasonable amount of income. However, the entire idea was to allow middlemen to capture economic rents on work done by others while employers — either companies or individuals looking for services, spend less. If not, why would they use the service? Passing less money along is an inherent part of how employers can lower expenses and retain more profit for themselves or consumers can keep more money in their pockets. The arrangement does not magically create more money out of thin air.
Of course, there might be gig economy platforms in which people are paid significantly more. Again, though, paying more isn't the point for the employers. Paying less is. Some people might do relatively well in these types of contracting work, but the big bulk of them likely won't. Workers are the ones being expected to save the American economy by accepting below-poverty wages. That is a recipe for ultimate disaster.
Erik Sherman
I'm a freelance journalist, author, and writer whose work has appeared in such publications as the Wall Street Journal, the New York Times Magazine, Newsweek, Technology...