Wednesday, December 17, 2014

What they miss about Uber/Lyft pay

In this story, writer Timothy B. Lee (@binarybits) becomes a Lyft driver for a week. He focuses on the political questions, such as the controversially low pay. He makes the same mistakes that everyone else makes.

Lyft (and Uber) pay can be low for the same reason McDonalds is open at midnight. In absolute terms, McDonalds loses money staying open late. But, when you take into account all the sunk costs for operating during the day, they would lose even more money by not remaining open late. In other words, staying open late is marginally better.

The same is true of Lyft/Uber drivers. I take Uber/UberX on a regular basis and always interview the drivers. Without exception, it's a side business.

This one time, my UberX driver was a college student. He spent his time between pickups studying. When calculating wait-time plus drive-time, he may have been earning minimum wage. However, when calculating just drive-time, he was earning a great wage for a student -- better than other jobs open to students.

Without exception, all the Uber black-car drivers have their own business. They have fixed contracts with companies to drive employees/clients. Or, they have more personal relationships with rich executives, driving them to/from work on a daily basis. They just use Uber to fill in the gaps. They already in invest in the care and maintenance of the black car, and would be sitting around waiting anyway, so anything they earn from Uber is gravy on the top.

I always ask drivers if they derive 100% of their income from Uber/UberX, and (with the exception of the student) they've all said "no". The same is likely true for Lee. It's unlikely he was just sitting in his car staring out into space while waiting for the next pickup. It's more likely that he writing his next Vox piece, or researching his next Bitcoin/Anonymous book.

Some drivers do earn 100% of their incoming from Lyft/UberX -- right now. Drivers tell me of their friends who are only driving temporarily, while hunting for a new job. In other words, while they are working full time at UberX at the moment, it's only a few months out of the year while between other jobs. They've already invested in buying a car and insurance -- rather than these being difficult costs during a period of unemployment, they are benefits.

Leftists wanting to ban unregulated innovation focus on "wages", but that's nonsense. If wages were as bad as claimed, drivers wouldn't be doing it. If drivers had a better alternative, they'd be doing it. Indeed, as I mentioned above, that's what some were doing: driving while looking for better jobs. Thus, the argument that drivers don't earn enough wages is false on its face.

Instead, what's going on is that the "sharing" economy is really the "marginal" economy. You can't report on its as if it's a replacement for a full time job -- you have to report on it as it fits within other jobs or lifestyle. Great marginal wages may suck when compared against full time wages, but that completely misses the point of this innovation.

1 comment:

John Thacker said...

Actually, while I've seen that mistake a lot, I think his article is better than you've given him credit for. Though I definitely agree that some editor made all the pullquotes about the computed low hourly wage, he does stress that for most people this is a secondary job, a thing done occasionally, a way to fill time or make use of a car that they already own, to tide them over between jobs, or for people who really, really like occasional hours that they can set themselves instead of being set by a boss or company.

He emphasizes that all the drivers he talked to were extremely satisfied.

Compared to most articles on the subject, it's quite reasonable and balanced. After all, Uber and Lyft *do* mislead on the direct pay question (and yes, while they do so because people incorrectly focus on it too much, I don't think it's worth them misleading.)