How Much Do Rideshare Drivers Make in an Hour?
$12 per hour. There's more to the story but I get it, sometimes you don't feel like reading
Most of you aren’t old enough to remember the year 2014, so you’ll have to trust me when I say it was a better time. Jared from Subway was just a Subway guy. Bill Cosby was just a comedian. Harvey Weinstein was just a – ok, it wasn’t a better time, unless you were a sex offender. More than anything though, 2014 was the year of the Gig Economy. Uber, Airbnb, and a slew of hot startups made it clear that the 9-to-5 was a thing of the past. No longer would you need an employer to work. No longer would you need to clock-in to a desk job like some industrial-era scribner. Without a corporate middle-man taking a slice of the pie, the working class could finally unlock the value of their labor. No more working for the man. From now on, you would just do stuff for money. That was the promise of the Gig Economy. Unfortunately, seven years later, gigs have failed to live up to the hype. Gigs have failed to liberate the working class because, generally speaking, they don’t pay well. The Economic Policy Institute, for example, found that after accounting for expenses like taxes and gas, Uber drivers make well below median hourly wages, about $12 per hour (median wages: $20).
The most common gig opportunities are simple labor tasks that don’t require a lot of training. Dog walking, house cleaning, ride-sharing, or flooding Stubhub with fake Wiggles concert tickets and using the proceeds to promote alternative children bands. Not to say these jobs aren’t important – nobody understands the need to disrupt the Wiggles hegemony more than me – but they don’t require much training.
In the labor market, jobs that don’t require training usually translate to an abundance of supply, which usually means lower wages. Unless, of course, the labor supply is constrained. But oftentimes, the Gig Economy isn’t constraining supply – it’s multiplying it. Take taxi driving in New York City. Today there are 80,000 Uber drivers in the city, compared to almost 14,000 yellow taxi cabs prior to Uber’s entry. Uber increased supply more than six-fold; NYC Yellow Cab earnings have dropped 44% during that time.
What about the jobs that require more training? The majority of those jobs aren’t a good fit for the gig economy because they aren’t as valuable in isolation. For example, anyone can hire an accountant to do their taxes, and that can be a good gig economy task. However, accountants can create much more value inside of large companies, where they can create shell companies to evade millions in taxes or bury evidence of bribes paid to politicians. Accountants, and similar jobs, create more value in combination with one another, which is why many workers can earn more employed by companies than they can in the Gig Economy.
Despite not living up the hype, the Gig Economy certainly has earned its place in US society, with more than 30% of the workforce having some type of gig income. While it doesn’t always pay the best, it is flexible and can be used to supplement income, which is the most common reason gig workers are down for the hustle.
A lot of critics argue that gig workers don’t realize they are being underpaid. The theory is: the average American is far too stupid to do even the most basic arithmetic, and therefore rushes to drive for Uber or rent a spare room on Airbnb the way a mouse lunges for cheese in a trap. This is a compelling argument because, as anyone can testify, most people are idiots. However, I don’t think ignorance is the explanation in this case. Here’s how I think about it. First, what is the value of an hour? The average American household spends about $34,000 per year on housing, healthcare and food combined. That equates to about $1.50 per-hour per-person. In other words, it costs about $1.50 per hour to live, on average. In the table below, you can see this cost/income broken down using similar logic. The average mattress lasts about ten years and costs $1,000 ($0.03 cents per hour, so napping costs $1.53 per hour), and the average Netflix customer pays $8.99 and watches 2 hours per day ($0.15 cents per hour).
This table illustrates why the Gig Economy is pervasive despite low pay. It’s not that people can’t do the math on what they get paid. For many people, the gig economy is the only realistic way to make supplemental income. Salaried workers can’t just work extra shifts for more money, and hourly workers can’t just pick up shifts when needed.
So while Uber may pay $7 per hour, that’s more than the $1.50 it costs to just sit at home and breathe. Hell, it’s more than the $0 per hour I make writing this. Plus, if you’re driving an Uber then you also aren’t doing a costlier activity like listening to The Wiggles outrageously priced audiobook. The fact is that people aren’t too stupid to figure out their salary. They are just taking their best option for side income.
Looking at things from the hourly cost perspective is a really useful personal finance tool that can help prioritize and rationalize purchases. For example, you spend a third of your life on your mattress, so it’s not a bad place to put your paycheck. Also, nobody should ever go to a movie theatre ever again. Do the math on how many hours you have to work to see Avatar 2. No matter how much you make, it’s not worth it. However, it’s a slippery-slope. Sure, selling your blood pays well, but that doesn’t factor in the cost to society of having more vampires lurking around. So, before you take out a mortgage to buy a diamond-studded casket at a very reasonable hourly-cost, remember the hourly accounting is a shortcut, and it isn’t bulletproof.