March 24, 2016

Does unionization of ride-sourcing drivers make sense?

Don MacKenzie

Earlier this month, the U.S. Chamber of Commerce sued the City of Seattle over a law passed last year that allows for-hire drivers to form a union. GeekWire explained at that time,

The Seattle City Council today unanimously passed legislation that gives Uber, Lyft, taxi and other “for-hire” drivers the right to unionize — the first such law in the nation.

The ordinance, which still needs a signature from Mayor Ed Murray, gives drivers the ability to negotiate pay rates and employment conditions. Currently, these drivers are considered independent contractors and are not protected by traditional labor standards — including Seattle’s new $15 per hour minimum wage law. They also do not have collective bargaining rights covered by the National Labor Relations Act.

This is not the first fight over whether drivers on ridesourcing apps are employees or contractors.

However, given that a key motivation for this law was the lack of minimum wage protections for ride-sourcing drivers, I’m going to tackle a much narrower question here: how much does an UberX driver in Seattle make?

The fare structure for an UberX ride in Seattle appears to be a base fare of $1.25, plus $1.10 per mile and $0.20 per minute.

Let’s assume an average driving speed of 20 miles per hour, to allow for city driving with some traffic. Let’s also assume that UberX drivers spends 70% of their time transporting customers, 20% of their time “deadheading” to pick up customers, and 10% of their time parked and waiting for a trip request.

This suggests 14 miles and 42 minutes of driving “on the clock” each hour. It also implies that each hour includes 6 minutes of waiting and 12 minutes spent driving to pick up customers. If we assume an average trip length of 3 miles, that’s an average of 4.7 trips per hour, and an average of 2.6 minutes spent driving to pick up each customer.

These numbers seem plausible based on my experience as a customer, but I’d love to hear from anyone who can validate them or suggest better assumptions.

Given these assumptions and Uber’s fare structure, total fares per hour would average

4.7 trips x $1.25 / trip + 14 miles x $1.10 / mile + 42 minutes x $0.20 / minute = $29.60

After Uber takes its 20% cut, a driver would see $23.70 of this.

However, in that hour, the driver would have driven 18 miles (including revenue miles and deadheading). Anecdotally, the most common car driven by UberX drivers seems to be the Prius, which appears to have an all-in cost of $0.47 / mile. So the driver’s expenses would be

18 miles x $0.47 / mile = $8.50

So the driver nets $15.25 per hour after vehicle expenses.

I should note that this result is really sensitive to how much time the driver spends transporting passengers. If, contrary to the assumptions above, drivers spent 60% of their time transporting passengers and 30% traveling to pickups (and 10% parked & waiting for a trip request), their effective earnings per hour drop to less than $12. If time is evenly split between transporting passengers and deadheading to pickups, their effective earnings are just $7.50 per hour.

In light of these numbers, it is easy to understand both drivers’ concerns about pay, and Uber’s position that lower prices can mean higher earnings for drivers, by getting passengers into cars a larger fraction of the time.