"Gig Economy" Glut: Uber Drivers Make Less Than Minimum Wage

Coined shortly after the great financial crisis of 2007–2009, the so-called “gig economy” or “sharing economy” refers to the increasing list of companies like Airbnb, Doordash, Etsy, Lyft, Postmates, TaskRabbit, and Uber–platforms that hire temporary workers who provide an array of on-demand services: delivery, ridesharing, home rentals, and odd jobs.

The “gig economy” in an accurate representation of the state of the matured market [low producivity]; though the Bureau of Labor Statistics (BLS) has had difficulty counting the number of independent contractors and contingent workers, Intuit believes that “gig” workers are about 34 percent of the overall workforce, and could increase to 43 percent in the next few years.

While millions of millennials have embraced the “gig economy,” a new report reveals a shocking reality that the average income of Uber drivers is much lower than minimum wage in many cities across America.

The latest figures come from the Economic Policy Institute, a non-profit think tank based in Washington, D.C that provides research on economic policies. On Tuesday, the think tank published a report claiming Uber driver compensation is around $11.77 per hour after Uber deducts fees and expenses and $10.87 per hour once Social Security/Medicare taxes are deducted. According to the report,” the Uber driver “wage”—comparable to the wages (reported for employees on federal tax Form W-2) earned by regular W-2 employees—averages $9.21 an hour.”

In other words, Uber drivers bring home $9.21 per hour, after Uber deducts commissions/booking fee per trip and state/federal taxes are subtracted. That shifts Uber drivers into the 10th percentile of private-sector wages, indicating drivers make less than what 90 percent of Americans earn per hour.

“The Uber driver W-2 equivalent hourly wage is roughly at the 10th percentile of all wage and salary workers’ wages, meaning Uber drivers earn less than what 90 percent of workers earn. The Uber driver W-2 equivalent hourly wage falls below the mandated minimum wage in the majority of major Uber urban markets (13 of 20 major markets, which include 18 cities, a county, and a state). The Uber driver “no benefits” hourly wage or discretionary compensation—the hourly compensation adjusted for an assumption that Uber drivers pay the extra payroll taxes that the self-employed must pay but do not provide a standard benefits package for themselves—falls below the mandated minimum wage in nine of 20 major markets, including the three largest (Chicago, Los Angeles, and New York).”

Uber drivers make less than minimum wage in several cities, including Seattle, San Francisco, and New York City, as the graph below shows:

“I have long been skeptical that Uber or “gig work” represents the ‘future of work’ ever since it was clearly established that most Uber drivers do not drive as their main source of income, but rather do so to supplement other income sources,” wrote Lawrence Mishel, a labor economist and former EPI president who authored the report.

“It’s more low wage than I thought, to tell you the truth,” Mishel told Quartz. “My sense is that taxi driving used to be an occupation that provided a very modest middle-class income, and that just doesn’t seem to be the case anymore.”

Mishel notes that the role of the “gig economy” is commonly exaggerated, and indicates “there is no basis for saying the gig economy is a major driver of economic trends.”

This could be more bad news for heavily indebted millennials, where structural shifts in the economy are leading to a productivity slowdown due to a reallocation of production to service/ “gig economy” with low productivity growth. That said, with the evidence of what Uber drives make (located above), we can now dismiss the idea that Uber driving in the “gig economy” is a lucrative job.

Millions of millennials situated in the “gig economy,” drowning in debt and wage stagnation are about to discover that the American dream evaporated a long time ago…