Uber and Lyft are among the top 10 highest-valued startups in the U.S., with the firms being worth $68 billion and $11.5 billion respectively.
While the ride-hailing giants are raking in the cash, it seems that not everybody who works at the companies is so lucky.
A blistering study conducted by MIT researchers found that Uber and Lyft drivers are paid less than $4 per hour.
Uber and Lyft drivers make less than $4 per hour, according to a new study by MIT researchers. Additionally, many drivers are often paid below minimum wage in several states
What’s worse, approximately 75% of drivers earn less than the minimum wage in their state.
The researchers surveyed more than 1,100 Uber and Lyft drivers for the study and compared that data with costs like insurance, maintenance, repairs, fuel and depreciation.
Lyft and Uber treat their drivers as ‘independent contractors,’ which means they can’t take advantage of typical employment benefits, such as health insurance, overtime pay, workers’ compensation or unemployment, among other things.
MIT researchers noted that part of the job means that drivers have to deal with unpredictable customer demand, as well as the cost of maintaining a vehicle.
So it likely came as no surprise, then, when they discovered that 30% of drivers ‘are actually losing money once vehicle expenses are included.’
They found that the median driver generates 59 cents per mile of driving but incurs costs of 30 cents per mile.
Many incur expenses that exceed their revenue or are close to losing money for every mile they drive.
Researchers surveyed over 1,100 Uber and Lyft drivers for the study and found that, on average, they make about $661 of profit per month, which tends to be below minimum wage
‘Results indicate that profit from ride-hail driving are very low,’ the study notes.
Average drivers earn about $661 of profit per month, according to the study.
The study does little to quiet rising concerns about labor standards in the fast-growing gig economy.
‘This business model is not currently sustainable,’ Stephen Zoepf, a co-author of the paper, told the Guardian.
‘The companies are losing money and the businesses are being subsidized by [venture capital] money’
‘Drivers are essentially subsidizing it by working for very low wages,’ he added.
Other studies have shown that Uber drivers make higher wages because there are many ways to calculate wages and expenses.
WHAT IS UBER’S ‘180 DAYS OF CHANGE’?
After the departure of CEO Travis Kalanick in June, Uber launched a ‘180 Days of Change’ initiative to improve the driver experience.
For the first phase – focused on earnings – the company deployed an in-app tipping option.
So far, drivers have collected $50 million in tips in about a month.
Lyft – which has had in-app tipping for years – only hit $250 million in tips last month.
Next, Uber rolled out 24/7 support for drivers – 200,000 calls to the line have been made in less than 30 days.
For the third phase of the initiative, Uber is focusing on driver flexibility.
Uber launched its ‘180 days of change’ initiative in October as part of its effort to improve the company’s relationship with drivers. It first introduced tipping for drivers
Drivers can set up to six destinations per day, meaning Uber will only offer rides along that route.
This will allow drivers to do pickups on their way home or to other personal destinations without ending up in destinations out of their way – previously drivers could only set two per day.
Uber also enacted new waiting time charges that will be applied to users who keep drivers waiting at the start of a journey.
Next, Uber will give drivers more flexibility when it comes to what types of pickups they want – they can select just UberX and no deliveries, for example)
The firm will also start notifying drivers if a ride will take more than 45 minutes so they can decide if they want to take a long trip.
Uber dispelled many of the of the study’s conclusions.
‘While the paper is certainly attention grabbing, its methodology and findings are deeply flawed,’ an Uber spokesperson told the Guardian.
‘We’ve reached out to the paper’s authors to share our concerns and ways we might work together to refine their approach,’ they added.
Lyft also said the report made some ‘questionable assumptions.’
‘We have not reviewed this study in detail, but an initial review shows some questionable assumptions,’ a spokesperson for the firm told the Guardian.
The move comes as Uber has doubled down over the last several months to repair its relationship with drivers.
In June, Uber added a tipping feature for drivers in the U.S. Since then, it introduced an initiative called ‘180 days of change’ to focus on increasing drivers’ earnings.
‘These drivers are our most important partners, but we haven’t done a very good job honoring that partnership,’ said Rachel Holt, regional general manager for Uber in the U.S. and Canada.