Sunday, March 4, 2018

MIT's Bizarre Published Study That Claims Uber Drivers Make Only $3.75 Per Hour



By Robert Wenzel

An analysis published by MIT has found that Uber and Lyft drivers in the US only net around $3.37 per hour on average, and nearly a third are probably losing money after car costs.

The  study publised this week, and carried out by Stanford researchers Stephen Zoepf, Stella Chen, Paa Adu and Gonzalo Pozo, has found that nearly half of all drivers could actually claim that for tax purposes their work was a net loss.

These are absurd research results. It is probably some of the dumbest analysis that has ever come out of Stanford---and published by MIT.

Whenever I travel via Uber. I pepper the drivers with questions, so much so that one driver asked me if I was a researcher. She said that only researchers ask as many questions as I do when using an Uber.

It is clear from my discussions with Uber drivers that they know full well how much they make after expenses and that it is far more than $3.37 per hour.

Are these Stanford researchers so out of touch with reality that they think some drivers would be driving for Uber at a loss? Maybe these researchers should move into climate change research.

It turns out the questionnaire the study was based on was poorly designed which appears to have resulted in questions being answered incorrectly by drivers. The Stanford researchers then took these incorrect answers as fact and came up with their bizarre assertion that some drivers lose money after car costs.

Jonathan Hall, Chief Economist at Uber reports that other studies show drivers earn around $20.00 per hour, which seems more in line with reality:
[A] study we conducted with Alan Krueger of Princeton found that drivers across 20 of Uber’s largest US markets earned an average of $19.04 per hour, in October 2015. A more recent study with Stanford professors estimated gross hourly earnings of $21.07¹ for all US drivers between January 2015 and March 2017.
Hall also explains the poor construction of the questions and methodological errors of the Stanford researchers that resulted in the paper that was published by MIT:
Why the major discrepancy? In our estimation, it comes down to a major error in the authors’ methodology.

Step 1: So, what’s the error?

The Rideshare Guy survey asks a number of questions about how much drivers earn and how many hours they work per week. The most important are questions 11, 14, and 15.

Q11: “How many hours per week do you work on average? Combine all of the on-demand services that you work for.”

Q14: “How much money do you make in the average month? Combine the income from all your on-demand activities.”

Q15: “How much of your total monthly income comes from driving?”

The problem in this case is inconsistent logic on the part of the paper’s authors. Consider this: for question 14, the authors assume respondents are reporting income from *all* sources, not just on-demand work. As a result of this assumption, the authors discount the earnings from Q14 by the answer to Q15, “How much of your total monthly income comes from driving?”

For example: if a driver answered $1,000 to $2,000 to Q14, the authors would interpret that as $1,420.63² according to their methodology. If the respondent then answered “Around half” to Q15, the authors conclude this driver made $710.32 driving — half what they actually earned from driving with ridesharing platforms.

However, and perhaps just as important, the authors also assume that drivers understood Q11 perfectly well and that the hours reported only applied to on-demand work. As a result, they divide an incorrectly low earnings number by the correct number of hours.

This inconsistency leads to flawed methodology that results in hourly earnings numbers that are far, far below what any previous study has found.
It is just remarkable that such a glaring error could be made that reaches a conclusion that is so out of touch with how we observe in everyday life how people act. Again, do these researchers really think that Uber drivers would not know they were driving at a loss if that really was the case?

 Robert Wenzel is Editor & Publisher of  EconomicPolicyJournal.com and Target Liberty. He also writes EPJ Daily Alert and is author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics and on LinkedIn. His youtube series is here: Robert Wenzel Talks Economics. The Robert Wenzel podcast is on  iphone and stitcher.

4 comments:

  1. Another thing they fail to take into consideration is Uber drivers file 1040s and Schedule Cs to the IRS, on which they can deduct expenses made during business operations such as expenses for gasoline, vehicle maintenance and depreciation.

    Mainstream economists Jonathan V. Hall and Alan B. Krueger published a paper back in 2015 which was far more scientific which disproves this Stanford study.

    https://irs.princeton.edu/sites/irs/files/An%20Analysis%20of%20the%20Labor%20Market%20for%20Uber%E2%80%99s%20Driver-Partners%20in%20the%20United%20States%20587.pdf

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  2. And why is it worthy of research to analyze how much a relatively small group of people make per hour? Who pays for this research, and who cares? To answer my own questions, maybe someone gunning for the minimum wage law to apply to Uber and Lyft drivers?

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  3. You would be foolish to claim to be operating at a profit, or at a comfortable living in this cas, for at least a couple of obvious reasons.

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  4. I would not be surprised that study is flawed but I also would not be surprised at that result or an even worse one for the uber drivers.

    Uber and the alike appear to me as a way for people to take the equity out of their motor vehicles while still owning them.

    Paying retail for auto maintenance and repair along with depreciation above and beyond normal for a cut of the take from a discount taxi service seems like a good way to lose money.

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