Data I've analyzed as it relates to the number of US non-employed people reporting income above $1,000 in the taxi and limousine category suggests that while business looks good on the surface, the reality is different. 2014 saw a significant decline on average reported revenue after several years of growth. This is also true across s0me major US cities although the difference varies considerably. Why does this matter when we consistently hear how well Lyft, Uber etc are doing?
In my analysis of what is happening in the gig economy, I've been less concerned about its growth - that is a well rehearsed and discussed topic. I'm much more interested in the impact that such services have on the amount people earn. I see this as especially important at a time when the US middle class has seen its inflation adjusted spending power reduced over the last several decades, albeit with good overall news from 2014 and where I frequently hear about or meet people who tell me they are holding down multiple jobs.
As always, data is a problem. Apart from the fact that recent or current data is hard to come by for a segment of the economy that is seeing accelerated growth in absolute numbers, problems around the accuracy of the available data compounds the issue. Even so, we can take a good stab at trying to figure out what's going on from data that is available.
My starting point was to re-examine part of the source data the Brookings Institute used in coming up with two bold statements:
The gig economy, as reflected by nonemployer firms, is significant and growing fast. Overall, there has been a clear surge in nonemployer firms’ — a measure of contractor and freelance individuals — business activity in the last decade, which almost certainly reflects, at least in part, the rise of online platforms.
Platform-based freelancing is not yet substantially displacing payroll employment—but that could change. Despite the uptick in nonemployer contractors, payroll employment in “rides and rooms” industries has not declined during the last five years. Instead, payroll employment has increased in these industries, particularly in the passenger ground transit sectors.
Both of these statements appear to be true but they don't tell the whole story. For that, you have to dig deeper into the data and start following the money. That's what I did, coming up with some interesting findings. In summary, while there was a sharp uptick in the number of people reporting for non-employed income as Brookings found, there was a sharp decline in reported average income. See below:
2014 is an important year because that was when things started to take off for Uber and Lyft in terms of the volume of media attention Uber in particular received and number of people using the apps.
Remember that these are countrywide statistics and are only median numbers. Even so, the approximately 12% earnings decline is significant. It got more interesting when I started to dig into the city data:
This data covers the top seven cities for which there is data as measured by average reported income. If you're wondering why this graphic has something of a U-shape to it the explanation is that over time there have been changes in the rankings and I needed to pick one year to start the exercise which was the total reported income number for each city.
As you can see, the picture varies considerably from city to city but there has been a decline in every case during 2014 while in the 2010-2013 period the results are varied.
Brookings argue that the gig economy has been around a long time. That's not really true in the context of the platform plays like Uber, Lyft etc. which have been variously operating since about 2010 but which started to hit their stride in 2014. That was also the year when we started to see lawsuits by both disgruntled Uber drivers and disgruntled taxi firms. But these data also predate the explosive growth of 2015 and into 2016 as reported by Reuters. That, combined with the fact Uber and Lyft keep experimenting with different offers leaves me with a lot of uncertainties about whether there was a median earnings upswing in 2015 in this sector.
One thing we do know - the ride sharing economy has had a direct impact on the value of traditional taxi medallions. This from a recent Fox News Opinion story:
Last year, the average price for a medallion in Chicago was less than $230,000, a drop of 30 percent from the previous year. Several medallions went for as low as $150,000. Boston saw the average price for its medallions fall by 40 percent last year. In New York City, an individual taxi medallion once surpassed $1 million in 2014. But by March, medallion value had plunged 45 percent, as Medallion Financial revealed in SEC filings.
Another thing we don't know is the split between full and part time work. Over at I Drive With Uber, the author says:
The average Uber driver makes about $19 an hour. Here in LA, I make between $20-$25 an hour. In New York drivers make over $30 an hour. Driving full-time, the average Uber driver in the U.S. can make around $40,000 net a year (after expenses and taxes).
That is recent data and the reported difference is much lower than we see in the 2014 source data where the difference between LA and NYC is 73% compared to 20-50%, depending on which numbers you choose. On the other hand, that self reported figure is above any of the top cities in the US for 2014. When you read the comments to the above story, it appears drivers are divided between those who have made it work for them and those that, for whatever reason, do not see the value to them for the hours they have to put in.
On the cost/consumption side of the equation, we don't know whether ride sharing revenue is genuinely additional spend and not simply cab/car replacement. For example, in absolute dollar earned amounts, NYC chalked up a $400 million (11%) increase in reported earnings between 2013 and 2014. But the number of reporters rose 13.6%. Net-net, median income fell 2.4%.
To put this into a national perspective, the total amount reported in 2014 was up $1.48 billion while the number of drivers increased by 72,289. I have little doubt that the increase in absolute numbers is down to Uber/Lyft for 90% of that figure.
It is very difficult to be certain that the gig economy is genuinely accretive to the economy as a whole or that it does much beyond providing a useful second income. In my ongoing collection of Uber/Lyft anecdotes, I rarely come across full time drivers. I'm still running at about 5% for full timers.
We are still very early in seeing how this element of the gig economy shakes out and until we see more data from the Department of Labor/Census then any conclusions have to be tentative at best. Right now, it is a case of watch, wait and see.