Do You Want Your Child to Be an Uber Driver-Partner?
February 9, 2015
The innovative company Uber, about which we have written here, continues to make headlines. Its global expansion continues to meets regulatory resistance in many markets. Its valuation continues to climb, with the latest rounds of fundraising suggesting a value in excess of $40 billion. Amidst all this growth and excitement, we want to ask a simple question. Think of your son or daughter (or imagine such children if you don’t have any). Now, envision your child ready to step into the adult world. Do you want your child to be an Uber driver-partner?
A new report offers some data that might inform how you answer this question. Co-authored by the head of policy research at Uber and Alan Krueger, former chairman of the Council of Economic Advisers, the report analyzes surveys and administrative data of what Uber calls its “driver-partners.” Perhaps the most revealing number in this interesting study is $19.04. That is the median earnings per hour of Uber driver-partners across a representative sample of U.S. markets.
Is $19.04 per hour good? Well, the study is careful to point out that this number is akin to revenue, not wage earnings: “Of course, Uber’s driver-partners are not reimbursed for driving expenses, such as gasoline, depreciation, or insurance.” This is because Uber driver-partners are not employees of Uber and so must themselves bear these driving expenses. How large are these expenses? As we write, today’s American Automobile Association average retail price of U.S. gasoline is $2.15 a gallon. Cars depreciate at an average rate of about 15 percent per year and average several hundred dollars a year in maintenance and repair costs. Last year the average cost of car insurance in America was about $1,000. For most Americans, health insurance under the Affordable Care Act costs at least $1,000 a year.
A quick back-of-the-envelope calculation suggests that if an Uber driver-partner were logging 40 hours a week, 50 weeks a year, then her take-home pay—net of all expenses—would be more like $14 or $15 an hour, about $28,000 to $30,000 a year. This is about double the federal minimum wage of $7.25 per hour. But could your child raise a family as an Uber driver? In 2015 the federal poverty threshold for a family of four is $24,250; for a family of five it is $28,410.
The above calculations are incomplete for most Uber driver-partners because, as this new report explores, they come to their new role already employed full-time or part-time elsewhere. So, if the data existed, a more-thorough calculation would examine the total earnings of these individuals across all their labor-market activities. And the flexibility of time driver-partners enjoy, says the report, may allow these roles to “serve as a bridge for many seeking other employment opportunities.” Thus, the aspiring actor in Los Angeles who tomorrow will win Academy Awards might today be an Uber driver-partner rather than a Spago waiter.
A deeper question these calculations raise is why Uber driver-partners are not employees of Uber, rather than independent contractors. Uber does have employees and is looking to add more. Its website invites you to “Join Our Team: Do Work That Moves People.” The Uber departments looking to hire span areas including engineering, operations, legal, finance, and public policy and communications. And many of these positions carry an impressive array of benefits. The director of communications for North America, for example, will receive benefits including a 401(k) plan, gym reimbursement, nine paid company holidays, a “full medical/dental/vision package to fit your needs,” and “unlimited vacation policy—work hard and take time when you need it.” But “drivers” is not an Uber department.
Uber’s current business model exemplifies how employment is evolving in what is commonly called the “mobile economy.” Uber, similar to companies like Airbnb and eBay, creates a platform that unlocks new economic opportunities for those engaged with it. These opportunities can present trade-offs for different stakeholders: here, greater individual flexibility against traditional nonwage benefits provided to full-time employees.
At least in part, these deeper boundary-of-firm and type-of-firm decisions ultimately are decisions of business leaders. Whether the founder of the newest startup or the CEO of the oldest multinational, every business leader must decide what kind of organization he or she wants to create in the world.
One business leader who has put an imprint on the company he leads is Howard Schultz, the CEO of Starbucks and the subject of a cover story in this week’s Time magazine. As the story points out, Starbucks was “one of the first retailers in the country to offer affordable, comprehensive health care to full-time and eligible part-time employees and their families, as well as a stock-grant program (Bean Stock) for all.” It has trained hundreds of disadvantaged youth to be able to work at its stores. It recently pledged to train and hire 10,000 returning U.S. veterans. It has partnered with Arizona State University to craft a new program, the Starbucks College Achievement Plan, to allow employees to earn their college degree online without any new student borrowing—a program expected to cost the company tens of millions of dollars.
We leave you with the following excerpt from this illuminating piece, “Starbucks for America.”
“Schultz says he is invested in these ideas not only because making the company a preferred employer helps keep turnover costs lower and service quality higher than the industry average but also because he believes corporations have a duty to help people realize the American Dream. ‘I think the private sector simply has to take a larger role than they have in the past. Our responsibility goes beyond the P&L and our stock price. We have to take care of people in the communities that we serve. If half the country or at least a third doesn’t have the same opportunities as the rest going forward, then the country won’t survive.’”
Do you want your child to work for Starbucks? The relative growth and success of companies like Uber and Starbucks may well end up being important forces shaping the opportunities not just for your children but for labor forces around the world.
Articles © 2014 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2014 Trustees of Dartmouth College. All rights reserved.