Cars on Michigan Avenue at night

Would you take a job without knowing how much you will make? Uber and Lyft drivers do.

By Kari Mcmahon
Medill Reports

Ride-hailing companies such as Uber and Lyft provide their customers with an estimated cost of a journey before they order the ride. But their drivers only see an estimated duration, leaving them in the dark about how much they will make.

In Chicago, the median wage for a ride-hail driver per trip is $10.78, according to Gridwise, the developer of a ride-hail advice app. This is after the ride-hail company has taken its cut but before drivers’ expenses, which makes their earnings even lower.

Drivers said their take changes day by day depending on passenger availability, journey distance and hours worked as well as the cost of expenses, which can include insurance, cleaning, tax and car maintenance. They find it almost impossible to make a stable living.

Marcy, a full-time ride-hail driver in Chicago, said she was “really pleased” with her post-expense income from Lyft in 2017 and 2018. But then “everything changed drastically” when the company went public in 2019.

“The amount of money I could make on Lyft changed; it did a complete 180. They kept lowering the rate. They took away a bunch of bonuses and challenges,” Marcy said.

Seeing her earnings decline, she decided to drive for Uber in addition to Lyft. She said this almost made it worse because suddenly she lost access to all the bonuses and challenges offered by Lyft to boost earnings. Some drivers believe the apps have ways of knowing when a driver is working for both companies, and they will try to discourage it by reducing access to their best income-boosting opportunities.

After years of losses, ride-hail companies Uber and Lyft are under pressure by Wall Street to achieve profitability since they went public in spring 2019. At the same time, the competition in the market has become so intense that the companies have continued to offer significant fare discounts to riders. Drivers have said this comes at their expense, and they’re  making far less money than when their employers’ were privately funded by venture capital firms.

The companies make money by taking a cut of the fare in the form of a service fee, which is variable and not disclosed publicly. Uber has said in the past that it takes a 25% service fee, but a study from the Economic Policy Institute, an independent nonprofit think tank, found in 2018 that Uber takes as much as 33%.

Taxis, by comparison, charge passengers a much higher fare. John Coyne, co-owner of American Taxi company, said his company “charged a small fraction” as a dispatch fee to drivers. He said their rate is around 8% to 11% in comparison to Uber and Lyft’s rate of 25% to 28%. Taxis also typically have a standard tipping rate of between 15% to 20% in the U.S.

When Uber launched in 2011, they told riders that fares included tips for drivers. Harry Campbell, founder of the Rideshare Guy blog, said Uber at the time was paying drivers three to four times more than what they are now. When drivers’ wages started to decline, many of them complained they were not receiving their tips and wanted passengers to tip them directly. But in 2015, Uber published a blog post that said they were reluctant to introduce tipping because individuals could have a bias towards tipping certain genders or races.

Two years ago, Uber introduced  “180 days of change,” a program where the company made changes and improvements for drivers, including the introduction of tipping. Campbell said he believed Uber was responding to the deteriorating relationship the company was having with drivers about low pay.

Some ride-hail drivers said the tips have helped boost their cut, but they also said that many riders tip little to nothing.

“Customer service is something that we bring to the rideshare,” said Susan Arnold, a 65-year-old full-time Uber driver, adding that she receives tips from about 30% of her passengers, which she believes is more than most.

Matt, a full-time Uber driver from Chicago, said he receives tips from roughly 20% of his riders and the amounts varied widely.

“[Tipping] is nowhere near other service industries or even the taxi industry [receive], where almost every single taxi is tipped in some way at least in the U.S.,” Matt said.

A recent working paper from the National Bureau of Economic Research found during a four-week study that 60% of riders did not tip. The study was developed in partnership with Uber and examined societal influences in tipping.

Bharat Chandar, a Ph.D. student at Stanford University and a former Uber employee involved in the study, said part of the reason for the low tipping was likely because Uber gave riders the option to tip after they have finished the ride.

“In taxis, typically while you’re paying for the trip, you’re basically right in front of the taxi driver,” said Chandar. “Social pressure from being in front of the person you’re tipping could influence tip rates on taxis [in contrast to ride-hails].”

Some ride-hail drivers said an ability to see the fare and choose whether to accept or decline the ride would provide them with more control over their income. By being able to select fares, drivers would be able to make informed decisions instead of relying on tips to subsidize undesirable fares.

“If everyone across the board on the app was given the information to make better decisions, it would help everyone,” said Marcy, the full-time ride-hail driver.

Both Uber and Lyft allow drivers to decline rides, but Marcy said they feel pressured to accept most of them because the algorithm would punish the drivers by offering them fewer rides and bonuses.

Marcy said she has even tested her theory about the algorithm with other drivers and passengers. During one of her fares a passenger arrived at a restaurant only to realize it was closed. The passenger requested another journey but was assigned to a driver a few minutes away even though she was still inside Marcy’s car.

“They penalize me by docking me in my acceptance rate, which therefore docks me in what tier I can move up in, which therefore docks what kinds of rides I get assigned to me,” Marcy said. “It’s a vicious cycle.”

Uber and Lyft did not respond to a request for comment.

Gig workers in other industries besides ride-hailing have faced similar problems. Workers for food delivery services such as Postmates and DoorDash, and odd job platforms like TaskRabbit have complained about issues such as low pay and lack of transparency even as their employers receive millions of dollars in funding to secure dominance in the growing industry.

The European Union has taken a particularly strong stance on the lack of transparency for platform gig working, introducing a new law that guarantees gig workers certain rights such as  increased transparency. In the U.S., California is following in the EU’s footsteps.

Earlier this year, the California legislature passed a law that set a higher standard in classifying individuals as employees. The bill had had been introduced after the California Supreme Court ruled that companies must meet three requirementsto determine whether workers were classed as employees or independent contractors. For example, workers must perform tasks without the direction of the company and the tasks must be separate from the company’s business activities.

Uber fought the legislation heavily and in January responded to the implementation by introducing new features that would help ensure that drivers were considered contractors, not employees. The features included the ability for drivers to see the estimated fare and decline rides without it affecting their status. The company also capped its service fee at 25%.

During the fourth quarter earnings call last month, Dara Khosrowshahi said that early feedback from drivers on the changes in California had been very positive and that the company had rolled out the features to be very clear about their position as a platform.

“The question is, who is that language for?” said Mike Ramsey, senior automotive research director at Gartner. “The cynical part of me says that when you put language like that out there, the designation is not so much for the people who are using the platform as it is for the regulators or lawyers.”

Ramsey said the companies want to be viewed as a technology platform, but the reality is that many drivers rely on the platform much in the same way the rely on an employer. He said Uber will likely chose to roll out similar features in other cities unless the trial in California fails.

Still, drivers are hoping the features will be introduced in Chicago. Until then, drivers like Matt, rely on the public becoming better informed about the way companies control their pay structure.

“The market between the driver and Uber is one thing and the market between the rider and Uber is another thing and what the rider pays has virtually nothing to do with what the drivers getting,” Matt said.

Photo at top: Cars on Michigan Avenue at night. (Kari Mcmahon/MEDILL)