The Deeper Dive: Is Uber The New McJob?

By on January 16, 2017

Sherryl battled nose cancer for several years.

She now wears a prosthesis and, partially due to her health issues, her job prospects have never solidified into a permanent position that would give stability to her husband and two kids.

Sherryl ended up doing what a lot of people who find themselves on the outer margins of the employment world. She became a driver for Uber and Lyft. From stay at home parents who have seen their children go off to college, to those who have medical conditions that don’t quite allow them to get a disability check, Uber, Lyft, and other ride transportation services are filling in the cracks for those who want work wherever they can find it.  

These jobs are high on service, but not so high on pay, So is Uber and their ilk really a McJob? It’s a pretty complicated question because the McJobs of the past and present have been quite different.

30 years ago a McJob was brutally obvious. Low pay. Low thought. No upward mobility. Maybe a few drugs after watching a training video.

There wasn’t much brain power needed to take an order, say, “You want fries with that?”, and then push a small tray of re-heated unhealthy food to the customer.

Today Uber, Lyft and other transportation services that use an app to join drivers with riders have become the new version of the McJob – with a surprisingly healthier 21st century twist. It’s not a guaranteed job in any way. You make people happy? You get paid for it. You give bad service? You’re gone. No customers? No income. It’s capitalism incarnate.  If Ayn Rand were to figure out a way to keep the involuntarily unemployed busy and productive, chances are Uber and other mobility services would be one of her ideal methods.

It’s a fair trade – work for income. Although there are certain unique cases when Uber can fire you, generally your ‘Uber boss’ is far more hands off than the classic old school McJob. Yes, the job is repetitious. You drive. You pick-up. You drop off. You repeat, and sometimes you have to drive around in endless circles waiting for your next customer – who may or may not show up.

But you also don’t have to put on a dorky uniform, or deal with co-workers who are mental screwjobs, and your hours are completely up to you. It’s freedom with a virtual taxi meter and the work environment is better than most – but there’s also a big catch. Your actual income is nowhere near what Uber’s well oiled PR machine promises you.

I used Uber’s own data to help figure out the real math behind it all. As a guy who used to help take companies public on Wall Street, and as a co-developer of one of the auto industries most thorough studies on long-term reliability, I know the importance of challenging the numbers given to you by most large independent companies. Uber turned out to be no exception.

Average Hourly Uber Wage

Denver      $13.17

Houston   $10.75

Detroit      $ 8.77

The good news was that their numbers, which were a highly detailed analysis of three major cities, look fairly simple and reasonable at first glance. Here’s a link to the findings for the three cities, Denver, Houston, and Detroit, that likely represent a range of high, mid, and low income for full-time Uber drivers.  .

These hourly wages look nice, but they are not quite accurate for today’s Uber driver.

Image result for uber earnings 2014 estimated

First off, these numbers which were sent all over the mainstream media earlier in 2016,  were based on outdated results from 2014. Since then Uber has reduced their pay rates in most cities, and increased their cut of a driver’s earnings to as much as 28% of the driver’s gross income.  

In the world of Uber you essentially have the equivalent of a staffing company taking out a huge slice of your daily earnings every day no matter what. That wasn’t a reality in the old McJob world where only taxes were taken out, and often given straight back to you after your tax return was filed.

So what are the real Uber wages for the Uber drivers of today? I needed to chop down a few false assumptions to find out the real numbers.

Uber Assumes: Contractors drive a $16,000 vehicle, which has a 250,000-mile lifetime, resulting in depreciation costs of 6.4 cents per mile.

Driver Reality : The average car on the road is now 11.5 years old according to IHS Automotive and Uber’s minimum car age can range from 2001 to 2008. The most common minimum year on Uber’s list is 2005. In 2005 the average new car cost approximately $28,000, not $16.000. If we use Uber’s generous 250,000-mile lifetime the real depreciation rate is 11.2 cents per mile – a 75% increase over their 6.4 cent per mile average estimate.

If we use Uber’s assumption that their drivers log 25,000 miles a year,  that’s an additional income loss of $1200.

Uber Assumes: A gallon of gas cost drivers $1.75 per gallon and the vehicle gets 25 miles per gallon of gas, resulting in gas costs of 7 cents per mile.

Driver Reality : The cost of regular gas hasn’t been this low in over 9 years. The average price of gas right now is approximately $2.25 according to the American Automobile Association. That’s 9 cents a gallon or 28% higher than the estimate.  

If we maintain the average Uber estimate  at 25,000 miles a year, that’s an additional income loss of another $500. Oh, and don’t believe people like the guy above who say, “Maybe you’re out in Texas and gas is half the price.” Exaggerations of best case scenarios are used to trick a lot of people into driving for Uber.

Uber Assumes: Driver expenses don’t count when they are waiting for another Uber customer.

Driver Reality: It takes a while in most cities to find your next Uber ride and cancellations are still a frequent occurrence.

If we conservatively estimate another 20% in gas costs alone, that comes to an additional income loss of $500..

So far we have a total income reduction of $2200 which puts the full-timeDetroit Uber annual income at $15,340, Houston’s income at $19,300, and Denver’s income at $24,140. But then there’s the big one: taxes.

Image result for form 1099 7.65% payroll tax

Uber drivers shell out an extra 7.65% in payroll taxes that the old McJob employees kep in their pocket. McDonalds and their ilk, are required by law to pay that amount before filing payroll taxes. Uber does not pay for this tax since their drivers are contractors – not employees .

This 7.65% payroll tax works out to an additional $2015 reduction in income for drivers in Denver,  a $1645 reduction for Houston drivers, and an $1174 reduction for Detroit drivers. The good news is that none of these full-time drivers will pay any additional income taxes if they take the standard deduction along with the mileage deduction that the IRS provides for the self-employed.

Image result for single retired payroll tax

The bad news is that if you’re single or retired, that payroll tax generally can’t be off-set by taking the Earned Income Tax Credit. This credit makes all the difference for an Uber driver since only some of Uber’s low income filters will qualify for it.  

If we take Uber’s assumptions of contractors driving 40 hours per week, 50 weeks a year, we end up with a final income tally of:

Adjusted Average Hourly Wage – Uber Drivers
Assumed Wages      $13.17       $10.75        $8.77
Denver Houston Detroit
Annual Income – 2000 hours of Uber Driving $26,340 $21,500 $17,540
Less Additional Real World Expenses 2,200 2,200 2,200
Less Payroll Taxes (7.65% of Income) 2,015 1,645 1,174
New Uber Income $22,125 $17,655 $14,166
Earned Income Credit

(Without Dependents)

None None $49 to $470
Real Hourly Wage

(Without Dependents)

$11.06 $8.83 $7.11 to $7.32
Earned Income Credit – Payroll Tax Nullified

(With Dependents)

$1.01 $0.82 $0.59
Real Hourly Wage

(With Dependents)

$12.07 $9.65 $7.70 to $7.91

Drivers in these three cities would likely earn anywhere from 10% to 20% less than what was publicized – ranging from $7.11 to $12.07 an hour, if the rate structure had remained the same since 2014.

But unfortunately for Uber drivers, income is declining fast thanks to a failed price war in China that cost Uber billions of dollars. In January of this year, Denver drivers were subjected to an additional 10% in reduced rates, and nearly 100 other cities were put under the same chopping block. This was on top of 2015 cuts that saw rates decline by as much as 40% according to the Denver Post.

So is Uber quickly becoming the new McJob? In most cities it’s likely worse than a McJob . thanks to a continually declining wage and brutal penalties in the form of payroll taxes and higher repair and maintenance costs for a daily driver. You’re trading your time and the cost of driving for quick money. It beats a high interest loan and in many areas of the country it also beats minimum wage. But not by much.   

For those who want to be full-time drivers, an Uber job is a dead end for all but the chronically unemployable. If you’re looking for a little more money and work part-time, Uber and other ride-sharing services can give you more freedom and autonomy than virtually any other McJob out there, and that’s worth plenty to those who don’t want to be subjected to the nasty realities of traditional minimal wage work. The wage is low, but the freedom factor could easily tilt the scales in favor of those folks who are simply looking for a little extra income.

In either case, Uber needs to provide a clearer understanding of their driver’s real take home income and give them a better means to control costs.

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