Sunday, June 9, 2019

Will Lyft and Uber drivers ever make money?

Today, they make about $15/hour, before costs of about $8/hour (NY Times).  But this $7/hour real wages won't increase, unless drivers figure out a way to stop entry into the profession.  Even if they convinced ride-share companies to raise the prices paid to drivers, the nominal ride prices would attract entry which would reduce the number of rides that each driver picked up. 

And so it is with ride-share drivers today. Another study, by a New York University professor and two Uber employees, found the same dynamic: Higher prices increased driver incomes, but only for a few weeks.
As new drivers entered the market, attracted by higher wages, the average driver had to spend more time waiting for fares. Average pay returned to the level economists refer to as “the outside option” — the pay level of whatever else the drivers could be doing if they weren’t driving for Uber or Lyft.
Similar thing happened in the California Gold Rush

In 1848, for example, at the start of the California gold rush, the first miners made about $20 per day, on average. The historical data shows that was at least 10 times more than the wage for workers doing what I would classify as similar activities — stone cutting and brick laying — in New York at that time.
Over the next eight years, so many people moved to California searching for gold that miners’ average earnings fell to $3 a day, minus expenses — barely more than they could have made if they had been cutting stones in New York.
What killed the gold rush wasn’t the lack of gold — production tripled over that time. It was the entry of so many competing miners that drove average earnings down so low that most of them barely made enough to stay in business