W-2 Equivalent Wages Average $12.30 to $13.62 – and Only 14% of Riders Tip in Chicago
Drivers working for transportation network provider (TNP) services – such as Uber, Lyft, and Via – in the City of Chicago have relatively low take-home pay, earning less than the city’s minimum wage after expenses and taxes, according to a new study by the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign and the Illinois Economic Policy Institute (ILEPI).
Read the report, On-Demand Workers, Sub-Minimum Wages: Evidence from Transportation Network Provider Trips in the City of Chicago
A sample of nearly 78,000 trips completed within the City of Chicago during the exact same times on the exact same days in the middle of September 2019 and September 2020 reveals the full effects of the COVID-19 pandemic. The data comes from the City of Chicago, which tracks comprehensive data on registered TNP drivers and trips and has anonymized records of more than 169 million trips in the City of Chicago since November 2018. The analysis finds that both ridership and the number of registered drivers fell considerably year-over-year.
“Total vehicle miles traveled with passengers fell by 63% from September 2019 to September 2020 due to the pandemic,” said study co-author and PMCR’s Director, Dr. Robert Bruno. “We find that the average distance per trip fell by 5% but the average duration fell even further, indicating that drivers completed trips at a faster pace. In fact, the workers drove 16% faster because roads were more open.”
After accounting for driving expenses and self-employment taxes, the average TNP driver in Chicago earns about 3% to 5% less than minimum wage. In 2019, drivers earned $12.30 per hour, or 5% less than the city’s minimum wage of $13 per hour at the time. In 2020, drivers earn slightly above minimum wage, but the hourly rate of pay was artificially inflated due to the reduction of traffic congestion on Chicago roads. With pre-pandemic levels of traffic congestion, drivers would have only earned an hourly wage of $13.62 per hour after expenses and taxes, which is 3% below the city’s minimum wage of $14 per hour at the time. The authors note that the city’s minimum wage will increase to $15 per hour on July 1, 2021.
In addition to struggling to earn the minimum wage in Chicago, drivers have seen a staggering decline in tips per ride during the pandemic. While these drivers are in face-to-face positions at higher risk of contracting the COVID-19 virus while transporting passengers to their destinations, only 14% of rides in September 2020 resulted in a tip to the driver, and the tipped amount fell by 39% year-over-year.
“Classifying Uber and Lyft drivers as ‘independent contractors’ suppresses their earnings,” said study co-author and ILEPI Policy Director, Frank Manzo IV. “While companies in the ‘gig’ economy offer workplace flexibility for workers, workers who are classified as independent contractors often make sub-minimum wages and lose protections to other basic labor standards such as paid family and medical leave and unemployment insurance benefits. The lack of these workplace protections from this type of contingent work arrangement hurts drivers, especially during economic downturns or while living through a pandemic.”
The authors note that local officials in the City of Chicago could also incorporate a “minimum driver pay standard” into the Chicago Transportation Network Providers Ordinance that would ensure net pay after vehicle expenses and taxes does not fall below the $15 per hour minimum wage. After New York City implemented a minimum pay standard, driver pay increased by 8%, passenger wait times decreased by 18%, and TNP company commission rates fell – indicating that Uber, Lyft, and other TNP companies absorbed part of the increase in costs instead of passing it on to consumers.
“The status quo for ‘gig’ workers only embeds a new low-wage contingent labor force into Illinois’ economy,” Dr. Bruno concluded. “Public policies – like ensuring all drivers are classified as employees under employment law or guaranteeing a living wage – could be adopted to promote fairness and boost wages for on-demand workers in the City of Chicago and the State of Illinois.”
The Project for Middle Class Renewal at the University of Illinois investigates the working conditions of workers in today’s economy to elevate public discourse aimed at reducing poverty, create more stable forms of employment, and promote middle-class jobs.
The Illinois Economic Policy Institute (ILEPI) is a nonprofit research organization which uses advanced statistics and the latest forecasting models to promote thoughtful economic growth for businesses and working families.
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