Being Guaranteed a $15 Minimum Wage as Employees Would Give Drivers a Raise and Strengthen Public Budgets
Researchers Conclude Chicago’s Rideshare Drivers Currently Earn Less than Minimum Wage
La Grange, IL: According to an analysis of Chicago area rideshare data from 2021, Uber and Lyft drivers earn less than minimum wage on average, and would see their hourly earnings increase by as much as 66% if they were classified as employees instead of as independent contractors. The analysis, which was conducted by the nonpartisan Illinois Economic Policy Institute (ILEPI) together with the Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign, also concludes that classification as employees would guarantee a $15 minimum wage for Uber and Lyft drivers and would strengthen Illinois’ public budgets and safety net programs by tens of millions of dollars per year.
Read the Report, “Improving Labor Standards for Uber and Lyft Drivers in Chicago: Classifying Drivers as Employees Would Deliver Superior Outcomes.”
ILEPI and PMCR researchers analyzed six months of “Transportation Network Provider” data from the Chicago Data Portal, which offers a detailed view of the scope of the region’s rideshare industry, as well as the individual workloads of each driver. To assess incomes, they relied on rideshare companies’ own public descriptions about how drivers are compensated (75% of base fare, plus tips, less taxes and vehicle expenses), as well as Uber- and Lyft-commissioned research showing that just 55% of an average driver’s work time involves transporting fare-paying passengers. After integrating and analyzing these data points, researchers were able to estimate economic conditions for Chicago area rideshare drivers—and downstream impacts on Illinois taxpayers—under three scenarios: the current treatment by Uber and Lyft as independent contractors, an alternative independent contractor model patterned after California’s Proposition 22, and a classification of drivers as employees instead of as independent contractors.
“This study offers the most comprehensive picture possible of the economic conditions facing Chicago’s rideshare drivers because it incorporates actual data on trips, hours, and fares with elements that are unique to the rideshare industry’s complex compensation model,” said ILEPI Executive Director and study co-author Frank Manzo IV. “When considered alongside uncompensated work time and expenses incurred by drivers, there is little doubt these workers would realize vastly superior economic outcomes if they were classified as employees.”
Manzo noted that drivers are not currently compensated for time spent waiting for ride requests or driving to pick up passengers. They also incur vehicle maintenance expenses and must pay the employer share of federal payroll taxes. Collectively, these variables can reduce gross hourly earnings by so much that the average Uber and Lyft driver in Chicago earns less than $13 per hour in W-2 equivalent wages. Classification as employees would guarantee at least $15 per hour—the current minimum wage in the city.
In 2020, rideshare companies beat back an effort to classify drivers as employees in California, spending over $220 million to pass Proposition 22, an initiative that provided drivers partial reimbursement of 30 cents per mile (46% less than the IRS reimbursement rate for vehicle miles in 2021) for time spent when passengers were in their vehicles, a guarantee of 120% of the minimum wage for “engaged time” spent transporting or driving to pick up passengers (approximately 65% of the total work time of rideshare drivers, according to Uber- and Lyft-commissioned research), and access to a health insurance stipend for drivers averaging more than 25 hours of “engaged time” per week. Just months after its passage, a California court struck down Proposition 22 as “unconstitutional” and “unenforceable.”
“The early evidence from California is that Proposition 22 effectively laid the groundwork for price increases for rideshare customers while leaving many drivers with sub-minimum wage incomes,” said study coauthor and PMCR Research Fellow Dr. Larissa Petrucci. “There is little reason to doubt that similar outcomes would result from a comparable statute in Illinois because the model leaves drivers uncompensated for more than one-third of their actual work time, and facing substantial unfunded tax and vehicle maintenance expenses that leave minimum guaranteed earnings as low as $7.86 per hour.”
Overall, researchers concluded that classification of drivers as employees would produce a 66% increase in average W-2 equivalent wages over the current driver compensation model.
They concluded that the employee model would also produce far superior outcomes for taxpayers, generating $20 million more in state, federal, and payroll tax revenues each year over the Proposition 22-style alternative—while also adding more than $23 million per year to the state’s workers’ compensation and unemployment insurance systems.
“Higher incomes for nearly 30,000 Chicago area drivers would produce greater tax revenues for Illinois, but in an era of economic volatility and pandemic-fueled workplace hazards, it is important for policymakers to also consider the health of safety net programs that workers rely on,” added study coauthor, University of Illinois at Urbana-Champaign Professor, and PMCR Director Dr. Robert Bruno. “As independent contractors, rideshare drivers lack access to workers’ compensation and unemployment insurance, but by making them employees, we can ensure they will always have access to the protections face-to-face workers need in today’s uncertain risk environment.”
The Illinois Economic Policy Institute (ILEPI) is a nonpartisan nonprofit organization which uses advanced statistics and the latest forecasting models to promote thoughtful economic growth for businesses and working families.
The Project for Middle Class Renewal (PMCR) at the University of Illinois at Urbana-Champaign 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.