MIT Paper Suggests the Gig Economy Is An Illusion

The Massachusetts Institute of Technology’s Center for Energy and Environmental Policy Research has released a paper that purportedly blows a hole in the ship of the gig economy. The findings are already much contested, and I’ll lay out in this posting where more research is needed, the flaws in the paper’s methodology, and the policy implications of the MIT CEEPR report.

Here is the damning summary of the paper’s findings:

Results show that per hour worked, median profit from driving is $3.37/hour before taxes, and 74% of drivers earn less than the minimum wage in their state. 30% of drivers are actually losing money once vehicle expenses are included. On a per-mile basis, median gross driver revenue is $0.59/mile but vehicle operating expenses reduce real driver profit to a median of $0.29/mile. For tax purposes the $0.54/mile standard mileage deduction in 2016 means that nearly half of drivers can declare a loss on their taxes. If drivers are fully able to capitalize on these losses for tax purposes, 73.5% of an estimated U.S. market $4.8B in annual ride-hailing driver profit is untaxed.

There are several underlying problems with these findings, ranging from the way that the researchers characterized the share of earnings from driving to the research team’s conclusion that because drivers can take the standard mileage deduction when calculating their taxes the on-demand mobility business goes mostly untaxed. Uber’s chief economist, Johnathan Hall, examined the report’s findings in a Medium posting on Sunday, suggesting the estimated earnings are deeply flawed.

The authors fail to note that every transportation provider, from a Lyft driver and local taxi to a long-haul trucker or local salesperson, may take a $0.54 cents-per-mile deduction on every mile they drive. By extension, the MIT research is arguing that all mileage deductions are a form of subsidy rather than a recognized cost of doing business. There is a substantial debate to be had about the mileage deduction’s sustainability, but these research judges that policy debate with an emphatic assessment of its own that is not supported by the data or current law.

The full research report will not be available for six months, as it has been distributed to CEEPR’s sponsors and remains inaccessible to the public. We think that’s counter-productive, as it prevents a full assessment of the data gathering and findings.

What stands out for us is CEEPR’s comparison of Driving Costs and Driving Revenue without regard for the number of hours driven in the available data. Uber’s critique of the research revolves around how drivers characterized the share of revenue they earn from driving. CEEPR’s methodology uses qualitative expressions, e.g., “very little” or “around half” of the respondent’s income attributed to the share of income earned from driving both with and without distinctions between all income from on-demand work or any questions about the specific number of hours driving.

We need to see the full data set and the research paper. However, it appears that based on these qualitative assessments by drivers, the MIT team used hard statistical categories to discount reported earnings, apparently by 50 percent or more from what drivers said. Uber argues that the methodology builds in a 58.5 percent discount on actual earnings. We understand this is a conservative statistical approach to take. However, it seems to have reduced the real income reported because the number of hours driven to earn any income isn’t factored in. MIT CEEPR should release the full report so that others can review the methodology.

Drivers in Las Vegas responded to the report in this ABC15 news report. Admittedly, this is anectdotal feedback, but it does reflect the fact that drivers who treat their on-demand work as a business appear to be earning more than minimum wage. Infrequent drivers, who cannot expense much of their automotive financing and care costs, certainly don’t make as much after deductions as full-time drivers.

In more than 100 conversations with Lyft and Uber drivers, I’ve found that the drivers typically earn more than $18 an hour, and those who drive full-time or near that level do report having an economically satisfying experience in most cases. More drivers report that ride-sharing is their primary job, as well. That said, a significant minority of these drivers reported that they commuted 100 miles or more to major cities to work for three-to-five days straight, while sleeping in their cars, to earn a viable living for their family back home.

Gigging isn’t perfect, there is plenty of room for improvement. This paper adds to the controversy and requires full disclosure of the data to support the discussion about how the economy can evolve for fairness and prosperity among workers.

Every driver should be treating their ride-sharing work as a business, taking the maximum appropriate tax benefits for mileage, writing off car payments and repair to the extent that they are attributable to ride-sharing revenue.