Uber reported on Friday its plan to cut its rates by up to 35% in 100 cities in an attempt to increase ride demand during winter months.
Uber’s decision ultimately will equate to a 35% pay cut for some of its drivers. This is in addition to Uber’s introduction of it’s new ride sharing service, UberPool which reduces the fares by up to 50% by allowing customers to share a ride with other passengers going in the same direction.
Minimum Wage Earners
Each state has it own minimum wage laws. The Federal government minimum wage is $7.25. As a ride-sharing driver myself living in Chicago, my dollar-per-ride averages around $6.00 each week. If my Uber app is on, and I receive only one ride that hour during the winter months, my earnings have just fell below the state and federal minimum wage.
It seems unfortunate that the Uber executives are making decisions at the expense of their drivers. Andrew Macdonald, a regional general manager for Uber, recently told Bloomberg, “We care deeply about driver earnings”. From 10,000 feet at the top of the Uber tower, those consoling words mean nothing at the end of a week’s pay period from winter driving.
Reviewing Macdonald’s Linkedin profile, there is a hint of where the disconnect maybe; Macdonald has no experience taxi industry experience. How can anyone sympathize about a driver’s income when they have no experience driving themselves?
Unlike the regulated taxi industry where a city puts a cap on how many taxis it allows to operate, Uber doesn’t seem to have a limit on how many drivers they will recruit. Basic economics 101 theory tells us that if the supply of a commodity increases then demand is likely to diminish. If if Uber and its ride-sharing competitor Lyft continue to flood the market with drivers, drivers eventually will start making less money. That is exactly what happened to taxi drivers across the globe.
Of course, expenses such as car insurance, and a car payments remain constant and will not fluctuate for the driver. Especially for those drivers with poor credit that signed up for brand new cars with the help of Uber’s vehicle financing partnerships.
Possible global market storm on the horizon for ride sharing economy
We all know how we are financially connected with the rest of the world from the experience of the Great Recession of 2008. Now, with China’s economy slowing down and it’s stock market plummeting, it is a matter of time to see how that will affect the U.S. economy. It is quite possible that layoffs will be underway. The newly unemployed may enter into the sharing economy as many already have to supplement their income. If the global connection with China affects U.S. disposable income, less people will take a ride sharing service. In 2008, when the financial collapse hit the taxi industry, business came to a halt. It took almost two years for some taxi drivers to start feeling a financial difference as the recovery was underway.