Contractor status keeps rideshare drivers’ pay below minimum wage, report says

Drivers for ridehailing services in Chicago earn less than the $15-per-hour minimum wage and would be paid substantially more if they were classified as employees instead of as independent contractors, according to a study that draws on city government data and research done for Uber and Lyft.

The study by the labor-backed Illinois Economic Policy Institute and researchers at the University of Illinois Urbana-Champaign concluded the typical driver in Chicago makes $12.72 an hour after expenses. The hourly pay could exceed $21 per hour if drivers were classified as employees, with vehicle expenses paid by the ridehailing companies, the report said.

The findings represent “the most comprehensive picture of the economic conditions facing Uber and Lyft drivers in Chicago because it uses actual data on trips and drivers and fares paid by customers,” said a co-author, Frank Manzo IV, executive director of the Policy Institute.

He said higher wages, aside from improving drivers’ living standards, would increase tax revenue and reduce reliance on public services such as Medicaid and food stamps.

“There is a public cost to low wages,” Manzo said. “Uber and Lyft have been free-riding on taxpayers for years.”

The Illinois Coalition for Independent Work said the study is “significantly flawed” and doesn’t account for the limited hours per week most drivers work. The coalition represents ridehailing services and companies that deliver food and other items, such as Instacart.

“Drivers in Illinois do not want to become employees whose schedules are mandated by others. They turn to the app-based platforms to make money where and when it works in their lives, and according to a recent study, were making an average of $36/hour while working,” a coalition statement said.

Professor Robert Bruno, a co-author of the new report who’s with the U of I’s Project for Middle Class Renewal, said it provides information about the balance of power between companies and labor in an era of gig work.

“This is a serious debate that is unfolding across the country, supercharged because of the pandemic,” he said.

The authors said the Illinois General Assembly should pass a law declaring the drivers are employees. Uber and Lyft have fought such efforts in several states, sometimes supporting halfway measures that would keep the drivers as contractors but provide minimum levels of pay and benefits.

One case was California’s Proposition 22, passed by voters in 2020 but ruled unconstitutional by a county judge last year. Proposition 22 consigned drivers to sub-minimum wages, the report said. Higher pay for drivers translates into costlier rides for customers, but the researchers said Uber and Lyft users are relatively affluent and can afford to pay more.

The report was based on information published on city government’s data portal for the first six months of 2021, covering 22.5 million trips. It also builds in an assumption from research commissioned by Uber and Lyft that shows the average driver is carrying a passenger only 55% of their work time, with the rest being between pickups.

A proposal in the City Council by Ald. Roderick Sawyer (6^th) would increase pay for drivers by requiring that they earn at least $5 per trip. The proposal also would require companies to pay the drivers at least 80% of a trip’s cost, while limiting higher fares charged during peak demand.

Bruno said drivers aren’t compensated as well as taxi drivers because of city rules requiring cab companies to pay portions of vehicle operating costs.

The researchers concluded the average ridehailing trip during the time studied in Chicago was $22.37. They said more than half of that was eaten up by expenses and payroll taxes. As employees, the average driver would see an $8-per-hour increase, plus another $3 in benefits such as workers’ compensation and unemployment insurance, the report said.

Uber and Lyft report that drivers keep 75% of the base fare, plus all tips. But the report found that only 17% of Uber and Lyft users tip their drivers.