When it comes to driving with Uber, all cities are not created equal
Posted by Rob Solomon, Policy Data Analyst
More than a million people around the world drive with Uber. The amazing thing is that they each use Uber differently — working when, where and how they want. Uber fits into myriad life circumstances: from drivers who want full-time work to people just looking to earn some extra money between classes or stay active after they retire.
However, we’ve discovered that it’s not just people’s individual needs that drive their use of the app. Regulation also plays an important role — because when cities make it expensive or time-consuming (or both) to begin driving, drivers have less flexibility.
For example, in the U.S. — where it tends to be relatively simple to get started — more than 60 percent of drivers use the app for 10 hours a week or less. But in Asia (outside of China and India), that number is 51 percent and in Europe it’s 31 percent. Both are regions that typically have more onerous regimes than the United States.
If you take a city like Manila, the rules require a lot of heavy lifting by drivers to get onboard. For example:
- Drivers must first obtain Provisional Authority (PA), a temporary official permit that takes takes up to three weeks to complete and that allows them to drive for 45 days until their Certificate of Public Convenience (CPC) is issued.
- The CPC, or franchise permit, is valid for one year. To get one, there needs to be a public hearing on behalf of the permit applicant. The whole process can take up to six months; and
- These rules apply to the owners of the vehicle as well as the driver, and most drivers in Manila do not own their own cars.
Putting significant upfront costs on drivers — costs they incur before being able to do a single trip — is not unique to Manila. In New York City, drivers must pay up to $3,000 in advance, invest 60 hours of actual in-person time and wait up to three months before ever receiving their first trip request.
By comparison, the regulations in Orange County, California, make it easy for people to get started. They need a background check and their car must pass a vehicle inspection…and they’re ready to go. All told, the entire application process costs an estimated $10 and takes less than two hours of actual person-time, on average. By keeping it simple, Orange County has ensured that more citizens can benefit from this kind of flexible work.
We looked at 42 cities around the world to compare how much time and money it takes to get started as a driver with Uber:
Economists refer to these upfront costs as fixed costs, and how they affect prospective drivers is pretty straightforward: the higher the costs of getting started with Uber, the longer a driver has to work in order to make driving with Uber profitable. That’s why you’d expect to see fewer people doing less than 10 hours a week in cities like New York or Manila, which have high fixed costs. And that’s exactly what the data shows:
Cities in this chart are ranked by an index that measures the total cost of getting started with Uber, calculated by adding up the total monetary costs and time required to sign up. A value of $5 is assigned to each person-hour required. (The costs for non-U.S. cities are adjusted to account for the difference in each country’s national income relative to the U.S.)
The relationship between total costs and average hours worked in a given city is striking. Drivers worked an average of 18 hours per week across all 42 cities during the period examined. However, drivers in the the most costly quartile of cities worked an average of 26 hours per week — 44 percent more than the average across all cities surveyed.
In high-cost New York City, just 36 percent of drivers work an average of less than 15 hours per week, while in low-cost Orange County 93 percent do.
Just as economic intuition predicts, people respond rationally to the incentives and constraints they face. In this case, a rational choice means working longer hours — and less flexibly — in response to higher costs of entry.
For policymakers looking to maximize the driver-side benefits of ridesharing in their cities, the path forward is clear: they should keep things simple. This means focusing regulations on genuine public-interest objectives — like data-driven safety and consumer protection initiatives — without making it too difficult for people who want to work flexibly from doing so.
You can take a look at some of the data used in the charts above here.