Gauging The Economic Impact Of Uber

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Uber has been in the headlines for all the wrong reasons over these past couple months.

I’m sure you’ve seen or heard the headlines.

From sexual harassment, to discrimination, to “Greyball” - software that helped Uber drivers evade law enforcement.

Everything seems to be imploding for Uber. Amidst all the controversy, CEO Travis Kalanick resigned yesterday.

Yet we should not overlook the major economic impact of Uber (and its main competitor Lyft).

According to Uber and Lyft, there are over 400,000(K) registered active drivers in the US.

An active driver is someone who has provided at least 4 rides per month.

The number of taxi and limo drivers reached 77K in 2013 - an increase of 18% from 2010. Taxi and limo driver payrolls hit 8K in 2015 and 2016. But dropped to 76K this year… essentially leaving payrolls flat for the last 4 years.

You could even argue the 5% decline in payrolls this year were taxi and limo drivers jumping ship to Uber.

But looking from an even higher view, we now have 400K part-time contractors.

These part-time contractors are not included in the non-farm payrolls numbers. So any employment upside is being missed in the government data.

Who Wins, Who Loses?

Uber & Lyft will generate $8 billion (bn) in revenue in 2017.

The U.S. Taxi industry generates $19B annually (per IBIS World).

This hasn't changed much even with the advent of the ride-sharing economy. Which means that Uber is not replacing the taxi industry as much as it is augmenting it by releasing pent-up demand.

Understand that the taxi industry is a local monopoly. New York, LA, Las Vegas, San Francisco - the taxi rights are owned by individual companies.

The origins of the U.S. regulated taxi industry goes back to the Depression.

To make ends meet... car owners offered ride-sharing. But supply overwhelmed demand and prices plunged.

To prop up workers, cities began to regulate the industry in order to limit the number of drivers. They created a limited number of licenses (aka medallions) which they sold.

Eventually a market emerged for those medallions and some smart business people began to scoop them up. Some became billionaires by doing this.

(The fight against Uber is really a fight between billionaire monopolists and a monopoly-busting service. Banks also have a heavy interest in keeping the taxi industry alive because they borrowed a ton of money to buy up the medallions.)

But limiting the number of licensed taxis also capped the number of rides.

If you’ve been to San Francisco, you know hailing a cab is pointless. There aren't very many.

As Uber is showing, massive pent-up demand has existed and is generating $8bn of incremental economic activity that is being distributed across hundreds of thousands of workers.

Is Uber Cyclical (Part Of A Booming Economy), Counter-Cyclical (Part Of Trying To Make Ends Meet), Or A Bit Of Both?

There are full-time Uber drivers but most are part-time drivers trying to supplement their income.

An active economy creates the demand for drivers. But when the economy turns down, we'll likely see even more drivers but less demand. Unlike the Depression, price regulation will be in place because Uber has to make a profit somehow.

KEY TAKEAWAY: Uber has disrupted the ride-sharing economy. However, the government, banks, and taxi monopolists won’t allow Uber to completely put them out of business… at least for the foreseeable future.

When the economy turns, more people will take up driving (increasing supply) as consumers pull back their wallets (decreasing demand). Prices will drop.

Eventually more regulation will be put in place for companies like Uber and Lyft.

Andrew Zatlin

Editor of Moneyball Economics

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