Minneapolis research staff calculate new estimates of Uber and Lyft driver costs

Photo courtesy of the City of Minneapolis.

The Minneapolis city government’s research department released a new range of estimates of Uber and Lyft drivers’ expenses on Friday evening, although it may not resolve differences between city leaders and state lawmakers over minimum pay rates.

One estimate perfectly matches those in a state report, while the other matches the significantly higher minimum pay rates the City Council approved last month over threats by both companies to leave the city.

The estimated expenses of Uber and Lyft drivers are at the heart of the debate over minimum pay rates for drivers. That’s because drivers, who work as independent contractors, are responsible for virtually all of their own costs, and those costs can vary greatly depending on what type of vehicle they choose to buy and the interest rates they pay.

A study commissioned by the state Department of Labor and Industry estimated that typical Twin Cities drivers would have to be paid at least 89 cents per mile to pay for vehicle costs and their share of payroll taxes plus 49 cents per minute to earn the Minneapolis minimum wage of $15.57 per hour.

The researchers — economists Michael Reich of University of California-Berkeley and James Parrott of the New School — also calculated a higher per mile rate of $1.20, which would compensate drivers for benefits like health insurance, paid sick leave, paid family medical leave and retirement savings.

Reich and Parrott also surveyed more than 1,800 drivers in the Twin Cities metro area, who reported lower monthly car payments on average than they estimated would be typical for Uber and Lyft drivers.

Both the average cost from the driver survey and the economists’ estimates are lower than the $1.40 per mile and 51 cents per minute passed by the Minneapolis City Council, which is based on a city staff report looking at Reich and Parrott’s 2020 analysis of driver earnings in Seattle.

The City Council chose to pass the ordinance the day before the state report came out; proponents on the council said they could always adjust the rates based on new information. Since the report has come out, members of the City Council have said they need more data in order to evaluate the state report’s conclusions.

City leaders hoped to get Minneapolis-specific data, but the state report was based on county-level information, and the raw data is protected by the state Data Practices Act. The city has not requested any data from Uber and Lyft, according to the companies and city staff.

Even if the city did obtain Minneapolis-specific data on driver earnings, however, it would likely show that drivers need a lower minimum rate than the metro as a whole in order to make the minimum wage after expenses. That’s because the calculations are based on how much time drivers spend with passengers in their cars. In suburbs and exurbs, drivers spend more of their working time waiting for passengers to order a ride and then driving to pick them up. In dense areas, more of drivers’ time is spent with paying passengers in their vehicles.

The state report, for instance, estimates the typical driver in greater Minnesota needs to be paid $1.39 per mile and 49 cents per minute to earn the statewide minimum wage of $10.85 an hour, whereas the typical driver in the Twin Cities metro needs to earn $1.20 per mile and 49 cents per minute to earn the Minneapolis minimum wage of $15.57 per hour after paying for expenses and benefits.

For its new calculations of driver costs, the Minneapolis Policy and Research team carried over the state report’s cost estimates for maintenance, insurance, cell phone, cleaning, license and registration fees and benefits.

But they estimated higher costs for vehicle payments and gas.

One cost estimate by Minneapolis city research staff for Uber and Lyft drivers with good credit. The per mile estimate includes compensation for vehicle purchases and maintenance as well as benefits like paid time off, retirement savings and health insurance.

For gas, city staff estimated drivers spend $3.83 per gallon and average 31.5 miles per gallon. Reich and Parrott estimate drivers spend $3.43 per gallon and average 31.5 miles per gallon.

The cost of gas doesn’t affect drivers’ bottom lines nearly as much as how much they spend each month on a car payment.

The city staff obtained a list of more than 10,000 vehicles used by Uber and Lyft drivers registered at the Minneapolis-St. Paul International Airport, and estimated the purchase price of vehicles for model 2020 and newer.

The Minneapolis staff assumed the vehicles were purchased new at the manufacturer’s suggested retail price (MSRP). The researchers then used a car payment calculator from Carvana to estimate the average monthly payments based on loan term (36, 48 or 60 months) and interest rates (6.85%, 9.09% and 12.83%) based on drivers’ credit scores.

Like Reich and Parrott, the city staff assume drivers don’t have a trade-in value when they purchase the vehicle, so the vehicle’s value is calculated as $0 when the financing period is over.

For UberX and Lyft, drivers must have a vehicle that’s from 2009 or newer, while for comfort level rides, which pay a higher fare, drivers must have vehicles from around 2018 or newer. Uber and Lyft drivers who work full-time on the app are likely to buy newer vehicles beyond what they typically could afford in order to work on the platform. Nearly half — 46% — of the vehicles registered to ridehail drivers at the airport were model 2020 or newer.

The city researchers estimate drivers will have average monthly car payments as high as $1,206 if they finance vehicles over three years and have poor credit. They would need to earn at least $1.42 per mile — just above the city minimum rates — to cover their costs and benefits, according to city staff.

If drivers finance their cars over five years, they will have monthly car payments of $712 to $810, and need to earn $1.18 to $1.23 per mile — in line with the state report — to cover their costs and benefits.

The state report estimates that drivers have an average monthly car payment of $837, which is based on a weighted average of more than 8,000 vehicles registered by Uber and Lyft drivers at the airport. They assume that drivers bought used cars — unlike city researchers, who assume new cars — and financed them over three years with an interest rate of 7.6%.

Of the more than 1,800 drivers surveyed, 90% owned their own vehicle and the median monthly car payment was $549, which is significantly less than presumptive car payment used in both the city and state reports. The monthly car payment used by Reich and Parrott lands at roughly the 75th percentile of those surveyed, meaning 75% of drivers pay $837 per month or less, according to DLI.

About one-third of drivers did not respond to a question about monthly car payments, possibly because their vehicles are fully paid for, the researchers said. The 10% of drivers who said they rent or lease their vehicles have a far higher median monthly cost of $764.

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