Uber efficiency

Ride-sharing services like Uber and Lyft are using a vastly more efficient technology for matching people who want a ride with people who want to drive them than was available when the taxi radio dispatch systems were set up in the 1940s.

One measure of that efficiency is how much time drivers spend searching for somebody who wants a ride or driving to pick them up. A new study by Judd Cramer and Alan Krueger at Princeton found that only 40% of the miles that taxis drive in Los Angeles and Seattle are spent carrying a passenger someplace the person wants to go. By contrast, for UberX the numbers are 64% and 55% for the two cities, respectively. In terms of hours worked, taxi drivers in San Francisco spend only 38% of their work hours with a passenger on board. For UberX, that number is 55%.

Percent of miles driven with a passenger for taxi and UberX drivers.  Source: Cramer and Krueger (2016).

Percent of miles driven with a passenger for taxi and UberX drivers. Source: Cramer and Krueger (2016).


Another plus for the drivers is the added flexibility. Uber and Lyft drivers can work when they want, and enjoy extra pay when rides are particularly needed during peak demand.

The efficiency of the ride-share technology also directly benefits the riders. An earlier study by Berkeley transportation researchers found that 93% of San Francisco riders using Uber, Lyft, or Sidecar spent less than 10 minutes waiting for their ride and no one spent more than 20 minutes. For people trying to get a taxi come to their home, only 35% got a ride within 10 minutes, and 23% were still waiting after 20 minutes.

Who regulates Uber and Lyft? The users themselves do. After each ride, the rider rates the driver and the driver rates the rider. If the vehicle is dirty or the driver is rude or drives recklessly, that driver will very soon be out of the business.

A host of conventional regulations drive up the cost of the traditional taxi business. For example, in Chicago:

Cabdrivers have to have a chauffeur’s license, which includes training, drug testing, a physical exam and criminal background and credit checks. They pay a $600 annual fee and a $78 monthly ground transportation fee.

That all gives Uber and Lyft a pretty unfair advantage, doesn’t it? Rather than find ways to help taxis become more efficient, Chicago Alderman Anthony Beale thinks a better plan is to make Uber and Lyft less efficient. The Chicago Sun Times reports that Beale’s proposed ordinance

would require Uber and Lyft drivers to get the same city chauffeur’s licenses required for cabdrivers. In addition, Uber and Lyft drivers would be required to be fingerprinted by a city-approved vendor and get their vehicles inspected by the city.
A minimum of 5 percent of the total fleet of both companies would have to be accessible to customers with disabilities. And no ride-hailing vehicle could remain on the streets of Chicago that is more than 6 years old. Salvage, rebuilt and junk vehicles would be expressly prohibited. Lyft and Uber, whose drivers owe the city $15 million in unpaid parking tickets, red-light and speed camera fines and water bills, would also be required to immediately settle those debts to renew their operating licenses.

Lyft claims the ordinance would “make it nearly impossible for ridesharing to operate in the city”. Uber says “this would put an end to uberX in Chicago and the affordable ride Chicagoans have come to expect.”

If you agree, Uber has a petition you can use to register your views.

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50 thoughts on “Uber efficiency

  1. Joseph

    Ah, yes, the wonderful new world of the “sharing” economy in which laborers have no social security or medicare tax sharing, no health insurance, no retirement benefits, no 401(k) matching, no holiday pay, no vacation pay, no sick pay, no family leave, no unemployment insurance, no disability insurance, no union protection, no minimum wage.

    Uber drivers carry all of the financial risk and Uber itself has none. Uber can only exist in an economy in which there is a shortage of real jobs with real benefits and the Fed is doing its best to make that happen.

    This isn’t a bright new future of “sharing”. JDH seems delighted to take us backwards to the 19th century where he can enjoy cheap services from cheap labor.

    1. PeakTrader

      You listed some of the reasons why creating a “real job” is so expensive.

      Some drivers and customers prefer Uber. Why take that choice away from them?

    2. Fifty three

      Most taxi drivers in the US are contractors without benefits. That part of the playing field is actually level. Taxi companies are not great employers.

    3. John Thacker

      Do you know how the traditional taxi jobs they’re being compared to work?

      It varies from city to city, but where I’m from, drivers are generally independent contractors who don’t have those benefits either. They pay a fixed fee per day to rent a medallion and car, and need to make more than that revenue in a day to make money. The medallion owners carries none of the day to day financial risk, whereas the driver carries all of it.

      It is unsurprising that drivers in both cases carry most of the risk, because the drivers are essentially unsupervised and it’s hard to judge how well they’re doing remotely, so they bear the risk and reward. This is even worse with traditional taxi dispatch. One difference with the flat fee per day is that traditional cab driving is basically impossible for people who want to work irregular hours, and it’s impossible to suddenly ramp up the fleet during busy times. That’s part of what makes it inefficient.

      Cab driving in general, pre-Uber, is a low wage job. It seems incredibly odd to me that you’re defending it.

      1. Dominique

        In Chicago the city doesn’t require cab drivers to have ANY insurance…only the cab COMPANY.,and ONLY liability insurance!!! No medical,no uninsured,no underinsured,etc. How does that help a rider in an accident?? It doesn’t.. The rider has to sue the cab COMPANY & guess what! The driver may actually be on a suspended or revoked driver licence as 70%+ cabbies get 6-8 ticket violations per week….not total,just for the incidents they are caught at….so when in doubt any rideshare driver is much safer right off. YES it sucks us rideshare drivers get no benefits,holidays,vacation pay,etc & dont make much either…roughly avg. $11 – 13/hr for 40 hrs online = abt a real 50+ hrs driving as we stay offline to drive to hotspots. Real job would be nice in my life again.

    4. David Bofinger

      The medallion owner takes all the risk of unexpected changes in the price of medallions. Including the risk that the government will issue more medallions, or that something like Uber will appear.

    5. Darren

      Joseph actually thinks that existing taxi jobs (that Uber is replacing) actually provide matching 401K, retirement benefits, holiday pay, etc.

      Joseph is so clueless about why an employer would create a job in the first place, that he is a laughingstock.

      JDH seems delighted to take us backwards to the 19th century where he can enjoy cheap services from cheap labor.

      As opposed to Joseph, who would take us to North Korea.

  2. howard

    don’t know about you, but i personally would prefer knowing that my uber driver has, for example, had a criminal background check, drug testing, and an appropriate driver’s license.

    i think the ride-sharing revolution is here to stay, i admire uber for it, and i use them all the time, but in my community, uber drivers do have to meet the same standards as cab drivers. i do not agree at all that the best thing chicago can do is eliminate basic safety measures: the market has demonstrated that on its own, it will not require that these standards be met. that’s the point of prudential regulation.

    1. Steven Kopits

      Of course, Howard, you could look up Uber’s requirements. This task requires that you have a computer or smart phone, an internet connection, and an ounce of initiative:

      Uber Driver Requirements

      Uber Driver Age Requirements
      •You must be 21 years of age or older.
      •You must have 3 years driving experience. If you have recently moved from another state, you may have to verify your driving history. Keep your out-of-state drivers license. You might need it.

      Other Uber Driver Requirements
      •You need to have in-state car insurance in your name.
      •You must have in-state car registration. It does not need to be in your name.
      •You must have an in-state Driver’s License.
      •You must have a Social Security Number for a background check.

      Background Check
      •Clean driving record.
      •Pass a background check.

      The background check is done by a company called Hirease. It will take a few days.

      Background check: make sure that in the past 7 years you have had…
      •No DUI or drug-related offenses.
      •No incidents of driving without insurance or license.
      •No fatal accidents
      •No history of reckless driving.
      •No criminal history.

      Uber Driver Car Requirements

      You must have a vehicle (or purchase one) that meets the Uber Car Requirements.

      The UberX vehicle requirements are:
      •4-door sedan, must seat 4 or more passengers excluding driver.
      •Year 2001* or newer.
      •In-state plates.
      •No marked, taxi, or salvaged vehicles.
      •Pass Uber vehicle inspection.
      •The car must be currently registered, but your name does not have to be on the registration.

      *Uber car year requirements can vary by city. It is currently year 2001 or newer in many cities.

      http://www.idrivewithuber.com/uber-driver-requirements/

      1. howard

        I was busy and didn’t check back for a couple of days, but Steve kopits, perhaps you should read our host’s original comments.

        As for uber requirements, they have evolved over time under pressure from communities like mine that don’t think ride-share drivers should be an unregulated capability.

        So what was your point, anyhow?

        1. Steven Kopits

          Howard –

          You write: “i personally would prefer knowing that my uber driver has, for example, had a criminal background check, drug testing, and an appropriate driver’s license.”

          Uber has those requirements, as my comment above indicates. You could have checked this for yourself in less time than it took you to comment.

    2. Dominique

      Please….omg. Cabbies do NOT have even 10% of the background check,drivers background check,safe driving record,or insurance we HAVE to carry just like I did as a limo driver. Cabbies NEED to come UP to link standards like WE do!!!! Enough of the b.s.

  3. John Rahilly

    Uber and the race to the bottom. There is only one winner , Uber. The only outcome that will save the Uber customer and driver is the survival of the taxi industry. The unfettered monopoly that Uber desires will see prices go through the roof for customers, Uber commissions from drivers will be between 30 and 40 percent — end result there they will be no better off. When you consider that the average cost of despatch in the taxi industry is 5 percent —- who is the big winner, Uber. With no investment other than a $10,000 app and a seemingly endless supply of gullible drivers who are willing to wear their cars out for the greater good of Uber investors like Goldman Sachs. Strange and clearly predictable world we live in — the rich get richer and the poor get poorer. Uber the biggest con in town.

      1. Darren

        As I often say, one cannot be both a leftist and an economist. This is true of Menzie Chinn, of course, and apparently John Rahilly is part of the that same pool.

  4. Rasol

    The bottom line should be public safety uber and left don’t seem to care who is driving and and what they driving from point A to B. It doesn’t matter what kind of char they driving they need to go throug yearly inspection plus random inspection. Bottom line is uber and lyft don’t care. Same token customers don’t care as long as they get from A to B . And ride fair in not consistent you most likely end up pay more in some cases than getting in a regular taxi. Bloom line is public safety.

      1. Dominique

        Yes! Absolutely especially since Rahm Emmanuel won’t change the minimum standards on cabbies to be safer than just a minimum of “liability” insurance.. No medical insurance is required of them by the city…meantime the limo industry I came from requires full coverage insurance at ridiculous cost of ~$450/month which creates a commercial insurance industry that doesn’t need to exist at 4times the cost of the best regular car insurance. What a scam!!!! Q: how do the cabbies get off so easily? The city is in a monopoly with them so why would the city want to make it safer for riders of cabs & limit safe cabbies???? 97% of cabbies wouldn’t qualify as they get 6-8tickets /wk avg.for only when they are ticketed vs.actual driving violations & then the biggest hidden joke is the city court has a city hired person walk into court who says he’s not a judge or lawyer but hired by Chicago to deal with the cabbies…then let’s each of the 70-80 cabbies in court each day go for only $500 fine vs.paying the actual 120-150 tickets each is supposed to pay! Taxpayers lose ! …could be $100,200,300 each ticket so min.of $ 12,000 to $45,000 lost per cabbie avg. × ~75 cabbies/day = $900,000 to $3,375,000 lost each day of Chicago TAX revenue gain….and for who wins??????? Especially for a city who bitches about lack of cash? CLUE::: start having the cabbies pay what penalties they owe…the result will be more city cash,safer roads as cabbies who are not safe drivers won’t be allowed to drive…limo drivers & rideshare drivers like me don’t get any breaks like that!!! In fact the cops still harass us& give us bogus tickets…so tell Emmanuel to go screw himself

    1. Mr. Gotham

      You and many others here are clueless about taxi “safety”. A family member recently sustained serious injuries in a taxi accident in Manhattan that totalled the cab. The driver had a list of moving violations as long as your arm and it was only due to some City Hall connections that we had that the matter of holding him accountable was even pursued. I can assure you that virtually no reckless cab drivers are taken off the road, and NYC has what is probably the most robust TLC agency in the country . EVERY Uber ride that I have had has involved much safer driving that the average cab ride. Their accountability and rating system works.

      Get your head out of the sand and ask yourself why so many people are voting with their feet.

  5. john

    Yes, it sure is more efficient, and much better connection to customers, too. A better “experience”. But it is needlessly privately owned. The opportunity was there to create a global taxi coop where any profits would be allocated to taxi drivers in proportion to their activity in the network. Perhaps this opportunity still exists. What we have instead is essentially a real estate grab and aggressive price discrimination. A landlord over the ride business is something we do not need.

    John

    1. Steven Kopits

      You do realize, John, that this is an economics website. “A global taxi coop”? You mean, like Nigerians, Nicaraguans and New Yorkers all in the same coop? Send the powerpoint slides with the business plan when you’re ready.

      1. john

        I guess every decent blog has someone like you. Mark Thoma’s is called “pgl”. Maybe you two should get together. Maybe you are together.

        1. Steven Kopits

          Different ideological camp, guy. But I’m pretty good at corporate finance, and I think you’re making a superficial comment without even the remotest attempt to think the feasibility of what you’re saying.

  6. William Meyer

    I live in a canyon in Los Angeles quite near the West Side. It always takes me at least 20 minutes (and frequently more) for an Uber to arrive. Also I am always charged a multiple of the “standard”rate–3X on one memorable occasion. Since I was going to Beverly Hills at the time the ride was $100. That was the last time I used Uber. I didn’t exactly personally receive any great benefits from the efficiency the article notes. I also was lectured by the driver on the woes and dissatisfactions of being an uber driver–he drove full time and faced a fairly low earnings ceiling owing to increasing competition from a ever-growing pool of part time Uber drivers despite putting a large number of miles on his car. He was looking to leave Los Angeles for a “real job” in a different state where the cost of living was lower. Put me down as something of a skeptic on the great value of Uber–it seems to profit more from transferring costs onto others and keeping the bulk of the cash flows for itself. It’s profit likely exceeds its net social value: Uber looks like a case of exploiting externalities and the weak bargaining power of its under-employed drivers to me–like many other business plans I have seen over the years.

    1. Steven Kopits

      You live in a canyon in Los Angeles and you are complaining about the availability of taxis? You moved the a canyon in Los Angeles thinking, “Gee, I bet there must be great taxi service here.”?

      The is like a McDonald’s customer complaining about the lack of lobster on the menu.

      1. William Meyer

        No I did not move to a Los Angeles canyon in order to enjoy the great taxi service. I was simply contradicting the claim in the original post that Uber passengers never waited even 20 minutes for a ride. I have waited far longer. And I did not find the service terribly practical and frequently quite expensive, thus undermining my belief in the claim of great “efficiency” made by the original post. I experimented with the service fairly extensively for a time and then abandoned using it. It seems to me that we are seeing a situation in which Uber’s private profit exceeds its social utility–and which appears to be explained by reference to that good old Econ 101 concept, externalities. In my life experience the world is littered with similar “extractive” businesses. I do not find all businesses similarly extractive–the one I own is not, for example. Have you never seen such a phenomenon? You seem to be posturing more than arguing here. I have read your writings on oil with pleasure by the way, I know you can do better.

        1. Steven Kopits

          You mean on oil? Well, the last nine months have not been my best period, that’s for sure.

          But let’s give Uber a break. What are the externalities? These are specifically defined in an econ textbook. Does Uber pollute more or cause undue congestion? Is the argument that taxi service has low barriers to entry and that Uber is keeping most of the upside? Well, that’s true for Google or Apple, too. Is the argument merely that people shouldn’t work for low wages? What is the problem with Uber?

    2. jim

      What exactly is the externality you refer to? Transferring costs to Uber drivers? If so that is completely wrong. They are a party to the transaction, and if the return to being in the transaction does not justify the cost, then they opt out as your very anecdote illustrates!

  7. Gersh Mayer

    In Chicago cab drivers pay less than $100.00 annually to renew chauffeur licenses which includes a medical exam and drug screen. Driver license status is also reviewed. Ground Transportation Tax is paid by medallion owners. Most taxi drivers are not medallion owners.

    1. John Thacker

      Not being a medallion owner generally means that they are independent contractors, and pay a large fee per day to rent the medallion. You would generally expect that the Ground Transportation Tax would be passed along to the drivers, since the supply of medallions is so limited. That may be less true with Uber competition restricting the power of the medallion owners vis a vis drivers.

  8. orinda

    Part of Uber ‘efficiency’ is restricting the area of operation. Even on SF peninsula you they won’t pick you up at your suburban location. Call a taxi.

  9. Donald A. Coffin

    I’ll admit that I think some restrictions on who can drive are important (and note that the posted requirements of Uber don’t seem to include no DUIs). I also understand why a city might like to have people pay their parking tickets; if I remember correctly, cabs in Chicago with unpaid parking tickets are subject to towing & cannot be re-claimed until the parking tickets are paid.

    I do actually understand the appeal of Uber, and in Indianapolis (where I now live and where extremely long waits for regular cab service are the rule rather than the exception (this is pretty common in low-density cities), having more alternatives is probably better for me. On the other hand, I remain uncomfortable with some of Uber’s practices (such as unilaterally reducing rates in several cities of late). My take is that we do not know now whether Uber is a net benefit or not,

    1. Steven Kopits

      Read the comment again, Donald.

      “Background check: make sure that in the past 7 years you have had…
      •No DUI or drug-related offenses.”

  10. Patrick R. Sullivan

    To be fair, Steven, most of Menzie’s posts read like something from 1930s Moscow too.

    This whole Uber/Lyft/Sidecar controversy reminds me of the precursor ride-share program from a century ago: Jitneys.

    http://debunkportland.com/printables/TQOrigin.pdf

    Scroll down to ‘The Jitney Craze’, to read;

    ———————–quote———————-
    Initially, jitneys were regular automobiles offering to carry passengers along fixed routes and usually paralleling existing streetcar routes. The fare was usually a nickel and the slang for a nickel was a jitney; hence, jitney bus. The appeal of the jitneys was that they were much faster and more frequent than the streetcars.33 Even the American Electric Railway Association admitted that there existed a market for “service of a somewhat higher character than it is possible for the street railways to furnish.”34 The impact on the streetcar companies was harsh. Some companies lost as much as 50% of their ridership.35 The Los Angeles Railway Company may have lost as much as 25% of its revenues during the jitney period.36 Streetcar companies all over the United States began laying off employees in response to the inroads that the jitneys were making into their revenues. Many believed that the day of the streetcar was over.37 Streetcar companies demanded that the authorities legislate the jitneys off the street since the jitneys did not have to run the full length of routes, were not bonded, and often would work only during rush hour. Local and state governments took actions designed to reduce these advantages and began to legislate all or some of the following:

    • Require liability bonds (the cost often amounted to 25%-50% of the jitneys’ net earnings).
    • Require minimum route lengths. Require jitneys to operate a minimum number of hours each day.
    • Require jitneys to carry all city employees free of charge.
    ————————endquote————————

    The legislatures were successful in doing the special interests’ bidding. The jitney craze ended soon after.

    1. Steven Kopits

      We come back to the objective function of society. Economic progress will depend on the willingness of a society to tolerate market forces, to accept gains with losses. Values are of principal importance for just this reason. Layer on sufficient restrictions and, well, you have Greece.

      The presumption, therefore, that liberal (classically liberal) economists hold, that government is interested in the sustainable economic growth is exactly contradicted by the string of comments in this post.

      And how do we overcome this tendency? With an FAA. If politicians were paid for GDP growth, the discussion about limiting Uber would be short indeed.

  11. Erik Poole

    Efficiency trumps economic property rights.

    Hmmm….. don’t settlers in the West Bank make a similar argument?

    Come on people, a taking is a taking is a taking.

    1. Steven Kopits

      Whose economic property rights? Those of Uber drivers, or taxi drivers, or customers? Are taxi drivers a privileged class?

      1. Erik Poole

        I love the rhetoric! Mr. Kopits, you should run for public office.

        You do understand that your rhetoric is very similar to what Neo-Marxist-inspired activists and militants use to justify takings.

        Now if Uber had focused only on self-propelled vehicles, e.g., bicycles, then there would be no issue.

  12. Ronald Calitri

    Next up – certified air traffic controllers! Really, the planes can land themselves! Some qualifications really are needed, chauffeur’s license, and inspections at the least.
    Anyway – Uber is just another Walmart, concentrating profits at the top, and beating out the mom and pop fleets. The drivers are worse off, just like the Walmart workers; but why should we care? They’re only taking our lives in their hands at 50 mph!

  13. Steven Kopits

    Again, Ronald, read the Uber quals, above.

    As for Wal-Mart, it grew by offering the lowest prices around. The consumer was the primary beneficiary. I can’t speak for the rest of the country, but the Princeton (Lawrenceville) Wal-Mart caters primarily to immigrants on a budget, Indians, Hispanics, some Chinese, and some of the local black population. The Costco in New Brunswick caters to Indians and a few white people. They all go there to save money (as do I*).

    *On that point, I am not sure I ‘save’ money at Costco. I go in to buy a jar of nuts, and by the time I’ve cleared the cash register, I’m down $400 and am the proud owner of a tray of 96 croissants or 256 razor blades.

  14. baffling

    steven,
    “The consumer was the primary beneficiary. ”
    i grew up in a small rural community, and observed first hand what happened when walmart entered the market. since i was a kid, it did not bother me-in fact i liked the giant store with cheap merchandise. but we had family and friends who owned/worked at the local grocery store, convenience stores, hardware stores, etc. those businesses really got wiped out. the owners were not rich, but they made a living supporting their families. and their profits typically were returned back into the local community. walmart did change that dramatically. profits left the local community for the headquarters. a few people, usually not locals, held the upper management positions at the stores. but the number of middle class job opportunities dropped quite a bit once the smaller businesses when under. and consumers saved on groceries only as long as the small local competition stayed in business. milk, eggs, other essentials rose in price once the local markets shuttered. walmart did create jobs, but they were less paying and less stable than those provided by the local businesses prior to arrival. now the clerks who used to work 8 hour shifts five days a week at the local businesses, are basically on call 7 days a week for around 30-35 hours per week. overall, i cannot really say that walmart was beneficial for the typical resident and consumer in this community. maybe this outcome was inevitable whether walmart located there or not, but the outcome is indicative of why so much anger appears in the middle/lower class communities as seen in today’s election cycle.

  15. Jay

    So apparently the uber CEO is being sued for conspiring to fix prices. No lawsuit being brought against taxi service for price fixing.

  16. Steven Kopits

    In the lawsuit, passengers claim that ” drivers conspired with [Uber] to charge fares set by the algorithm, with an understanding that other Uber drivers would do the same, even if they might fare better acting on their own.”

    http://www.reuters.com/article/us-uber-tech-lawsuit-idUSKCN0WX2QU

    The principal issue appears to be the use of surge pricing, used by Uber around 10% of the time. Surge pricing of course creates supply and suppresses demand. Uber’s algorithm will seek to set the market clearing price. The use of pricing generated by the algorithm by Uber drivers broadly is taken as a sign of ‘collusion’.

    The question, to my mind, is whether Uber drivers are in the business of setting market prices or driving people around. If I were a driver, I would probably assume that the algorithm is superior in that it can see system-wide conditions, something which I could not in my own car. In other words, the driver might find it more convenient to be a price-taker, rather than price-maker. I probably would.

    http://abovethecrowd.com/2014/03/11/a-deeper-look-at-ubers-dynamic-pricing-model/

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