Illustration by Spencer Olson

Why Uber is a Net Benefit to the Economy

A new study has the potential to shift the policy debate about Uber away from labor issues and toward consumer benefit

Twitter satirist Rurik Bradbury — better known by his provocative alter ego, @ProfJeffJarviss — once joked that the sharing economy should really be called “poor persons as a service.”

Bradbury’s comment underscores the labor controversy that has dogged sharing economy companies (Postmates, TaskRabbit, Airbnb) the last several years, Uber in particular. Uber’s popularity has created an economic underclass, whose time, effort and assets are now exploited, on demand, for the convenience of the better-off, critics say. Much of the debate has revolved around labor issues — specifically, Uber taking full-time jobs away from the taxi industry and replacing them with lower-paid “contractors.”

But a new study published by the National Bureau of Economic Research has the potential to refocus the debate from labor issues to consumer savings. Uber’s benefit to consumers might exceed whatever harm it’s laid to the labor market, the study suggests, making it a net positive for the economy.

Economists at the University of Chicago studied more than 50 million individual UberX sessions across four U.S. cities in 2015, and found that for every $1 spent, Uber created $1.6 in what’s known as consumer surplus.

Consumer surplus is a measure of how much benefit consumers derive from a good or service, and is calculated as the difference between what consumers are willing to pay for the item and the market price (what they actually end up paying).

In Uber’s case, consumers found the service so valuable that they were willing to pay, on average, two and half times more than what they paid for a non-surge, UberX ride, the study finds. Uber has been excoriated for its use of surge pricing, with many accusing the company of price-gouging its customers. But this study suggest the company could get away with using surge pricing more liberally, were it so inclined.

Uber generated $2.88 billion dollars in consumer surplus in 2015 for the four cities studied, and an estimated $6.76 billion for all U.S. cities that year. The $6.76 billion in consumer surplus was twice as large as the amount of revenue earned by Uber’s “driver-partners” during that time frame. That is, Uber generated twice as much consumer benefit as it did income for its drivers.

And these figures are just for UberX rides. They don’t measure whatever surplus is generated by other level of Uber services such as its black car service, or by rival rideshare companies such as Lyft. The total consumer surplus created by the rise of ride-sharing — and the sharing economy, in general — could be much greater.

“I was expecting to find a big number for consumer surplus because when you talk to people about Uber, they really like the service and see it as a cheap option,” Steven Levitt, economics professor at the University of Chicago and Freakonomics co-author, tells Futurity. “I think our findings should change the policy discussion.

“To date, the conversation has revolved around the idea that there are people who are hurt by the service, mainly [certified taxi drivers]. There’s little discussion of the benefit to consumers.”

There’s no denying Uber has hurt the monopoly that was the taxi industry. Uber takes pride in doing so, in fact. CEO Travis Kalanick once said that the company is in a political battle with “an asshole called taxi.”

But the taxi industry’s loss has been consumers’ gain. Transportation dollars are now dispersed across Uber’s large and growing ranks of drivers. And while spreading that income across such a large workforce might mean lower wages for each individual driver, it also results in a significant benefit for consumers.

It’s worth examining whether Uber drivers are adequately compensated, and whether the service creates jobs at the same rate it takes them away from the taxi industry. But those issues shouldn’t exist in a vacuum. Because as this study show, the gain to consumers might more than make up for any harm, real or perceived.