On March 1, a prestigious MIT research center published a Research Brief on a study of rideshare driver compensation, led by a respected Stanford University researcher. The MIT report asserted that half of Uber and Lyft drivers earn no more than $3.37 per hour, after accounting for vehicle ownership and operating costs. The study further concluded that 74% of rideshare drivers earn less than the minimum wage in their state, 30% are actually losing money and 74% of whatever driver profits there are could go untaxed, if drivers claim the standard IRS deduction for vehicle operating costs.
After MIT published its Research Brief, the press was quick to pounce, with brutal, indignation-laden headlines:
Ordinarily, this story would end here, with little additional fanfare. Stephen Zoepf isn’t the first university researcher to make an error in publishing preliminary sponsored research findings, and to his credit, Zoepf promptly issued a retraction, if not an apology, after being advised of his mistake.
But this story shouldn’t end here as it provides a useful parable on the powerful forces that promote the creation and viral dissemination of inaccurate information, aka fake news. The insidious dynamics behind this saga need to be told in three parts.
The mistake in the MIT Research Brief can be traced to how MIT researchers improperly interpreted responses from 1,121 Uber and Lyft drivers surveyed in January, 2017. In explaining his faux pas, the MIT team lead benignly states, “I can see how the question on revenue might have been interpreted differently by respondents.” But when over 1,000 respondents interpret a survey question one way, and an experienced MIT research team sees the survey responses in an entirely different light, there has to be a reason.
It’s fair to assume that Uber and Lyft respondents answered the critical survey question driving MIT’s analysis of driver earnings as it was originally posed:“How much money do you make in the average month? Combine the income from all your on-demand activities.”
But the MIT study team inexplicably changed the wording and hence the meaning of this key survey question in their analysis. In their full study report, the MIT researchers state: “Responses to Question 14 ‘How much money do you make in the average month?’ determined monthly revenue for each driver.” By dropping the second part of Question 14, clarifying its reference to only earnings from on-demand activities, the MIT researchers erroneously were led to reduce driver earnings for the 83% of respondents who reported having other sources of income. As a result, MIT’s calculations of gross and net driver earnings were understated by more than a factor of two.
In response to my email to the lead study author, which mirrored Uber’s critique of MIT's study methodology, Stephen Zoepf told me “I’m re-running the analysis this weekend using Uber’s more optimistic assumptions.” But I don’t see this as a case of being more or less optimistic, but simply being accurate, consistent and applying common sense in conducting research to high academic standards.
My bigger concern with this research project – its epic fail – was the failure to recognize obvious red flags or to vet the results with knowledgeable professionals who could have quickly identified methodological errors, prior to publication. But instead, the project team charged ahead to publish its preliminary research findings, ignoring:
The Role of the Press
There are immense pressures on news organizations to avoid getting left behind in reporting breaking news, and this story offered the promise of immense “eye candy” appeal. After all, the study came from a highly trusted source, and presented alarmingly negative findings on a widely known and frequently maligned company.
Shortly after the MIT Center for Energy and Environmental Research (CEEPR) published its Research Brief, the story went viral, precipitating a newsroom arms race to get the shockingly low estimates of rideshare driver earnings out to the public.
When I last checked, a Google search on “MIT study Uber driver earnings” generated over 700,000 search results, undoubtedly exposing the bogus study results to tens of millions of viewers.
It was naïve for the study authors and its sponsor to not recognize the dangers of publishing such a potentially explosive and unvetted study as a working draft to solicit feedback on the approach and findings. The press predictably treated the results as gospel (without the benefit of reading the full report), and broadly condemned Uber’s (and Lyft’s) perceived abusive business practices.
Some news organizations did publish a brief follow-up on Uber’s rebuttal and the MIT team leader’s ensuing retraction, but with far lower impact and reader interest. The damage was done.
Uber’ Public Relations Hell
The public relations harm to Uber as a result of MIT’s initial study release is self evident. But even with Uber’s prompt rebuttal and the study author’s retraction, Uber’s reputation is bound to suffer in the weeks ahead.
One widely read business publication jumped on the initial release of the MIT study findings by headlining: “Uber’s New CEO Faces New PR Disaster.” But when Uber CEO Dara Khosrowshahi tweeted a testy rejection of the flawed MIT study results, the same publication followed with the story: “With a Single, Insulting Tweet, Uber's CEO Just Destroyed Months of Hard Work.” Opprobrium throughout the news cycle on this story has fallen mostly on Uber, rather than on the instigators of this bogus news firestorm.
Stephen Zoepf’s revised study results are continuing to create negative press for Uber. For example, NPR recently reported that “in each new calculation method a significant percentage of drivers are still earning less than minimum wage in their state — 54 percent in the first case or 41 percent in the second case, according to Zoepf.”
While this statement is factually accurate, it fails to characterize MIT's research findings in proper context. Gig economy jobs provide considerable flexibility that is highly valued by drivers. Comparing Uber and Lyft driver compensation to minimum wage rates is mixing apples and oranges: part time/flexible work vs. full time/inflexible employment.
The MIT study correctly observed that fewer than 20% of drivers rely exclusively on ridesharing services for their earned income. For most drivers, ridesharing is hard work that doesn't pay particularly well, resulting in extremely high turnover rates. On the other hand, for many drivers, ridesharing provides a valued supplement to household income with considerable scheduling flexibility and frictionless entry/exit. The value drivers associate with flexible, part time scheduling helps explain why less than one-third of rideshare drivers are dissatisfied with their work experience with Uber and Lyft, despite seemingly low hourly pay.
The market will ultimately decide whether rideshare driver earnings are adequate to fuel Uber and Lyft's profit and growth aspirations. Time will tell. In the meantime, when MIT releases its revised full study report, it would be helpful for the authors to present a balanced, context-sensitive view on driver earnings that hopefully can be accurately reported by the press.
There are no singular villains or heroes in this story. The creators, disseminators and avid news readers drawn to the flawed MIT study each had reasons to behave as they did. Guarding against the epidemic of fake news that surrounds us will require all stakeholders to exercise better judgment in avoiding the fool’s race to spread and consume news with more shock value than validity.
After 40 years in management consulting and venture capital, I joined the faculty of Columbia Business School, teaching courses in business strategy and corporate entrepreneurship
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