Will a strong economy make Uber spend even more cash to recruit drivers?

Uber logoIt takes about two hours to drive from Sacramento to the Bay Area but Dayal says he can make the trip in about 70 minutes.

In any case, driving 176 miles round trip seems taxing to anyone familiar with Californian traffic. So naturally I assumed that my Uber driver who picked me up in Oakland the other day was doing this full time.

Nope, he said.

Dayal actually owns a mini-mart in Sacramento. The store was doing well until the 2007-2009 recession, the worst economic downturn in U.S. history since the Great Depression.

But Dayal’s business never fully recovered, so he now travels to San Francisco once a week for two days. If he’s lucky, Dayal can grab the 40 fares needed to qualify for a $150 bonus from Uber. In his stead, Dayal’s son runs the store. Like his dad, he also works another job.

Helping Dayal’s cause is relatively low gas prices: the average price in California is about $3.11 per gallon, higher than the national average but considerably cheaper than a decade ago.

People like Dayal who never fully recovered from the recession want to generate more income by working as freelance drivers. And cheap gas provides them a powerful financial incentive to do so because it means more money in their pockets.

Here’s the big question: is Uber, which plans to go public one day, built for the long run or is simply the product of specific economic conditions unique to the Great Recession? Since 2008, the economy has steadily grown but wages has remained stagnant. At the same time, a shale oil boom in the United States has depressed crude oil prices.

The economic pillars that have fueled Uber’s growth (stagnant wages and cheap gas) won’t last forever.

Average hourly earnings in the United Stats jumped a robust 0.3 percent in January to $26.74. That represents year-on-year increase of 2.9 percent, the largest rise since June 2009. At the same time, non-farm payrolls jumped by 200,000 jobs last month after rising 160,000 in December, according to Labor Department data.

By contrast, Uber drivers make on average $15.68 per hour.

Will anyone still want to drive for Uber when better paying jobs are suddenly plentiful?

According to a recent survey, 64 percent said they signed up for Uber or Lyft because they needed ‘extra money’ or were recently laid off from a job.

In other words, most people don’t see Uber driving as a long term career move. At best, freelance driving helps people pay the bills until something better comes along. The survey showed that nearly 40 percent of Uber and Lyft drivers are 31 to 50 years old, typically the peak earnings years for someone’s career.

Somehow, I doubt Dayal would want to drive back and forth from Sacramento to the Bay Area if his mini-mart sees a surge in business from consumers suddenly flush with money.

Perhaps that’s why the company is already developing self-driving cars that can replace humans.

As for the low gas prices, who knows how long that will last. Energy prices are inherently volatile: global events like wars, natural catastrophes, and political instability can send prices quickly soaring.

Uber, which debuted in 2009, has known nothing but a world of low oil prices and an ample supply of labor. When that inevitably changes, Uber will have to burn even more cash than it already does now to compete for drivers.


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