AMNA NAWAZ: Uber's impending initial public offering is expected to be one of the largest
ever.
Our economics correspondent, Paul Solman, recently visited their headquarters to better
understand what happens when a San Francisco company puts economists in the driver's seat.
It's the latest installment of Making Sense, our weekly economics series.
CORY KENDRICK, Senior Data Science Manager, Uber: We're in 65 countries, and we see about
15 million trips a day.
PAUL SOLMAN: Uber, these days literally all over the map.
CORY KENDRICK: So, you will see the biggest circles are where we see the most trips happening
on our platform.
PAUL SOLMAN: Uber data scientist Cory Kendrick can track every ride worldwide, and there
have been tons of them.
CORY KENDRICK: About 10 billion trips since we started.
PAUL SOLMAN: Here at Uber's San Francisco headquarters, the resulting data is analyzed
by a team of in-house economists.
JONATHAN HALL, Chief Economist, Uber: My guess is, overall, between 20 and 30 Ph.Ds.
PAUL SOLMAN: Jonathan Hall is Uber's chief economist.
His mission?
JONATHAN HALL: Writing papers, publishing them, and trying to establish ground truth
on tricky issues like the value of flexibility to the work force.
PAUL SOLMAN: Of course, Uber's economists need to protect its bottom line, help it stay
ahead of the competition.
But Uber presents an unusual opportunity, the realization of many an economist's s dream,
efficient markets.
Case in point, surge pricing.
JONATHAN HALL: Economists really don't like the idea of the price not being able to change
when supply or demand changes.
We have this algorithm called the surge algorithm whose purpose is to identify imbalances between
supply and demand and solve them in a way that maximizes the efficiency of the market.
PAUL SOLMAN: So when more passengers demand rides, prices go up to entice more drivers
to supply them.
Or take Uber's controversial, oft-criticized labor model.
JONATHAN HALL: The drivers, who are independent contractors, can choose to work whenever they
want or wherever they want, with essentially no restrictions.
And that's very exciting to an economist who believes in open markets and competition.
PAUL SOLMAN: So you are the embodiment of what economists would like an economy to look
like?
(LAUGHTER)
JONATHAN HALL: I think we strive for that.
PAUL SOLMAN: So Hall's economics squad is mining the vast data collected by the Uber
app to understand driver and passenger behavior, and to tweak it.
JONATHAN HALL: Women, on average, tend to do fewer trips per unit of time than men.
PAUL SOLMAN: One study analyzed data from over a million drivers to find a 7 percent
gender earnings gap.
PAUL OYER, Stanford Graduate School of Business: We know it's not discrimination.
There's a formula that determines how much they make.
PAUL SOLMAN: Stanford economist Paul Oyer, who did the research with Uber, says women
make less for a less obvious reason.
PAUL OYER: They drive slower.
So, the faster you drive, the more revenue you're generating, because you're getting
more rides in per hour.
PAUL SOLMAN: And since men give more rides, they get more experience.
PAUL OYER: So if you go out and get in an Uber right now, and there's a man driving,
and then you go out and get in an Uber with a woman driving, on average, that man will
have had more experience driving for Uber, and therefore he will be better at it and
he will earn more money.
PAUL SOLMAN: While we were there, the Uber team explored one possible tweak.
ALISON STEIN, Uber: Having this per-mile component essentially mechanically rewards for speed.
So, what this intervention considers is weighting less heavily on this per-mile and more heavily
on this per-minute.
PAUL SOLMAN: Data is the driver, about tipping, for example, introduced in 2017.
JONATHAN HALL: We consider the rollout of tipping to be an important experiment and
opportunity that -- to get it right.
And so you will see changes happening over time.
PAUL SOLMAN: Because you're constantly testing, does this make people more generous towards
drivers or less inclined to use Uber, or both?
JONATHAN HALL: Both.
PAUL SOLMAN: But using the key metric of economics, the cost of losing customers, was outweighed
by the benefit of more motivated drivers.
Stanford economist Susan Athey many tech companies now employ economists to run the numbers.
SUSAN ATHEY, Stanford Graduate School of Business: You have a bit of this image of Silicon Valley
that somebody is sitting there, you know, thinking of a brilliant idea, you know, alone
in a room, and then putting it into practice.
But, actually, the real innovation that happens, especially for the larger tech firms, is just
lots and lots and lots of incremental innovation, randomized controlled tests, thousands of
them a year, to try to improve algorithms, to try to improve systems to make them better.
PAUL SOLMAN: Better, which ultimately means more profitable, whether consumers are on
board or not.
Jonathan Hall and I took an Uber with Hayley McGonigle, who says the algorithms keep her
busy, happily busy.
HAYLEY MCGONIGLE, Uber Driver: I think a lot of the improvements lately have been to keep
drivers constantly busy.
Any time you don't have a rider, that's, of course, lost wages right there.
PAUL SOLMAN: McGonigle was provided by Uber.
She works morning rush hours, says she makes $35 an hour.
But for some San Francisco drivers, the economist's dream can be the worker's nightmare.
MOSTAFA MAKLAD, Uber Driver: They have been decreasing how much money they pay to drivers
year after year.
PAUL SOLMAN: Mostafa Maklad has been driving for almost four years.
MOSTAFA MAKLAD: Instead of working like 40 hours a week, I'm forced to work at least
60, 70, 80 hours a week in order to pay my bills and pay all my expenses.
PAUL SOLMAN: Bay Area drivers for Uber and rival Lyft have been protesting low pay with
no benefits.
Meanwhile, the IPOs of both companies will make many of their actual employees rich.
MICHAEL MARTINEZ, Uber Driver: There's a lot of frustration out there.
PAUL SOLMAN: Michael Martinez drives for Uber about 20 to 25 hours a week.
MICHAEL MARTINEZ: If you include all of the costs, and you also include the constant rate
cuts that have been going on over the last four years I have been doing it, I'm probably
getting pretty close to just what San Francisco's minimum wage would be, to be honest.
PAUL SOLMAN: Uber says there have been rate changes in both directions.
But that doesn't mitigate the impotence drivers feel in the hands of a faceless, forever-tweaked
algorithm.
MOSTAFA MAKLAD: Whenever they do any changes, we are forced to accept and agree to their
terms in order to go online and start driving.
MICHAEL MARTINEZ: We have absolutely no power whatsoever.
Uber does as they will, and we have no choice but to accept it.
PAUL SOLMAN: But, despite their gripes, both Maklad and Martinez continue to drive.
MICHAEL MARTINEZ: The main draw is the flexibility.
MOSTAFA MAKLAD: To be honest, it's the only job that I can do while going to school.
PAUL SOLMAN: Unsurprisingly, Uber economists like Libby Mishkin studied the value of flexibility.
ELIZABETH MISHKIN, Senior Economist, Uber: Drivers worked more as a result of this flexibility,
because they don't have to commit to doing something that they might not want to do later.
They can just choose to work whenever they feel like it.
PAUL SOLMAN: The economists also use data to answer critics on a myriad of issues, like
the charge that uber increases congestion in cities like New York, Uber rides lighting
up the city on this map.
CORY KENDRICK: There's really mixed evidence.
And so one thing we're trying to do is make sure there's more rigorous research out there,
trying to get at this question.
It's really hard to study, for a number of reasons.
One is that there has been a lot of economic growth in the last 10 years, and there's more
traffic when that happens.
PAUL SOLMAN: Suppose you did a study and found that Uber was the main contributor to congestion
problems in New York, San Francisco, and elsewhere.
Wouldn't you be constrained from telling everybody that that's the case?
CORY KENDRICK: Some of these questions may be tough questions for us, but we would rather
know the answer than not know.
Congestion is bad for Uber too.
Our cars will be going slower.
We also have bikes and scooters, which are new modes on the platform that are trying
to get people out of cars and into active modes.
PAUL SOLMAN: In short, more tweaking, with the data from mega-millions of customers leading
the way.
And that's the new world of economics, says Susan Athey.
SUSAN ATHEY: Right now, it's the Googles and the Amazons and the Ubers, but it's going
to be the banks and it's going to be other manufacturing firms.
So, really, all parts of the economy are going to digitize and start optimizing in a more
scientific way.
Eventually, it will all get routine.
PAUL SOLMAN: Because of the information you and I provide.
From San Francisco, this is "PBS NewsHour" business and economics correspondent Paul
Solman.