Catching a Ride in the Fifth District

Ride-sharing services, such as Uber and Lyft, have become a force to be reckoned with in the taxi industry. These convenient app-based services, where rides can be ordered to an exact location, the navigation is built in, payment can be done through the app, and charges are often lower than what they would be for a traditional cab service, have grown substantially in recent years. Most recently, Uber was valued at $72 billion in February 2018, and Lyft was valued at $15.1 billion in June. While these services have run into regulatory spats with government agencies and continue to deal with company image issues, they have grown markedly, particularly in and around the Washington, D.C., metro area.

The availability of employment and earnings data on the ride-sharing industry is limited, but because drivers are independent and not counted as employees of Uber and Lyft in the traditional sense, a source of data that sheds some light on the industry comes from the U.S. Census Bureau’s nonemployer establishment statistics. These statistics, derived from IRS tax returns, are available at the four-digit NAICS industry level, and therefore, we can look to the taxi and limousine industry (NAICS 4853) for insight.

The Census’ definition of a nonemployer establishment is a business that has no paid employees and has annual receipts of $1,000 or more. Other examples of these types of establishments are real estate agents and independent contractors. Nonemployer establishments in the taxi and limousine industry are therefore associated with people working independently for ride-sharing services; we can use these data to get a sense of how these companies have impacted the labor markets in the Fifth District.

According to the most recent data, there were 70,683 nonemployer establishments reporting $1.2 billion in income in the limousine and taxi industry in the Fifth District in 2016. This accounted for 10.1 percent of total employment in the U.S. in this subsection of the industry and 8.2 percent of the total income.

Among Fifth District jurisdictions, Virginia had, by far, the highest level of receipts at $530 million for 2016. Maryland was second at $394 million. While levels are high for these two states, it is likely that much of this revenue was generated in the Washington, D.C., metro area, which had $794 million in receipts; Baltimore was a distant second at $127 million. However, only $76 million in receipts was attributed to residents of D.C. proper. This is because the data are by place of residence and not by where the rides took place, so while many of the rides may have taken place in the city, most of the drivers likely lived in Virginia or Maryland.

Similarly, the number of establishments in this category was the highest in Virginia and Maryland, although the gap between the two is much smaller than it was for receipts. Virginia had 25,211 reported establishments, while Maryland had 24,268. Again, the Washington, D.C., metro area seems to have the largest impact on the state-level data, as the MSA had more establishments than any other metro area with 39,151 establishments. Baltimore was again second with 8,329 establishments.

The growth in this industry has been dramatic, particularly for, as noted above, the Washington, D.C., metro area. The charts below show that the rapid growth in the number of establishments and in receipts began in 2014. It is important to note that Uber was founded in 2009 but did not come to the Washington, D.C., metro area until 2011 and not to Baltimore until 2013. In a similar timeline, Lyft was founded in 2012 and began operating in Washington, D.C., and Baltimore in 2013.

While both receipts and the number of establishments have grown quickly in recent years, establishment growth has outpaced receipt growth in the Fifth District. As a result, the average receipts per establishment declined from $25,014 in 2014 to $19,104 in 2015 and then fell further to $17,198 in 2016. Although establishment growth outpaced receipt growth, receipt growth has continued to accelerate in 2016, growing 28.3 percent compared to 25.4 percent in the prior year. Conversely, establishment growth slowed down in 2016; the number of establishments grew 42.5 percent in 2016, compared to 64.2 percent growth from 2014 to 2015.

Despite the slowdown in establishment growth in 2016, nonemployer establishments in the taxi and limousine industry experienced tremendous growth in recent years, and services like Uber and Lyft have had a notable effect on the industry. In the Fifth District, employment and receipt growth in the Washington, D.C., metro area has benefited drivers living in Maryland and Virginia.

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Views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.