Mayor announced proposed minimum wage for Uber and Lyft drivers

This afternoon, Mayor Jenny Durkan unveiled her administration’s proposal for a minimum wage for Uber and Lyft drivers, largely following the recommendations of the consultants the city hired to analyze the TNC driver labor market.

For background, here is the article I wrote last month on the two dueling driver wage studies, one commissioned by the city to argue for increasing wages, and one commissioned by Uber and Lyft to argue for a lower increase. The city’s study uses a flawed data set that over-samples full-time drivers, and the Uber/Lyft study uses their actual driver data for one week; both studies layer on top an analysis skewed to deliver the result that the party paying for the study wanted to see.

Durkan’s proposal follows the same payment structure used by Uber and Lyft today: price per minute plus price per mile. The time component is intended to ensure compensation matches the city’s time-based minimum wage standard for employees, and the mileage component is intended to compensate for expenses.  Both are open to wide interpretation.

For the time component, currently Uber and Lyft only pay drivers for the time spent actually driving passengers from one place to another, plus a small slice of time if it takes excessively long to arrive at a pickup spot or the driver must wait a long time for the passenger to show up. But drivers don’t get paid for time spent logged into the app waiting to be dispatched to a ride. The city considers that “working time” for drivers, regardless of whether they are circling in their car, parked and occupying their time with other pursuits while waiting, or logged into both the Uber and Lyft apps simultaneously waiting for the first one to dispatch them (a majority of full-time drivers do this). So in calculating a minimum wage for drivers, while the proposed rate only applies to time transporting passengers (so-called “P3” time), the rate is set to include the average time a driver spends waiting for a dispatch and driving to that location (“P1” and “P2” time, respectively).

The mileage component is based upon average annual expenses for a full-time TNC driver, divided by average miles driven per yer — about 35,000, including P1, P2 and P3 time. The controversy here concerns which expenses should be included — both for full-time and part-time drivers.  The city’s calculation includes:

  • the cost of the vehicle being used;
  • gasoline;
  • vehicle maintenance;
  • vehicle insurance;
  • the cost of a smart phone and data plan;
  • vehicle cleaning expenses;
  • health insurance;
  • payroll taxes;
  • public utilities tax;
  • vehicle licensing, registration and other related fees.

The final minimum compensation rate the city is proposing is:

$.56 per minute plus $1.17 per mile

for “P3” time spent transporting passengers from one location to another.

While Uber and Lyft’s current rates vary depending on a number of factors, including the current demand, to no one’s surprise this proposal is substantially higher than what the companies currently pay.

In a briefing for media this morning with city officials and the two consultants hired to do the city’s study, James Parrott and Michael Reich, Parrott estimated that this would increase the pay for 84% of Uber and Lyft drivers, with an average increase of about 30%.

Obviously this will cost the companies a lot of money. Both Uber and Lyft just posted terrible quarters: Lyft losing $437 million after seeing a 60% drop in ridership over last year, and Uber lost $1.8 billion with a 73% drop in its ride-share business versus 2019. Uber and Lyft both have announced substantial layoffs this summer. Both companies are also scrambling this week after a California court ruled that Uber and Lyft must immediately begin treating their drivers in the state as employees instead of independent contractors. When asked today if the city was concerned that the new wage standard might cause one or both of the companies to pull out of Seattle, Deputy Mayor Shefali Ranganathan dismissed the notion, saying “we expect the market to recover” and asserting that the wage standard was intended to be a long-term policy. Parrott took it one step further, arguing that the commission that Uber and Lyft charge — currently about 30% — is too high and that the companies should reduce it to 15-20% (despite the fact that they are both losing money). Parrott and Reich’s analysis of the companies commission is based on their local in-market costs only and doesn’t include the corporate overhead for R&D, marketing, operations and other centralized costs — the vast majority of the companies’ expenses.

Beyond the immediate question as to how two companies drowning in red ink will pay for additional expenses, the Mayor’s proposed wage proposal raises other policy concerns as well, most notably over whether it is prioritizing full-time drivers over part-time drivers. Parrott and Reich also wrote the minimum-wage policy for New York City’s TNC drivers, building into the formula an explicit economic incentive for Uber and Lyft to minimize “P1” time by reducing the minimum wage as average P1 time decreases. Uber and Lyft responded predictably: they placed a cap on the number of drivers allowed into the ecosystem so as to give more rides to a smaller number of drivers. That skews the business model heavily in favor of full-time drivers.  And while on the surface the Mayor’s proposal only pays for “P3” time actually driven, the rate builds in compensation for the expected amount of P1 and P2 time drivers will spend. Further, the proposal anticipates that the Office of Labor Standards will update the rate annually, adjusting both for the rate of inflation and, at its discretion, recalculating the amount of P1 and P2 time for drivers. That means that Seattle’s system has the same bias — or policy priority, if you will — as New York City’s: Uber and Lyft are strongly incented to minimize P1 time, which will inevitably lead them to a local model that limits the number of drivers at the expense of part-time drivers.

In response to a question at the media briefing this morning, Ranganathan refused to engage on the question of whether Uber and Lyft are likely to cap the number of drivers, simply noting that there is nothing in the Mayor’s proposal that mandates a cap.

There is little doubt that Uber and Lyft drivers deserve a raise; it is a job that does not pay well, carries the burden of significant ongoing expenses, and in the age of COVID-19 is a high-risk “frontline” job that in practice requires accompanying healthcare to protect the health and safety of  drivers. The difficult issues are in deciding what a fair compensation structure looks like, whether to prioritize full-time workers over part-time workers, and how far governments should go in dictating the business model of private companies when attempting to protect workers. And, of course, there is one more big issue: the impact on consumers. Between the ongoing financial losses of the companies and the new costs imposed in California, New York and now here in Seattle, it seems inevitable that consumers will see a sharp increase in the price to take an Uber or Lyft. Depending on whether you are one of the companies’ customers, your level of concern with taking mass transit during a pandemic, and your  thoughts on the transportation, ecological and equity impacts of TNC vehicles, you may or may not like the idea of Uber and Lyft rides becoming much more expensive.

This coming Monday morning, the City Council will be briefed on the proposal. Ranganathan said that the Mayor’s Office is working out final technical details but expects to transmit the enabling legislation to the Council in late August with the hope that the Council will pass it in late September (just before it drops everything to work on the 2021 city budget).

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