Transportation Policy

New York City Votes To Cap Uber and Lyft, Regulate Drivers' Pay

The days of a free market in ride sharing are over in America's largest city.

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MIKE SEGAR/REUTERS/Newscom

New York City has decided to pump the brakes on ridesharing services like Uber and Lyft by passing tight, first-in-the-nation regulations that both limit the number of drivers allowed in the city and empower regulators to pass more restrictions in the coming months and years.

Chief among these new regulations is a year-long freeze on the issuance of new licenses for rideshare drivers, during which time regulators at the city's Taxi and Limousine Commission will study every dimension of the industry, including how much drivers make, vehicle utilization rates (the percentage of time Ubers spend with a passenger in the back), and the impact of these services on traffic congestion.

Once this study is completed, the commission will be allowed to set caps on the number of rideshare vehicles allowed on city streets, set utilization targets for rideshare fleets, regulate where these cars can pick up and drop off passengers, and establish minimum hourly pay for drivers.

In short, the regulatory breathing room that has allowed Uber and Lyft to grow into the transportation dynamos they are today is coming to an end in New York City. According to rideshare companies themselves, this means dire consequences for riders, drivers, and overall mobility in the city.

"These sweeping cuts to transportation will bring New Yorkers back to an era of struggling to get a ride, particularly for communities of color and in the outer boroughs," Lyft Vice President of Public Policy Joseph Okpaku said in response to Wednesday's vote.

"The city's 12-month pause on new vehicle licenses will threaten one of the few reliable transportation options while doing nothing to fix the subways or ease congestion," said a spokeswoman for Uber, Danielle Filson.

New York City politicians are much more optimistic, insisting that the new rules are both necessary, and will come with almost no trade-offs for the travelers who depend on ridesharing to get around the city.

"Our city is directly confronting a crisis that is driving working New Yorkers into poverty and our streets into gridlock," Mayor Bill de Blasio told the Wall Street Journal Wednesday. "I'm confident we are getting the balance right to address plummeting driver pay and rising congestion, without harming service," New York City Council Member Brad Lander told constituents in an email after the vote.

De Blasio and Lander claim that the rapid increase in the number of Uber and Lyft drivers on New York City streets has resulted in a big spike in traffic congestion while diminishing fares for drivers of traditional yellow cabs and rideshare cars alike, as they both compete for the same pool of riders.

Estimates vary on how much rideshare drivers actually get paid per hour, given that both hours and fares are going to vary widely between different drivers. According to a report prepared for the taxi commission, the median rideshare driver makes $14.25 an hour after expenses. Industry figures put it a little above $16 an hour.

Neither figure is enough for city politicians and regulators. Lander says that most drivers "suffer from low pay and high company mark-ups that generate huge returns for investors, but leave drivers in poverty." The Taxi and Limousine Commission says drivers need to earn $17.22 an hour in order to make "a living wage."

Lander and others, of course, skip over the fact that by freezing the number of new rideshare licenses—and allowing for future reductions—they're ensuring that people who would otherwise have signed up to drive for Uber and Lyft will be excluded from the marketplace, making their driving wage $0 an hour after expenses. Should the Taxi Commission use its new powers to reduce the number of rideshare vehicles on city streets under what it is now, we would see current drivers actually lose their jobs and their livelihoods.

It's hardly a secret that the new pay rules and cap on drivers are meant to protect incumbent drivers. The City Council's report on the legislation it passed yesterday included multiple pages on the negative affect ridesharing has on the wages of traditional taxi drivers. Taxi drivers themselves have pushed hard for the new rules on the explicit grounds that the rules will protect their wages.

Lander waves away concerns that hiking labor costs for rideshare companies while capping the number of operators they can put on the road will result in higher prices or reduced service for riders, saying that "there are more than enough [rideshare vehicles] on the road right now to provide good service, but we need to make them more efficient."

That putting in caps on the number of vehicles and setting "utilization rate" targets will not cause a reduction in service—particularly in New York City's boroughs where over half of rideshare rides begin and end—strains credulity.

Fewer cars and a growing number of people demanding them would could only result in longer wait times or higher prices for riders. Demanding that drivers have a passenger in the back over and above a certain percentage of the time will discourage them from servicing peripheral areas of the city where the time spend between dropping off one passenger and picking up another one is bound to be greater.

The one potential positive from this tradeoff—a reduction in traffic congestion—is far from guaranteed.

Traffic speeds have indeed gotten worse in New York City, falling some 15 percent since 2010. How much of this has to do with Uber and Lyft is a mystery. A 2016 report conducted by de Blasio's office found that congestion was getting worse prior to the introduction of rideshare services, and that the primary drivers of this congestion were "increased freight movement, construction activity, and population growth."

Nevertheless, ridesharing has gotten more popular since the release of that report, meaning its impact on congestion is probably real. A cap on these services would probably produce some reduction in congestion, though how much remains to be seen.

If the city really wanted to increase traffic speeds, it could implement any one of the various congestion pricing proposals floating around. (Both Uber and Lyft have endorsed such policies.)

Still, it cannot be stressed enough that New Yorkers have increasingly taken to ridesharing as a result of the city's deteriorating mass transit system. Ridership on the New York subway has fallen every year since 2015, even as the number of jobs and people in the city has grown. On-time rates have plummeted, maintenance problems have proliferated, and subway cars have become more crowded.

Given an ailing rail system that is increasingly failing to meet their needs, commuters have instead opted for a transportation alternative that can, with minimal wait and acceptable expense, get them directly from point A to point B in relative comfort. That may mean spending more time in traffic, but consumers appear willing to make that tradeoff. The regulations passed Wednesday seek to replace a successful and dynamic business model with a centrally controlled rideshare service. The government will not get to determine how much drivers make, how many of them can be on the road, how often they have to pick up passengers, and even where they can pick them up.

This is a loss for mobility, and for the promise of a freer market in transportation.

Transportation Policy ridesharing Uber Lyft New York City