Free Minds & Free Markets

New York City's Minimum Wage Law for Rideshare Drivers Might Actually Be Reducing Drivers' Pay

New court documents suggest that the city's rideshare regulations have backfired in a big way

MIKE SEGAR/REUTERS/NewscomMIKE SEGAR/REUTERS/NewscomNew York City's new minimum pay rules for rideshare drivers were intended to boost driver income, but they may be having the exact opposite effect.

On Tuesday, rideshare company Juno—which is currently suing city regulators over the new pay rules—filed court documents showing that their bookings are down some 30 percent for the month of February (when the new pay rules went into effect) and that average hourly compensation has fallen by 17 percent.

"Costs have increased for riders, demand for Juno's services has decreased, and hourly earnings for Juno's drivers have fallen," reads a memorandum filed by Juno, which warns that these effects "will only get worse" so long as the rules remain in place.

The decline is particularly concerning, Juno CEO Ronen Ben David wrote in a separate court filing, because the company had been seeing business increase prior to the implementation of the new pay rules. Juno performs about 5 percent of rideshare rides in New York City, compared to about 20 percent for Lyft and 70 percent for Uber.

Lyft, which is also suing New York City regulators, reports that they, too, are seeing a decline in rides booked though their app, although it has not been as severe as the hit reported by Juno. Lyft estimates that the city's rideshare industry could see a $50 million decline in bookings in 2019.

In August of last year, the New York City Council passed a bill requiring the city's Taxi and Limousine Commission (TLC)—the regulator responsible for the rideshare industry and the target of Lyft and Juno's lawsuits—to come up with pay standards that would raise drivers' earnings to $17.22 an hour.

In December, the TLC did just that, issuing new driver pay rules built around a complicated formula that factors in an individual trip's time and length as well as a company's utilization rate (the amount of time drivers actually have a passenger in the car.)

In their lawsuits, Juno and Lyft object to the commission's rule on two grounds.

The first objection made by both companies is the way the TLC's driver pay formula employs the utilization rate. Without getting too in the weeds, the higher a company's utilization rate, the less it has to pay per-trip to its drivers. That advantages companies like Uber and Via, which both have higher utilization rates, by allowing them to pay drivers less for the exact same trip.

The Juno suit argues that companies with lower utilization rates will have to raise fares to cope with these higher costs, which scares away riders, further lowering their utilization rate and raising their per-trip costs, which requires more fare increases. The company says this vicious cycle will ultimately kill off smaller services.

Lyft also objects to the TLC's formula calculating pay on a per-trip basis, which the company argues both violates the city council law establishing pay standards, and creates distortions in the market.

A report from MIT Professor Catherine Tucker, filed as part of Lyft's lawsuit, argues that a rigid per-trip formula prevents companies from adjusting fares and driver pay to respond to changes in demand throughout the day.

Tucker's report also argues that the TLC's current formula rewards drivers for completing short, slow trips, as opposed to longer or faster rides—essentially creating an incentive for drivers to service riders in dense Manhattan at the expense of commuters in the city's outer boroughs. That incentive works against another of the city's goals, which is to reduce congestion in Manhattan. Starting in February, for-hire vehicles entering Manhattan have to pay a new fee designed to limit car trips on the island's gridlocked streets. Traditional cabs pay $2.50 per trip, while trips performed by rideshare companies are slapped with a $2.75 fee. Shared rides performed on UberPool or Lyft Line pay only a $.75 fee.

Disentangling the effects of the congestion surcharge and the fare hikes that followed the new minimum pay rules is difficult. Their combined effect is that rideshare trips are costing more, and people are taking fewer of them.

Thanks to perverse incentives contained in the TLC's pay rules, the decline in trips will likely not net out any improvements in congestion. As the market for rideshare rides shrinks, total driver compensation could start to fall as well. According to Juno's court filings, it already has.

Juno and Lyft's lawsuits are still ongoing. In February a judge issued a temporary restraining order against the TLC's new pay formula, but Lyft at least has chosen to continue to comply with the rules as its case works its way through the courts.

For now, it appears that if these new regulations "help" anyone, it will be Uber and the incumbent taxi industry and taxi medallion owners; many of whom have refinanced their medallions so many times that they are essentially underwater on an investment that is devalued by rideshare competition. There are already clear losers: passengers and smaller rideshare companies trying to earn their business.

Photo Credit: MIKE SEGAR/REUTERS/Newscom

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  • Libertymike||

    Does Donald Trump realize that his hometown is one of the biggest shithole nations on earth?

    No, New York City is not Nairobi, but it is rapidly becoming a third world hellhole replete with crumbling, decaying infrastructure, governed by sociopathic socialists, and populated by increasing numbers of black and brown analphabets.

  • Juice||

    crumbling, decaying infrastructure


  • Libertymike||

    Like you have never seen before...

  • TrickyVic (old school)||

    ""essentially creating an incentive for drivers to service riders in dense Manhattan at the expense of commuters in the city's outer boroughs.""

    Yellow cabs are not allowed to refuse service for trips to the 5 boroughs, Westchester and Nassau counties.

    I'm sure they will attempt to force ride sharing services to do the same.

  • Shockerengr||

    "trips to"

    From what I understand, the ride share drivers only see the pick up location, not destination? So not much difference.

    But still, both can avoid going to the other areas by spending more time looking for fares in Manhattan

  • Mock||

    NYC bureaucrats set and control pricing rules for companies...... my, my...... WELCOME TO AOC's SOCIALISM !!!!

  • BYODB||

    Starting in February, for-hire vehicles entering Manhattan have to pay a new fee designed to limit car trips on raise revenue with the island's gridlocked streets.

  • Fist of Etiquette||

    I think we can all agree that if you're not getting a living wage for your work then it's better to not have that work at all.

  • TJJ2000||

    ^ABSOLUTELY NOT; That's the most self-entitled irresponsible statement I've ever heard. In 2008 people were living in Tents and eating out of garbage that would take ANY job they could find and you have the audacity to say they're "better to not have that work at all"... Byte me!!! YOU HAVE NO AUTHORITY to eliminate my job prospects and decide what I WILL or WILL NOT take - slaver!

  • Still Curmudgeoned (Nunya)||

    Sarcasm detection I think we can all also agree needs work.

  • Sevo||

    Really? A government regulation did the opposite of what it was (supposedly) intended to do? Noooo!

  • Ken Shultz||

    I'm not sure this isn't by design. The regulation may be doing exactly what it's intended to do . . .

    "It appears that if these new regulations "help" anyone, it will be Uber and the incumbent taxi industry and taxi medallion owners; many of whom have refinanced their medallions so many times that they are essentially underwater on an investment that is devalued by rideshare competition."

    New York's primary concern in going after Airbnb is the loss of hotel room tax revenue. The city is mostly just trying to protect their revenue stream.

    It's the same thing with those medallions. That's tax revenue that they can't get from ride share companies. They probably think it's too bad that the regulations aren't hurting Uber in addition to the other ride sharing services, but the main objective is probably to help the medallion owners.

  • Zach E.||

    Ken, I think you're close, after all they could simply tax these guys to make up revenue. What this is about is protecting unions and getting those bloc(k)s of votes. It's about power; the unions have demanded NYC politicians come down heavy on their competition. Airbnb and Uber, et al, are disruptive to status quo industries and their unions. Innovation is too hard or impossible for them (plus they couldn't charge their sky-high prices for bad service), so they will slowly regulate away the competition through political pressure. This is easy when there is only one party, and therefore one primary to dominate.

    Get rid of these guys and politicians and unions are happy, the only losers are everyone else!

  • Longtobefree||

    Since the idea is to force the taxi competition out of business, I would say things are going exactly as planned.

  • DrZ||

    Gads. Unintended consequences from government decree. Who would have guessed?

  • Tech 2 Charge||

    Check Best Tech Articles:

  • Trainer||

    The purpose was never to make sure that ride share drivers get enough money. The purpose is to protect cab companies. It appears to be working as planned.

  • peteree||

    oh please. cant you see this is a political ploy by Lyft, Inc.? The City passed a law requiring them to pay drivers better, by a combination of a slight rate increase for riders ***and a decrease in the 29% average commission charged by Uber, Lyft and Juno***... Lyft didnt like the idea of lowering their commission, SO... they jacked up prices by about 50%, with the GOAL of lowering demand, in the hopes that drivers and riders would both complain and they could bury the law...

    PS how about doing some research before you write this article? If you did, you would have discovered that Lyft's utilization rate, at 58%, is EXACTLY THE SAME as uber's. In other words, their claim that the new formula "advantages uber" is a smooth-talking lie. But then again, if you wouldve done some research you wouldve undoubtedly found that Lyft, Inc is a pathological liar.


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