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New York City passes nation’s first minimum pay rate for Uber and Lyft drivers

The new rule will likely give drivers an extra $5 an hour.

After dropping off passengers at a Broadway play, Johan Nijman, a for-hire driver who runs his own service and also drives for Uber on the side, drives through the West Side of Manhattan on August 8, 2018.
Johan Nijman, a for-hire driver who runs his own service and also drives for Uber on the side, drives through Manhattan on August 8, 2018 in New York City.
Drew Angerer/Getty Images

New York City is giving a raise to Uber and Lyft drivers.

On Tuesday, city officials passed the nation’s first minimum pay rate for drivers who work for ride-hailing apps, ending a contentious two-year battle to make sure drivers can earn a decent living.

Starting in January, ride-hailing companies will start paying drivers around $17.22 per hour (after expenses) — about $5 more per hour than the current average of $11.90 per hour, according to the Independent Drivers Guild, which represents about 70,000 Uber, Lyft, Juno, and Via drivers in the city. The new pay rate is calculated per ride, but the guild expects it to give full-time drivers an extra $9,600 a year.

The move is part of the city’s crackdown on Uber and other app-based ride-hailing services that have clogged the city with thousands of extra cars, while contributing to poverty-level wages for thousands of drivers.

Because Uber and Lyft drivers are considered independent contractors and not employees, they are not subject to the city’s minimum hourly wage, which will reach $15 per hour at the end of the month. The new rules essentially get around that loophole and ensure that drivers are earning at least the minimum wage, with a few dollars extra to cover payroll taxes and some paid time off.

The change also represents the most aggressive effort to regulate Uber since the Silicon Valley tech giant upended urban transportation in 2011. The battle in New York City is particularly crucial to Uber, as it represents the company’s largest market. In May, the city recorded 18 million app-based rides — more than six times as many during the same time period three years ago.

Concerns about Uber’s business model and work culture have renewed focus on the tech company, and New York City may pave the way for other cities to provide much-needed oversight of the company’s business practices.

Some ride-hailing companies aren’t happy about the news

Uber and Lyft are both pushing back against the pay rules, saying it will make rides more expensive for customers and will limit business competition.

“The [Taxi & Limousine Commission’s] implementation of the City Council’s legislation to increase driver earnings will lead to higher than necessary fare increases for riders while missing an opportunity to deal with congestion in Manhattan’s central business district,” an Uber spokesperson said in a statement to Vox, adding that the pay rate doesn’t take into account bonuses and other incentives paid to drivers.

Lyft is concerned that the rules punish some companies but not others (they only apply to large app-based ride-hailing services).

“Unfortunately, the [Taxi & Limousine Commission’s] proposed pay rules will undermine competition by allowing certain companies to pay drivers lower wages, and disincentives drivers from giving rides to and from areas outside Manhattan,” a company spokesperson said in a statement to Vox.

Via, another ride-sharing service, seemed to embrace the changes.

“As the industry leader in driver earnings in New York City, we are looking forward to working with the TLC on implementing this rule,” the company said in a statement to Vox.

New York City plays a central role in Uber’s economic experiment

New York City has been trying for years to regulate Uber and other ride-hailing services.

In August, the City Council approved several bills to regulate for-hire vehicles, which included a cap on the number of drivers who can drive for Uber and Lyft, and allowed the city’s Taxi and Limousine Commission to set minimum pay rates (which they set on Tuesday).

The bills also required the app-based companies to report details about each trip, including the duration, cost, driver earnings, and the company’s commission.

New York City lawmakers had tried — and failed — to pass similar laws in 2015 that would have regulated the expansion of ride-hailing companies. At the time, Uber was only four years old, and the startup was engaged in a fierce global campaign to halt any local attempt to regulate its business, threatening to leave cities that did so. It spared no effort to quash Mayor Bill de Blasio’s proposals, too.

But since then, the ride-hailing industry has exploded, and the problems that have come with it are harder to ignore. New York City now plays a central role in the economic experiment of the gig economy. The number of people earning a living as Uber and Lyft drivers in the city is now six times larger than it was three years ago. As of July 2018, more than 78,000 cars were affiliated with the four main ride-hailing apps, a sharp increase from the 12,500 cars registered in January 2015.

To get a sense of how significant that change is, consider this data point from the New York Taxi and Limousine Commission, which regulates professional drivers in the city: If Uber recognized its drivers as employees, as opposed to independent contractors, it would be the largest private employer in the city. In other words, Uber would be the largest private employer in the largest city of the world’s largest economy.

Uber drivers can barely make a living

The explosion of ride-hailing apps has been great for the startups’ investors — but for the actual drivers, not so much. In New York City, the unrestricted growth of these companies has put serious financial strain on the city’s taxi drivers, and it has made it hard for Uber drivers to compete and earn a decent living.

This dynamic was thrust into the spotlight recently with news that six professional drivers in the city died by suicide over a period of 12 months in 2017 and 2018, including three taxi drivers who were struggling to make ends meet.

The rise of Uber and other similar companies has also caused tensions to flare between the city’s taxi drivers and the newcomers behind the wheel. But both groups have come together to push city lawmakers to rein in the ride-hailing companies by limiting the number of drivers in the city and creating a minimum pay rate.

“City Council must send a clear message to these companies: if you want to operate in our city, you must pay workers fairly,” said Ryan Price, the executive director of the Independent Drivers Guild, in a statement earlier this year.

The new laws strike at the core of Uber’s business model, which relies on an enormous pool of drivers to be available at any given time. That means competition for rides is high and drivers must work long hours.

The city created the minimum hourly pay rate after analyzing pay data and earnings for drivers who work for the four largest app-based firms: Uber, Lyft, Juno, and Via.

Economists at the New School and the University of California Berkeley published a report in July with some limited pay data, and they came to some alarming conclusions. For one, they discovered that driving for ride-hailing apps in New York City is not really a part-time job for people who want to earn extra cash.

More than half of their drivers are ferrying around passengers on a full-time basis, and about half of all drivers are supporting families with children on that income. Their earnings are so low that 40 percent of drivers qualify for Medicaid, and about 18 percent qualify for food stamps.

The low pay problem is largely related to how drivers are classified. Because they are independent contractors and not employees, Uber doesn’t need to make sure they earn the minimum wage.

In New York City, the minimum wage is currently $13 an hour and will reach $15 an hour by the end of 2018. To make the equivalent of $15 an hour, independent contractors in the city would need to earn about $17 an hour, taking into account payroll taxes and some paid time off.

But the New School report showed that the median hourly wage for app-based drivers in New York is about $14 an hour. The authors recommended policies that would require ride-hailing companies to make sure drivers are earning at least $17.22 in New York City.

“The app companies could easily absorb an increase in driver pay with a minimal fare adjustment and little inconvenience to passengers,” they wrote.

Uber and Lyft don’t agree with that, but it looks like they don’t have a choice anymore.