Debate over Uber and Lyft driver pay comes to a head as Seattle prepares to set minimum wage

Driver Eskinder Yirgu promotes Seattle Mayor Jenny Durkan’s FareShare legislation at City Hall. (Teamsters 117 Photo)

Seattle officials are slated to vote on a minimum wage standard for Uber and Lyft drivers on Tuesday that will change the course of ride-hailing in the city.

The vote will cap months of fighting between the companies and the Seattle City Council, academic researchers, and dueling driver groups. The council will almost certainly vote to adopt a minimum earnings standard for the drivers of so-called “transportation network companies.” The law is part of Seattle Mayor Jenny Durkan’s “Fare Share” program that already implemented an increased per-ride tax in November.

Stakeholders are divided over how high the wage floor should be. The debate hinges on whether to prioritize full-time drivers who use Uber and Lyft as their primary sources of income or casual drivers who earn extra cash on the apps. But more broadly, the battle reflects the challenge of applying a one-size-fits-all wage standard to an increasingly dynamic and complex labor market.

The wide variety of driver experiences make establishing an hourly compensation standard tricky. How are drivers compensated for hours spent looking for rides on Uber and Lyft at the same time? Is the priority ensuring full-time drivers earn a living wage? Or should the city ensure parents and people with disabilities have access to flexible, part-time work? The city’s answers to these questions will determine the fate of ride-hailing in Seattle.

On the table

Seattle City Councilmember Teresa Mosqueda. (City of Seattle Photo)

The draft legislation requires transportation network companies to pay drivers at least $0.56 per minute, including time they are logged into the app looking for riders. The companies will also be required to cover drivers’ “reasonable expenses,” including the cost of gas and vehicle maintenance, as well as compensation for health insurance and PTO. If adopted, the minimum wage will take effect Jan. 1, 2021.

City officials say they reached out to nearly 11,000 drivers when crafting the legislation. The highest priority that drivers “consistently cited” is the need for higher pay, according to the city. The proposal’s backers say it will ensure drivers make Seattle’s $16.39 per hour minimum wage and allow them to pay for benefits that aren’t covered by gig work, like healthcare.

“It’s imperative to make sure that people who are putting their life’s work into providing a service at least have a minimum wage and that’s really what this effort is trying to do,” said Seattle City Council Chair Teresa Mosqueda during a Sept. 15 committee meeting.

Conflicting studies

The City of Seattle commissioned economists James Parrott from the New School and Michael Reich of the University of California Berkeley to study how much Uber and Lyft drivers earn and to recommend a minimum wage standard. Meanwhile, Uber and Lyft enlisted Cornell University economic historian Louis Hyman to form their own conclusions about how much drivers earn. The competing studies were released on the same day in July.

Parrott and Reich concluded average driver take-home pay is about $9.73 per hour, below Seattle’s minimum wage. They arrived at that figure by subtracting estimated expenses of about $11.80 from gross hourly pay of about $21.53. Approximately one-third of Uber and Lyft drivers in Seattle work more than 32 hours per week and provide 55% of trips in the area, according to the study. The researchers estimate their recommended wage standard would improve pay for 84% of drivers.

The Cornell study, by contrast, estimates drivers earn about $23.25 per hour, above Seattle’s minimum wage.

There are a number of factors that explain the big discrepancy between the reports.

Related: Uber and Lyft push back on Seattle mayor’s plan to pay drivers more money

Cornell’s researchers rely on data supplied by Uber and Lyft and do not include driver surveys. The Parrott-Reich study includes surveys of 6,500 drivers and partial summary data from Uber. The city requested data from both companies for its report but Uber provided only partial data while Lyft declined to offer any. Cornell researchers used median earnings to determine their estimates while the Berkeley/New School report uses averages.

The study by Parrott and Reich also appears to over-represent full-time drivers and excludes tips, while the Cornell report covers more part-time drivers and includes tips. The study commissioned by the City of Seattle covered the entire month of October 2019 while the one backed by Uber and Lyft covered one week in that month. The two studies also differ in their estimates of costs drivers incur.

It’s hard to ignore the fact that both studies reinforce the goals of their sponsors. As Kevin Schofield of Seattle City Council Insight put it after analyzing the research, “both studies skew their analysis and recommendations in the direction that favors the one who commissioned their study.”

(Bigstock Photo)

Determining how much the average Uber driver earns is complicated and somewhat subjective. Researchers have to make assumptions and input a wide variety of factors that change depending on how the question is approached.

For example, when the Cornell researchers plugged in the numbers for full-time drivers and included all of their time waiting on the app, they found a median hourly rate of $17.40. When they looked at all drivers and only counted wait time preceding a ride, median hourly pay was $23.25, the headline number of the study.

That distinction is important because it impacts how many drivers are considered “full-time.” If a driver spends 20 hours each week waiting on the app and 20 hours actually driving passengers, is that a full- or part-time gig?

Uber says that even including those waiting hours, full-time drivers are a minority. The company hasn’t released data on the breakdown of its Seattle drivers, but on Friday Uber said just 9% of California drivers are full-time, including hours spent waiting on the app.

“What strikes us about these estimates how widely they vary,” the Cornell report says. “With just simple changes in the underlying assumptions, our estimates of hourly earnings increase by almost 35 percent.”

Setting aside the conflicting research — which can be used to reinforce either viewpoint — there is a fundamental problem with trying to fit gig economy work into a traditional labor mold.

The minimum wage is a powerful tool to ensure workers are fairly compensated for regular work that occurs during set hours. The regulation is built on the assumption that work is somewhat standardized. But there is no standard Uber or Lyft driver. Some drivers work 10 hours a week, others 40. Some drivers take 4-hour shifts, while others pick up rides in-between appointments and errands. Some drivers purchase a vehicle for the job, others use a car they already had.

Drivers split

The minimum wage standard is largely backed by full-time Uber and Lyft drivers such as Ahmed Mohamed Mahamud, a Somali immigrant supporting a family of 11. He is affiliated with the Drivers Union, an advocacy group for drivers with backing from the Teamsters 117 union.

“What I know is I am a kind of investor in this company,” Mahamud said. “I’m using my own car, driving myself, spending a lot of time to just pay the bills, so we’re really supporting fair pay. Even if I drive for [fewer] hours and I just pay my bills it would be okay.”

Part-time drivers tend to be more concerned about the legislation, fearing they will lose the flexibility that the apps offer.

“The legislation they’re putting forth would not be good for drivers like myself, a part-time driver,” said Alex Nachman, a driver affiliated with the Uber-backed group Drive Forward. “It seems quite skewed toward drivers who go full-time. Some of the things that I like best about driving might be curtailed or cutback under the current legislation.”

Many drivers who are backing the legislation say they’ve seen their earnings diminish over the years and criticize the companies for their lack of transparency. Don Creery, a driver with the Drivers Union, said his take-home pay has dropped every year since he started driving in 2013 in a statement released by the Teamsters.

“City Council can take a major step towards fairness with modest improvements to the Mayor’s plan that implement transparency and living wage protections benefiting both riders and drivers,” he said.

Meanwhile, groups including the Washington Technology Industry Association are pressing the City Council not to jeopardize ride-hailing.

“When our city is already experiencing widespread joblessness, this ordinance will eliminate more jobs, and moreover, disproportionately impact minority workers, who make up more than 60% of rideshare drivers,” WTIA CEO Michael Schutzler wrote in a guest commentary on GeekWire.

Lessons from New York and California

The minimum wage standard Seattle is considering is modeled after a similar approach implemented in New York City in 2018. Parrott and Reich, the researchers the City of Seattle enlisted, previously conducted a study that informed New York’s minimum wage.

Previously: Can Uber and Lyft survive regulations that force them to treat drivers like employees?

Uber and Lyft point to New York as a cautionary tale for Seattle. After the minimum wage was implemented in New York, Uber and Lyft began restricting the number of drivers on their apps so that the companies wouldn’t have to compensate drivers for idle time. Those who drive the most are given priority in the app under the new tiered system. The change has led some drivers to sleep in their cars so that they don’t miss a chance to log-on and climb to a higher tier, Vice reports.

“You have other options,” said Uber public affairs leader Caleb Weaver in a letter to the City Council earlier this month. “It remains possible to establish an earnings standard that ensures all Seattle drivers make at least minimum wage after expenses while avoiding the type of negative consequences from New York City’s policy, which disproportionately impact lower-income communities and are of particular concern at a time when public transit service is reduced.”

Uber says if it raises prices by 30% in Seattle, it could see a decrease in trips of around 20%.

Meanwhile, Uber and Lyft are embroiled in a legal battle in California over a law that seeks to force the companies to classify their drivers as employees.

The stated goal of regulations in California, New York, and Seattle is to provide vulnerable gig economy workers with living wages and basic labor standards. But each of the approaches seeks to use traditional employment regulations and standards to rein in this non-traditional form of work, which takes a variety of forms.

As New York shows, that approach has its limitations and doesn’t always result in better working conditions for drivers. With the rise of contingent work, it may be time to explore new approaches to labor law, such as portable benefits, which follow the workers without relying on their connections to employers.

Is gig work sustainable?

Underpinning the minimum wage debate is the precarious financial position of Uber and Lyft. There’s a reason the companies are powered by a workforce of independent contractors. They can’t afford to employ that many workers. Whether that model is a weakness or innovation — or both — is up for debate. But either way, the traditional employer-employee relationship doesn’t pencil out for the companies.

Like many gig economy companies, Uber and Lyft are not profitable. What’s more, both have been posting major losses since the outset of the pandemic. Lyft reported a 61% dip in revenue in the most recent quarter, while Uber saw a 29% decline.

Uber’s losses have been partially offset by increased use of UberEats, but the food delivery service isn’t immune to regulation. In June, the Seattle City Council approved legislation that requires food delivery companies to pay drivers $2.50 per delivery on top of their regular rates to offset costs and risks that drivers are dealing with during the pandemic.

The growing number of regulatory hurdles and dire financial straits raise questions about the long-term sustainability of transportation network companies. And those complex dynamics show why it’s not so simple to establish a minimum wage for drivers.

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