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Uber and Lyft can pay drivers more without raising rates for riders, report says

The doom-and-gloom scenario, forecast by the ride-hail companies when New York regulators passed a minimum wage, never happened.

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Angela Lang/CNET

In 2018, New York became the first city in the US to require Uber and Lyft to pay their drivers a minimum wage. After studying the effects of the mandate, economists released a report Tuesday that says the policy ended up raising driver pay without significant fare increases going to riders.

When regulators first suggested implementing the pay rules, Uber and Lyft pushed back against the city, saying such a move would "lead to higher than necessary fare increases for riders." But the findings from the report Tuesday, titled New York City's Gig Driver Pay Standard: Effects on Drivers, Passengers, and the Companies, tell a different story.

Combing through data from 500 million trips from 2018 and 2019, economists from the University of Chicago, The New School and the University of California at Berkeley found that drivers' pay increased by about 9% or $1.33 per trip, in 2019. And at the same time, passenger growth continued and wait times fell. Some of these same economists were hired by New York to study the viability of a minimum pay standard before it went into effect.

"The first year of experience under the New York City driver pay standard (before the pandemic) shows that driver pay rose, more efficient use was made of drivers' time, passengers paid a little more but waited a minute less on average for a car to arrive," said James Parrott, one of the authors of the report and a director at the Center for New York City Affairs at The New School. "While the companies' commission rate declined, they still made a lot of money from their app-dispatch business."

Uber and Lyft have long been able to pay drivers what they wanted and to change pay rates when they wished. That's because drivers are classified as independent contractors and don't have the same labor protections as employees. But now regulators in various states, including New York, Washington and California, have begun looking into more pay protections for drivers.

Seattle passed a minimum wage for drivers last summer, and California passed a state law in 2019 to classify drivers as employees, which would guarantee them the minimum wage. Uber, Lyft and other gig economy companies were exempted from that law in California, however, after launching a $205 million ballot measure campaign that ended in November. Californians ultimately voted with the companies to keep drivers classified as independent contractors.

Parrott and the other economists' say in their report that if drivers are given more protections, the results won't necessarily hurt riders. They companies, however, may take a small hit. The economists estimated that Uber and Lyft's commission rates declined in New York from 15% in June 2018 to 12.5% a year later.

An Uber spokesman said New York's policy did lead to an increase in fares for riders the first year it was in effect. He also said the pay rules forced Uber and Lyft to restrict how many drivers could be on the apps, which led to driver protests against the companies.

"In just the first year of the rule's implementation fares increased, tens of thousands of drivers lost reliable access to the app and there were massive driver protests against the law," the spokesman said. "It's not surprising that the same people who created the rule now have a study showing how successful it was, but the facts show otherwise."

The spokesman pointed to a January article in the New York Times that shows some airport trips in the city have cost as much as $120. The article cites the main reason for the high fares as Uber and Lyft raising their prices after having "artificially cheap" ride fares in the years before they became publicly traded companies.

Lyft also questioned the validity of the study and warned of the potential negative impact of its conclusions. "This biased study ignores the real impact of these rules: supply controls resulting in ten thousand New Yorkers with no access to earning opportunities on our platform at all, plus a 25% price increase that hurts low income riders," said a spokeswoman for the company.

While the economists who authored the report on Tuesday said New York was a unique city to study since they were provided so much data from local regulators, the lessons learned there could still apply to other cities.