Gig Companies Like Uber Always Say They Can’t Pay Workers More. Here’s the Truth.
Reading Time: 5 minutesA wage hike in New York City isn’t the apocalyptic event that these services claim., Food delivery workers minimum wage hike in New York City: Why Uber and DoorDash are against it, and why they’re wrong.
Last week, New York City finalized a rule setting a minimum pay standard of $17.96 per hour for delivery workers for gig companies like DoorDash, Uber Eats, and Postmates. The new rule resulted from an extended campaign by Los Deliveristas Unidos, a fierce organization of delivery workers who brave traffic, snow, floods, heat, smoke, and COVID to bring New Yorkers our dinner.
$17.96 per hour is more than reasonable when you consider that delivery workers cover all of their own expenses (e-bikes, cars, gas, vehicle-maintenance, and so on); they also work extensive uncompensated time while waiting for orders. The new rule basically helps these workers get something close to minimum wage. According to the city’s analysis, current estimated pay rate from companies is a mere $7.09 per hour. This inadequate pay happens in large part because delivery-app companies treat workers as independent contractors, depriving them of the basic employee protections like paid sick days, workers’ compensation, and unemployment insurance. (New York’s highest court, it should be noted, hasn’t fully bought the argument that delivery workers aren’t employees under New York law. I don’t buy it either.)
Instead of feeling lucky that for so long they’ve gotten to avoid the laws that every other business has to follow, these companies have expressed great consternation about New York City’s new rule on pay. DoorDash, for example, lambasted the city’s action as ‘deeply misguided’ and likely to harm workers; it also threatened a possible lawsuit.
Neither the public nor policymakers should fall for this doomsaying. Gig companies often offer grim prophesies that don’t come true when jurisdictions try to regulate them. And New York City’s economic experts identified various ways the companies can adjust to the new status quo without excessively increasing customer prices. The new pay rule will ensure that delivery workers are treated more justly as they serve New York diners, who are highly unlikely to stop ordering in.
When the government moves to regulate gig companies in any way, these corporations routinely forecast catastrophe; Uber even threatened to leave California, Seattle, and Minnesota if they didn’t get their way on certain issues. But in the end, when Uber and friends have been regulated, the sky didn’t fall. New York City in 2019 created what was effectively a minimum wage for Uber and Lyft drivers, and companies predicted significantly increased prices; Lyft even filed an unsuccessful lawsuit. Happily, though, the pay floor worked: A 2020 report found that in the first year, ‘driver pay increased by about nine percent, passenger fares rose slightly but not much more than in Chicago without a pay standard, passenger wait times declined significantly, and some of the pay increase was absorbed by the app-dispatch companies through lower effective commission rates.’
In fact, to the extent that Uber and Lyft prices in New York have risen since 2019, it’s attributable more to company profit-seeking than to driver pay: A 2023 study found that Uber and Lyft took a larger share of passenger fares (20.7 percent versus 9 percent) in 2022 than in 2019, and that passenger fares increased significantly more than driver pay (50 percent versus 31 percent). Seattle also passed pay floors for Uber and Lyft drivers, as well as paid sick leave and COVID-19 hazard pay; despite these obligations, the companies thrive in that city, too.
New York City’s new pay standard is likely to improve worker income without massively increasing prices or slashing the ranks of delivery workers. The city commissioned outside experts and did its own extensive economic analysis in relation to the rule, with serious consideration of various potential scenarios’ impact on customers and workers alike.
For policy wonks who want all the details, the city’s calculations and reasoning are laid out in a report from November 2022, and more recently, in conjunction with the final rule. The analysis notes that worker pay is a small portion of the total cost of most app-based food orders. The average total cost of an order for a consumer was $33.09, and it’s interesting to see how it’s broken down: $18.33 goes to the restaurant; $4.11 goes to the worker as a tip; and $2.11 is for taxes. The app receives $8.54 in total: $3.06 of that comes from customer fees and $5.48 as a commission from the restaurant. Apps retain 49 percent ($4.22) of their revenue on each order, paying out the remaining 51 percent to the delivery worker ($4.32).
The city also offers several options for how apps can absorb the higher pay without excessive price increases, including making more efficient use of workers’ time by, for example, batching multiple orders from the same restaurant; shortening trips by reducing the radius for restaurant delivery; or otherwise structuring operations to have less wait time between trips. Certainly, apps could also take a slimmer profit margin themselves on each order. Another option: Apps could stop accepting orders below a certain dollar amount. Meals are one thing, but does anyone really need immediate delivery of a mocha cookie crumble frappuccino?
It is possible that there may be a limited increase in the price of deliveries. But consumers make these decisions all the time: How much is convenience worth? And it’s the kind of trade-off that companies of all kinds have to consider: how to balance obligations to workers with consumer prices while also maintaining or growing a customer base. App delivery companies confront this challenge with a big advantage: The industry has had significant growth in recent years, with 17 percent more deliveries in the first six months of 2022 than the same period in 2021. App delivery nationally overall is currently more than four times larger than in early 2018. Such growth provides a healthy cushion to absorb higher worker pay; even a dent in demand caused by slightly higher prices is unlikely to halt the overall upward trend.
More evidence of the city’s reasonableness: The rule requires the city itself to report on certain aspects of implementation in September 2024, based on data about what’s actually happened on the ground. In other words, to the extent any assumptions are not borne out in practice, there’s a built-in method for correction.
Whatever happens, New Yorkers aren’t going to stop having food delivered. We’ve been doing this since there was a New York. (I’m sure there are historical records somewhere of Henry Hudson ordering in.) Some people may pay slightly higher prices for app delivery. Others will go old school and save money by ordering from restaurants directly, an approach that also has the benefit of supporting local restaurants by freeing them from burdensome payments to gig-company middlemen. Either way, there will be continued demand for workers to bring food to building lobbies and apartment front doors. The real question is how they’ll be treated.
In objecting to New York’s new rule, app delivery companies essentially say that extreme poverty wages are the only way they can operate. But we don’t allow that for any businesses. And as New Yorkers, that’s not in line with our values. Despite the tough-guy reputation, New Yorkers believe that hard work should pay, and we care for our neighbors. Delivery workers deserve decent treatment, and the city’s new pay standard is an important first step in that direction. More cities should follow suit, no matter what the DoorDashes and Ubers say.
Reference: https://slate.com/technology/2023/06/food-delivery-wage-hike-nyc-uber-doordash.html
Ref: slate
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