By Eric Hornick, FCAS, MAAA
The New York City Taxi and Limousine Commission (TLC) solicited a study by two economists (James Parrott of the New School and Michael Reich of UC-Berkeley) to developed a proposed earning standard (essentially a minimum wage) for drivers. As stated in the paper, the policy goal was to raise driver earnings to a level that is equivalent to a $15 an hour wage paid to employees (the number they up with was $17.22 per hour), allowing for the additional payroll taxes paid by the self-employed and a paid time-off supplement. The $15 wage will become the minimum wage for most New York City employees on December 31, 2018.
The study makes numerous assumptions, and some of these do not appear to be reasonable. The study assumes that over 60% of large app-based FHV drivers drive full-time and that 85% of these drivers make less than the $17.22 rate. The study states that drivers currently making at least $17.22 would benefit only from a “shared ride bonus,” where each driver who does a share ride (such as Uber Pool or Via) would receive an additional $1 bonus per pickup. However, the assumptions that the authors use to raise the earnings of the 85% who are below their $17.22 figure would also apply to those above that minimum, and this would cause the average pay for those drivers to increase further as well.
So how would this be paid for?
The study proposes a combination of generally small rate hikes and significantly lower commissions. The study also suggests increasing the percentage of time that a driver has a rider in the car by reducing the number of vehicles – fewer vehicles serving the same number of passengers would increase the average wait time, but the authors estimate it to be only 12 to 15 seconds.
What would drivers make?
Fifty-eight cents per mile driven (80.3 cents per mile for WAV to compensate for higher expenses in converting and operating a minivan) + 28.7 cents per minute [$17.22/60 minutes = 28.7 cents] + $1.00 per shared ride pick-up.
This would “guarantee” drivers a $17.22 hourly wage, and an estimated gross pay of $25.76/hour, with the remainder going to expenses.
What are the issues?
The $17.22 is proposed to be paid from the beginning of the first ride of the day to the end of the last ride of the day. But… the $15 minimum wage for employees is before any taxes (including Social Security) are paid. This makes the equivalent rate being proposed for drivers to actually be $20.33, not $17.22.
The definition of “working” would appear to guarantee payment for hours where the driver was eating a meal, taking a break or even attending a child’s school event.
The study assumes that drivers would drive less but would make the same money. However, it is likely that a significant proportion of drivers would continue to drive as much as they had previously, and some might even drive more.
The authors estimate that Uber made a $325 million profit in New York. However, this estimate was calculated using just an estimate of New York Office personnel/space to generate the expenses. The study concludes that Uber has a “considerable capacity to increase driver pay”. However, given that Uber is a private company, the data underlying these figures cannot be confirmed.
Nevertheless, the authors then suggest numerous scenarios in which Uber’s commission rate could be reduced from the current level (which the authors estimate for all TNC operators as 16.6%, and generally is higher than that for Uber) to a range from 5.6% to 10.1%. The lower commission rates, higher passenger rates, change in demand and higher utilization would combine to produce the additional money needed to increase driver’s pay. However, it is hard to believe that Uber would ever lower their commission rates so significantly.
The study concludes that this change will have little impact on “traditional operators” – it will neither ease nor exacerbate current market pressure. While the numbers of app-based FHVs could decrease and thus reduce competition for Yellows, Greens and other FHVs, some drivers could seek the guaranteed wage by switching more (or all) of their driving to app-based FHVs, leaving Traditional Operators in search of drivers.
This will all bear watching in the months ahead.
Eric Hornick, FCAS, MAAA is the Chief Claims Officer and Actuary of The Black Car Fund.