$30 minimum wage could be harmful for ride-hail drivers and riders alike
By Mark Mcgreal
Oct. 29, 2019 10:05 p.m.
With midterms in full swing, dropping out has once again become a common sentiment among students.
But if that wistful sentiment becomes a reality, ride-hail companies might be their new best bet at employment.
On Oct.15, the Los Angeles City Council authorized a study to determine whether a minimum wage of a whopping $30 per hour should be implemented for ride-hail drivers. City Council President Herb Wesson Jr. introduced the motion for the proposed minimum wage, following in the footsteps of New York City, which approved a minimum wage floor of $17.22 after expenses in 2018.
Clearly, the minimum wage increase isn’t meant to encourage UCLA students to drop out of school, but it’s no doubt that companies like Uber and Lyft will be much more appealing to work for after this potential wage increase.
While a $30 minimum wage seems wonderful in theory, the reality is more complicated. Ride-hail drivers certainly need to make more money, but raising the minimum wage would impact students who use ride-hail services to get around and could actually hurt the drivers it’s supposed to help. And in an inelastic market, it’s more than likely this wage hike could lead to indiscriminate layoffs by profit-driven ride-hail companies.
Los Angeles is a notoriously expensive city to survive in – especially for drivers trying to make ends meet with outrageously low wages. As recently as September, drivers in New York City protested low wages and poor working conditions. And while many of these concerns are valid – especially those concerning drivers’ status as independent contractors – they should not serve as the impetus for a wage inflation of this size.
According to a study conducted by the Economic Policy Institute, the average Uber driver makes $9.21 per hour after expenses. For most jobs in Los Angeles, the workers make a minimum wage of $14.25 per hour.
Nestor Guerrero, a fourth-year English and Chicana/o studies student, said he would willingly pay a higher price if Uber compensated its drivers fairly.
“Obviously, it’s not preferable to pay more, but if it benefits the worker, then I think that it is a step in the right direction,” Guerrero said. “I would be in support of it.”
Riders seem more than happy to pay extra for the service, so it appears that a minimum wage hike wouldn’t put ride-hail businesses out of, well, business. Unfortunately, such a wage could decrease individual drivers’ revenues in a different way.
Edward Leamer, a distinguished professor in the Anderson School of Management, believes a minimum wage hike could encourage a number of people to become drivers and take advantage of the high minimum wage.
“The problem with the minimum wage is that it deters business and attracts workers,” Leamer said. “If a person is deciding whether to work in Mexico City for $2 per hour or Houston for $7 per hour or Los Angeles at $15 per hour, the worker is going to choose LA.”
Put simply, oversaturating the market with too many drivers means less riders per driver.
There are approximately 250,000 ride-hail drivers in LA, according to city estimates. And with Uber and Lyft desperate to finally make profits, layoffs might be the only way to close the gap given new out-of-pocket costs to pay drivers a higher wage.
And that’s no small number of workers left without jobs.
The current economics of the industry do not make the wage increase financially feasible, despite an abundance of good intentions from ride-hail users willing to pay more.
Kayleah Kellybrew, a third-year political science student, said she uses ride-hail services frequently to get around LA, and believes in a minimum wage for drivers.
“I’d say I use Uber at least once a day, so I feel very indebted to my drivers, and I definitely want them to make a livable wage,” Kellybrew said. “Their work is so important, whether or not people realize it.”
The drivers’ work is very important, but ride-hail companies don’t want to pay them much for it. On Tuesday, Uber, Lyft and DoorDash introduced a measure to label their drivers as independent contractors, thereby circumventing the costs they would need to pay benefits-earning employees. And while their motives are based in the bottom line, their unwillingness to increase wages is also grounded in sound economic reasoning in the current climate.
Kellybrew isn’t the only Bruin who uses ride-hails regularly. In January, UCLA Transportation reported students use 11,000 ride-hails per week that never left campus.
Combined with the fact that Lyft and UCLA have partnered in the past, it’s easy to see that students are dependent upon these businesses.
This is not to say that ride-hail companies should not be paying their drivers a living wage. But considering the current infrastructure and economics of these companies, LA is misplacing its energy with a quick fix rather than a long-term solution. In order to create sustainable, improved working conditions, the city must work with these companies to build systems that can accommodate increased wages without harming drivers in the process.
While studying the impacts of a new minimum wage for ride-hail drivers was a smart choice on the LA City Council’s part, both riders and consumers might not like what they see by the end of it.
A minimum wage increase could do more harm than good at this point.
And, as most drivers know, throwing caution to the wind could lead to a bad accident.