While Manhattan traffic often crawls and stalls, New York City officials have put the pedal to the metal on actions designed to improve pay and working conditions for thousands of for-hire vehicle (FHV) and taxi drivers.

In August, New York became the nation’s first city to enact legislation calling for a minimum pay standard for drivers for the major app-based FHV companies: Uber, Lyft, Via, and Juno. The regulatory agency overseeing this booming industry, the Taxi and Limousine Commission (TLC), is expected to vote on a proposed $17.22 per hour minimum pay standard before the end of the year, to become effective next January 1.

The City Council has also enacted a one-year pause on licensing new FHVs (wheelchair-accessible vehicles excepted) while the City studies the effects of FHV growth on congestion, safety, and driver income and well-being. More recently, the Council has proposed more oversight over vehicle lease terms, and plans studying how to relieve the financial plight of taxi medallion owners, many of whom are debt-burdened drivers. It’s also proposing a study of how to provide health benefits for taxi and FHV drivers. (Some 40 percent of drivers now qualify for Medicaid and another 16 percent have no health insurance at all). It is also likely to require new TLC action on the hardy perennial issue of stopping driver discrimination against riders.

All this constitutes a rapid reversal in City policy regarding the FHV industry. Just three years ago, a full-court lobbying campaign by Uber, the dominant FHV company, forced Mayor Bill de Blasio and the Council to back off a proposal to limit FHV growth.

Why this sudden U-turn? The groundwork for this flurry of regulatory activity was laid when the TLC required the major app-dispatch companies to submit extensive data on trips and driver earnings — far more information than any taxi regulator anywhere had sought. This wealth of data helped inform a groundbreaking report to the TLC in July by me and my colleague Michael Reich of the University of California at Berkeley.

Today, Uber and other app-based FHV companies dispatch about 100,000 drivers, dwarfing the city’s fleet of 13,500 medallion taxis. App-based drivers now complete 20 million trips each month, more than double the number of medallion trips.

This rapid growth comes with benefits, including enhanced rider convenience and transportation in neighborhoods not well-served by mass transit. But it has also worsened traffic congestion in Midtown Manhattan and created intense competition for yellow taxi owners and drivers. The resulting downward pressure on earnings contributed to seven taxi and FHV driver suicides in the past year. Passengers have also been diverted from mass transit, reducing revenues at a time when the beleaguered system needs more investment to modernize antiquated equipment and improve service.

App-based FHV drivers are treated as independent contractors. They set their own schedules and work hours. They, not the companies, supply the vehicles and pay driving-related costs (vehicle licensing, insurance, maintenance and repairs, and fuel). These costs can typically exceed $20,000 annually. Sixty percent of drivers are full-time workers with risky capital investments in their vehicles and with little hope of recovering their costs if they try to switch jobs; 90 percent are immigrants, with most lacking a college education and facing difficulty obtaining better-paying work.

To achieve quick response times, FHV companies require many idle drivers to be available at any given moment and at many locations. This conflicts with drivers’ desires to increase earnings by maximizing trips per working hour. In effect, the current app-based business model works only if it keeps driver utilization low, which keeps drivers’ hourly earnings low as well.

The passenger fares charged by the companies often deviate from their published fare structure through a practice called “upfront pricing.” Drivers complain that their pay no longer constitutes a fixed percentage of the passenger fare. Given the companies’ relatively moderate overhead costs, Reich and I estimated that net profits received by Uber and Lyft (which together account for 87 percent of the market) are considerable. On the other hand, we determined that 85 percent of drivers receive less than $17.22 an hour after covering expenses – the equivalent of a $15 per hour minimum wage with a modest add-on for paid time off. Our report with this analysis provided the basis for the income floor the TLC is now considering.

The proposed pay formula would compensate drivers for work-related time, e.g., while waiting for a dispatch, and for expenses when a passenger is not in the vehicle. It also incentivizes each company to raise company-wide utilization by increasing the average number of trips per driver hour. This will also benefit drivers, who will be able to provide more rides in any given hour, thereby earning more on an hourly basis even though their pay for each trip might be lower. Increases in driver utilization rates represent an improvement in industry efficiency, and this improved productivity would absorb a large part of the cost of the driver pay increase, along with commission reductions and modest fare increases.

During the moratorium on FHV growth, other changes will take effect, too. On January 1, for example, steep new State surcharges on FHV and taxi trips in much of Manhattan will go into effect; revenues will go to the mass transit system. Along with further action at the City level, this could herald a concerted new effort to respond to the FHV industry’s rapid growth, and shape a more rational New York City surface transportation policy and much better outcomes for 100,000-plus professional drivers.

James Parrott is director of Economic and Fiscal Policies at the Center for New York City Affairs at the New School. This article was originally published by Urban Matters.

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