Ignore NYC’s Uber and Lyft Cap. Utilization Standards and the Driver Minimum Wage Are Where the Action Is
Kudos to the NYC City Council for taking the first steps to rein in app-based for-hire vehicles, Uber, Lyft, Via, Juno, et al. (TNCs). Five related bills giving additional power to the City to regulate TNCs were signed by the Mayor last month.
These bills follow the publication of the Bruce Schaller’s report detailing TNCs sizeable contributions to congestion in U.S. cities. The speed with which these laws were passed suggests the report simply gave data & research coverage to those wanting to push back against an industry that has to-date steamrolled governments across the world, including NYC.
Regardless, this gives other cities the green light to explore more nuanced and sure-fire regulations for the TNC industry, including pricing, and some practice for the coming battles with autonomous vehicle operators.
The Trouble with the Cap
The so-called Cap has gotten the most attention; the Taxi & Limousine Commission (TLC) — with certain exceptions — will not register new TNCs for the next year while TLC can study the best ways to regulate. The cap ends the unfettered growth of the services but leaves unaffected the 80,000 existing TNCs of all shapes and sizes.
As I and others have recently discussed, even if this was likely the most politically expedient policy, it is far from optimal. Aside from this keeping the number of vehicles at a level that everyone already agrees is untenable; it suffers from two more fundamental issues. First, as Emily Badger lays out, the right number of TNCs depends on the problem(s) being solved for:
Do they want to minimize wait times for passengers or maximize wages for drivers? Do they want the best experience for individual users, or the best outcome for the city — including for residents who use city streets but never ride taxis or Uber at all?
Joe Cortright more forcefully states the second issue: “Caps and Regulation are a dead-end policy approach,” requiring follow-on regulations to correct unwanted impacts. For example, a cap on its own will entrench TNC service in the areas most profitable for drivers. Perhaps the other policies will impact this outcome, yet their effects too will need to be mitigated.
Can Uber Find a Business Model that Works for Everyone? The Case for a Driver Minimum Wage
For most of its existence, Uber has used its VC cash to subsidize rides with the aim of building market share. This was thought to be a shrewd customer acquisition strategy, and one widely copied. It is only with recent taxi driver suicides that the human costs of the current business models have been startlingly brought to light.
In what would be a landmark law on its own, another of the bills signed sets a driver minimum wage floor of $17.22, or $15 after expenses. This will undoubtedly force TNCs and smaller fleet managers to revamp their operating models.
Uber and Lyft’s ubiquity is a fundamental value proposition to passengers, yet under this new scheme not-in-use vehicles become a liability for operators. Similarly, for drivers in the gig economy, the freedom to determine operating hours and locations are an essential draw. Do we start seeing TNCs pull out of low-value neighborhoods altogether? Or merely charge higher fares to compensate for low volumes?
Utilization Standards — The First Step Towards Road Pricing
Regina Clewlow at Populus found that Uber & Lyft are both complement and competition to transit systems. Namely, ride-hailing is complementary when public transit is poor, and competitive in the densest, most transit-rich areas. As discussed above, this reality conflicts with business models — the densest areas are also the most lucrative and viable markets, while the low-value neighborhoods are the ones most benefiting from TNCs.
To address this and related problems, a framework for utilization standards comprises the other legislation passed. It’s focused on one key finding from Schaller’s report, that nearly half of miles driven by TNCs are deadhead, i.e., between passenger-carrying trips. The legislation empowers the TLC to set minimum active utilization rates for each neighborhood or other micro-geography, or else be penalized. Of course, the law doesn’t create customers, nor find convenient on-street parking for waiting drivers, nor incentivize operation in neighborhoods that TNCs might want to abandon.
Utilization standards are a convoluted form of road space rationing. The quintessential version of rationing is alternate-day travel regulations, limiting entry to city centers based on the last digits of the vehicle’s license plate. That policy has been most successful at incentivizing the purchase of second, often more polluting, cars (with opposing digits) — at least for those who can afford it. As with alternate-day travel, it is certain that the most economically advantaged NYC residents will find suitable mobility options, and TNCs won’t bear the brunt of the policy. Most likely, those with the fewest options will see their wait times or costs increase.
Road Pricing — The Logical Next Step
The primary way governments correct for these inequities is through subsidies or by supporting alternative transportation. But because the utilization standards don’t generate any additional funds, neither of those corrections are likely. It’s therefore hard to see utilization standards as anything but a precursor to road pricing.
Road pricing provides an alternative way of framing the problem: Rather than penalize companies for not meeting questionably-conceived efficiencies in their operation, charge them for their most competitive behaviors. Then use the proceeds to fund complementary behavior (or support public transit directly).
The greater irony is that Uber and Lyft already implement road pricing through surge pricing, attracting additional drivers with higher fares. But none of the additional revenue finds its way back to the public.
The City can take a page out of that playbook, dynamically setting road prices based on current, local conditions. Note: The data required to implement this type of road pricing is the same as needed for utilization standards.
And the transition to road pricing should happen soon, with autonomous vehicle OEMs suggesting rollouts in the next three years, if not sooner. The efficacy of utilization standards and minimum wage in a world without drivers is highly in doubt.
The FHV Surcharge — The Regulatory Curveball
Funny enough, there’s another law on the books that should already give TLC access to this data, while simultaneously shifting TNC traffic from congested areas: the FHV surcharge. Passed by New York State in April and set to roll out January 1st, it’s $2.75 TNC per-ride fee ($0.75 for pooled rides, and $2.50 for taxis) has gotten surprisingly little attention in the wake of these more recent bills.
It’s a startling omission since the surcharge will undoubtedly impact these policies, in some cases acting redundantly, and others, conflicting with the presumed goals. And these most recent laws will surely take a bite out of the expected $400 million in revenue from the surcharge. Of course, this being New York, where the motivations behind every policy may best be seen as the latest jab between the governor and the mayor, some have insinuated that the surcharge is in fact vaporware, intended to be rescinded with the governor’s reelection.
Making Sense of the Mess — The Questions NYC Needs to Answer
City officials should get clear about the intention of each legislation, as well as the overarching goal. The single answer should be the best outcome for all city residents, meaning the greatest mobility opportunities for the largest number of people at the lowest cost.
It’s possible to assess the regulations along these lines, though I don’t envy the TLC analysts tasked with teasing apart the relative impacts of the cap, minimum wage, utilization standards, and surcharge. To help them along, I’ve compiled a list of questions to start with:
- How will TNCs respond to the cap?
Do they create markets for multiple users of the same vehicle (similar to the taxi medallion system), add ADA-compliant vehicles, or focus on lobbying and media? - How will TNC business models respond to minimum wages and utilization standards?
Will drivers have to migrate to higher-value areas to turn on the app? Will drivers be penalized for excessive deadhead miles? Will passengers see additional charges for cancellations or slow loading? - How often do drivers switch between apps?
Do drivers need to have a single identifier across apps to calculate utilization? - Which transportation modes will fill the void in service?
Will we see personal car use increase, a reversing of bus ridership declines, or new mobility services such as shared bikes and scooters pick up the slack? - How might TNCs attempt to game or tamper with the data being shared?
Similarly, how might the available options for users be skewed? - How will utilization rate be adjusted for temporary and long-term disruptions such as parades or subway construction?
Will specific rates need to be made for weather events too? - How much will the FHV Surcharge change these behaviors?
A Final Question & What’s Next
If the utilization standards were instead implemented as road pricing fees, with higher fees correlating with utilization standards, how much revenue would be generated for the City?
And how much infrastructure and other public services would that bring?
ClearRoad is developing tools to show how varied vehicle types, such as ride-hailing (TNCs) and taxis, can be charged with road pricing. This would demonstrate different rates in specific parts of New York City, as well as the total funds that would be generated. We look forward to sharing that with you in the coming weeks.
