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17 USC 102

With New York's Uber Policy, Everyone Loses

August 30, 2018

 

New York City's slate of new regulations on Uber and other ridesharing apps is being hailed as a progressive victory for workers against Silicon Valley robber barons. Unfortunately for almost everyone involved, it's not. In reality, the new law is little more than crony capitalism propping up obsolete, dying corporations at the expense of consumers.

 

The new regulations place a cap on the number of for-hire cars that can be on the road at any given time and require the rideshare companies to pay drivers a guaranteed minimum rate per trip. They also placed a year-long freeze on new for-hire drivers, all of whom must receive a license from the city's Taxi and Limousine Commission. This move is the latest in a growing history of conflicts between Uber, local governments, and entrenched transportation interests.

 

Supporters of the law frame it in the same debate with regular minimum wage laws, arguing that workers can't make enough money driving for rideshare apps to make ends meet. While I generally support strong minimum wages based on the belief that anyone with a full-time job should not live in poverty, that principle doesn't quite fit here. Driving for Uber was never meant to be a full fledged job in the normal sense. Uber's ad hoc nature is what allows it to have the features that make it desirable to prospective new drivers, namely the ability to drive completely on your own schedule. The driver-centered flexibility of Uber makes it fundamentally different from traditional jobs that should require minimum wages.

 

The difference is clear if you consider other ad hoc, flexible "side hustles," like house sitting, independent tutoring, and baby sitting. Assuming they are not full-time employees of a day-care or teaching firm, all of these tasks allow someone to get paid doing them whenever they feel like it, but none of them can reasonably be expected to provide someone with a living. Even if a tutor or house sitter devoted 30 hours per week to looking for work, as a majority of New York's Uber drivers do, it would obviously be unreasonable for them to expect to actually find enough work to sustain a full-time income. There are just not enough houses to watch or neighborhood children to teach.

 

It's for this reason that rideshare driving is not the same as a traditional job. While many drivers may spend full-time hours in their cars looking for riders, they only spend half of their time actually performing the service for which they get paid. The rest of the time, they remain idle. By equating this system with a traditional job, supporters of the New York law would have Uber drivers get paid as if they were providing an extremely high number of rides despite the lack of demand for so many rides.

New York's law is like regulating Netflix to help Blockbuster.

But the minimum rate isn't the biggest problem with New York's law. That spot goes to the cap on drivers at any given time and the new driver moratorium. These new regulations will hurt consumers in a number of ways. The first way is rather obvious: prices will increase. While I normally roll my eyes when people make appeals to "simple economics," the logic here is fairly apparent. An artificial limit on supply without a corresponding decrease in demand will inevitably make rides more expensive for customers. The increase will be felt most by low income workers, whom New York's reformers purporting to protect.

 

Constricting the number of drivers will also undercut the other primary benefit of ridesharing apps: convenience. Cutting down on the time that the lucky few chosen drivers spend idle will mean that there are fewer available drivers nearby every time a customer requests a ride. For consumers, these caps mean higher prices for worse service. One effect of this will be to drive more customers back to the taxi industry. 

 

The forced shift to taxis will also have a disproportionate impact on black consumers, who are discriminated against by taxi drivers when they are not picked up for rides. And while there is also some discrimination by ridesharing apps, they are more equitable than taxis. This has the effect of closing physical mobility gaps, which underpins economic inequality.

 

Taxi drivers know that hurting Uber will drive customers to them, and that's why they have been the biggest proponents of these and other cumbersome regulations on rideshare apps. With consumers moving in droves to the cheaper, more convenient rideshare services, the competitiveness of taxis plummeted. Instead of finding ways to lower their prices or make their services more attractive to consumers, taxi drivers have lobbied for legal restrictions on their app-based competition, like having them banned from airports around the country.

 

Ironically enough, New York taxi drivers' problems stem largely from city regulations nearly identical to their new Uber policy. In the 1930's New York City put a cap on the number of taxis in the city and required all drivers to buy a special medallion from the Taxi Commission in order to operate. Once again, artificial constrictions on supply caused prices to skyrocket, this time for drivers. Medallions reached prices of over a million dollars, then crashed when Uber entered the market. Though prices fell by 70 percent, it still feels slightly off to use the word "crash" here when medallions remain at a price of $300,000. The end result for New York's taxi drivers is that they are saddled hundreds of thousands of dollars in debt with a regulatory ticket into a collapsing industry, which they can't sell because no one wants to pay the price of a modest house for the chance to be a taxi driver.

 

So now, instead of helping indebted taxi drivers or deregulating the taxi industry, New York has saw fit to also drag down the rideshare industry. In the words of city councilman Eric Ulrich, this move is "like regulating Netflix to help Blockbuster." With these new laws, consumers lose; they now have to pay higher prices for worse service. People who want to become Uber drivers lose because they government shut off access to those opportunities. Now, no one else can access that flexible way to supplement their income. Taxi drivers will do relatively better since their competition will suffer, but they still face their own burdensome regulations and declining relevance. There are definitely problems with transportation and prosperity in America, but with New York's new regulations, everyone loses.

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