• Tag Archives Lyft
  • How Bad Economics Chased Uber and Lyft Out of the Twin Cities

    The ride-hailing services Uber and Lyft announced last week that they are pulling up stakes in the Twin Cities because of a new ordinance designed to raise driver pay.

    The Minneapolis City Council voted 10–3 to override the veto of Mayor Jacob Frey, passing a policy that will raise the pay of drivers to the equivalent of $15.57 per hour.

    In response to the plan, Uber and Lyft announced that they will cease offering rides beginning May 1 throughout the entire Twin Cities, the 16th largest metro in the United States, saying operations were economically “unsustainable” under the plan.

    “We are disappointed the Council chose to ignore the data and kick Uber out of the Twin Cities, putting 10,000 people out of work and leaving many stranded,” Uber said in a statement.

    City Council supporters say they simply want drivers to earn the minimum wage, but if that’s the case, they passed the wrong ordinance. The Star Tribune reports that council members “seemed oblivious” to a recent Minnesota Department of Labor and Industry study that concluded drivers could be paid $0.49 per minute and $0.89 per mile and make the minimum wage.

    “By contrast, the plan approved by the City Council guarantees a floor of $1.40 per mile and 51 cents per minute,” the newspaper reports.

    In other words, the wage plan the council passed doesn’t appear remotely close to the minimum wage. But this ignores the larger problem: Neither the Minneapolis City Council nor the State of Minnesota should be setting the wages of Uber or Lyft drivers.

    Nobody is forcing drivers to give rides. The arrangement between ride-share companies and drivers is an entirely voluntary one. This is the beauty of gig work. It allows people flexibility and choice about how they’d like to spend their time.

    It’s all about opportunity cost. One person might wish to spend $20 to see Dune: Part Two. Others would rather spend the two hours earning money driving Uber. Others might want to see Dune but might not have $20, so they drive Uber for an hour or two while coming back from work.

    Nobody knows precisely how much money the driver will make. But that’s not what matters. What matters is that this is a voluntary arrangement that works for drivers and ride-share companies alike and also benefits customers who can utilize services at affordable prices.

    This arrangement works across countless cities in the United States, but it is now threatened in the Twin Cities because City Council members believe they know what a “just” wage is. This might sound progressive. In truth, it’s regressive.

    Wage and price controls have been failing for some 4,000 years. They appear in the Code of Hammurabi (1755–1750 BC), and that’s not even their earliest appearance. Some might be tempted to blame Marxists for importing price controls to the United States, but the truth is that they existed in North America well before Marx was born.

    In the early 17th century, Puritans in the Massachusetts Bay Colony departed from the wisdom of Thomas Aquinas, who argued in the Summa Theologiae that the “just” price of a good was the market price. Wage controls were enacted in the second year of the colony’s existence. These were followed by a ban on “excess profits.” Puritans in Connecticut passed similar policies, and all of the policies had similar adverse effects.

    “The men involved in trade in 1635 had about as little notion of what constituted the limits of state authority in the realm of economics as men have today,” Gary North argued in An Introduction to Christian Economics.

    Fortunately, the early American Christians were practical people. They learned that these policies tended to create a host of problems, including shortages, surpluses, waste, and inactivity. After people learned these lessons over a few decades, price controls would mostly fade away from America for the next 200 years, with some notable exceptions.

    Wage and price controls were resurrected with a vengeance in the 20th century, of course. And though the harms of minimum wage laws are well known by economists, and national price-control schemes failed conspicuously, modern Americans are apparently slower learners than our Puritan ancestors.

    This is particularly true of Twin Cities lawmakers. In 2022, St. Paul passed the harshest rent control law in the U.S. only to walk back and hollow out the policy to avoid a housing catastrophe.

    Minneapolis is playing a similar game with Uber wage controls. It is likely to fail just as badly, and for the same reason.

    Prices are signals that convey information to buyers and sellers about scarce resources. Instead of allowing them to work in a voluntary market, lawmakers, like Hammurabi and the Puritans, fell for the false idea that they know what a “just” wage really is.

    Source: How Bad Economics Chased Uber and Lyft Out of the Twin Cities – FEE


  • Why Uber and Lyft Are about to Shut Down All Operations in California

    This Friday, Uber and Lyft are set to entirely shut down ride-sharing operations in California. The businesses’ exit from the Golden State will leave hundreds of thousands of drivers unemployed and millions of Californians chasing an expensive cab. Sadly, this was preventable. 

    Here’s how we got to this point.

    In September of 2019, the California state legislature passed AB 5, a now-infamous bill harshly restricting independent contracting and freelancing across many industries. By requiring ride-sharing apps such as Uber and Lyft to reclassify their drivers as full employees, the law mandated that the companies provide healthcare and benefits to all the drivers in their system and pay additional taxes.

    Legislators didn’t realize the drastic implications their legislation would have; they were simply hoping to improve working conditions in the gig economy. The unintended consequences may end up destroying it instead.

    Here’s why.

    AB 5 went into effect in January, and now, a judge has ordered Uber and Lyft to comply with the regulation and make the drastic transformation by August 20. Since compliance is simply unaffordable, the companies are going to have to shut down operations in California.

    Their entire business model was based upon independent contracting, so providing full employee benefits is prohibitively expensive. Neither Uber nor Lyft actually make a profit, and converting their workforce to full-time employees would cost approximately $3,625 per driver in California. As reported by Quartz, “that’s enough to boost Uber’s annual operating loss by more than $500 million and Lyft’s by $290 million.”

    Essentially, California legislators put these companies in an impossible position. It makes perfect sense that they’d leave the state in response. It’s clear that despite the good intentions behind the ride-sharing regulation, this outcome will leave all Californians worse off.

    Uber employs approximately 140,000 drivers in California and Lyft employs roughly 80,000. These 220,000 working Californians will now lose their source of income in the middle of a pandemic and recession, all thanks to the naive intervention of Sacramento regulators who thought they could plan the market. Moreover, the millions of Californians who benefit from and rely on cheap, accessible ride-sharing services will be out of luck.

    Yet this isn’t some one-off example where regulators just got it wrong. Rampant unintended consequences inevitably plague any attempt to intervene and “fix” the economy by central planners convened in the state capital.

    Here’s how FEE’s Antony Davies and James R. Harrigan summed up the key insight of unintended consequences:

    Lawmakers should be keenly aware that every human action has both intended and unintended consequences. Human beings react to every rule, regulation, and order governments impose, and their reactions result in outcomes that can be quite different than the outcomes lawmakers intended. So while there is a place for legislation, that place should be one defined by both great caution and tremendous humility. Sadly, these are character traits not often found in those who become legislators.

    There was nothing humble or cautious about the approach California took to regulating the ride-sharing industry. Legislators took a cursory look at a business model they clearly didn’t understand, wished it was different, and thought they could rewrite it entirely on their own. This hubris has not improved conditions for workers, but brought the industry to the brink of destruction.

    Benevolent intentions simply aren’t enough. As famed free-market economist Milton Friedman once noted, “concentrated power is not rendered harmless by the good intentions of those who create it.” Still, not all hope is lost for the future of ride-sharing in California.

    In this case, voters will have an opportunity to rectify the unintended consequences of this failed attempt at central planning. Uber and Lyft have successfully secured the addition of a ballot question to the November election that will give Californians the opportunity to vote to create an exception to AB 5 for ride-sharing app drivers, allowing them to once again work as independent contractors. (Although freelance writers and many other professions will still be left in the lurch.)

    If this vote succeeds, it might be enough to bring Uber and Lyft back to California. But the struggling Golden State will continue to run into problems like this as long as its legislators continue to abandon humility in favor of a heavy-handed approach.


    Brad Polumbo

    Brad Polumbo is a libertarian-conservative journalist and the Eugene S. Thorpe Writing Fellow at the Foundation for Economic Education.

    This article was originally published on FEE.org. Read the original article.