End of the Road: Why Uber and Lyft Are Abandoning Minneapolis Over New Driver Pay Laws – View from the Wing

End of the Road: Why Uber and Lyft Are Abandoning Minneapolis Over New Driver Pay Laws

by Gary Leff on March 18, 2024

Uber and Lyft have announced that they’re leaving Minneapolis May 1, 2024 in response to new city rules on driver pay. Uber is clear this will mean no airport pickups or drop offs. Lyft’s statement leaves open some ambiguity about the airport, although if they continue with airport service it may be only for out of towners.

The Minneapolis City Council overrode the mayor’s veto to pass new rideshare rules requiring minimum driver pay of $1.40 per mile and $0.51 per minute while transporting passengers; guaranteeing a minimum pay of $5 per ride; and requiring pass-through of at least 80% of cancel fees.

This would be pay substantially higher than the local $15.57 minimum wage. The Mayor believes that $0.89 per mile and $0.49 per minute would achieve that level of pay. The per-mile requirement is 57% higher than this.

This is a bad take. As the Mayor put it,

Everyone wants to see Uber and Lyft drivers get paid more. But getting a raise doesn’t do a whole lot of good if you lose your job.

People choose to drive Uber/Lyft because it’s more lucrative than their next-best option (sometimes within their scheduling constraints). This critic is dangerously close to saying that if someone can’t otherwise earn a living wage, that they don’t deserve to exist. Shocking.

Uber and Lyft left Austin where I live back in 2016, after the city passed a number of rideshare regulations. Fingerprint-based background checks got most of the coverage, but rules also carved out lucrative rides for festivals and other activities only for taxis. Other services like RideAustin, Fasten, and Wingz picked up the slack after a period in which rides of any kind were difficult to get and thousands of people had been put out of work. The city largely ignored its own rideshare rules to let these services scale. They were generally more expensive and had fewer drivers than Uber and Lyft.

The state of Texas passed its own comprehensive rideshare rules, trumping local efforts, in 2017 and Uber and Lyft returned – mostly squeezing out those companies that had serviced the city while they were gone.

It’s perfectly fair to criticize companies that pretended tipping was going to increase driver wages, when it simply displaced pay from Uber/Lyft. The introduction of tipping simply shifted where driver pay was coming from, it did not increase it which is part of why tipping norms are destructive.

And it’s also fair to critique companies that light VC money on fire, only to learn they eventually have to self-fund. It’s hard to make money selling a service like transportation where there’s a limit to how much passengers will pay, and an amount drivers need to earn, while still earning a margin.

These aren’t massively profitable companies. Lyft’s operating margin has ranged from -79.26% in Q3 2022 to -34.97% in Q1 2023. Lyft famously issued a mistaken press release, overstating expected margin growth. Their adjusted profit margin as a percentage of bookings is expected to be 2.1% this year, up from 1.6% in 2023. And then there’s Uber:

But people who chose to drive for Uber and Lyft, no matter how much you criticize those companies, were better off for having done so compared to their next best alternative. Deferring to the actual decisions people make in their lives is grossly underrated. The Minneapolis city rule means consumers and drivers take an L, while cab companies win (and do not appear to be subject to these new rules).

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