New York City's Minimum Wage for Uber Drivers Is a Threat to Crucial Change

The economy has been changing dramatically. Regulation has not kept up. A good example is New York City trying to apply minimum wage regulations to the gig economy.

New York City has become the first U.S. city to adopt a minimum wage for drivers working for ride-sharing services like Uber and Lyft. The city’s Taxi and Limousine Commission has passed a requirement that “high-volume” drivers of for-hire vehicles receive a wage per trip that translates to $17.22 after expenses – roughly a $10,000 annual raise.

The increase will lead to fare increases for riders, reduced volume for drivers, and continued traffic congestion in Manhattan’s central business district. Moreover, it undercuts the continuing shift to the gig economy, in which temporary positions are common, and companies, other organizations and consumers contract with independent workers for short-term engagements.

A study by the accounting software firm Intuit predicts that by 2020, 40 percent of American workers will be independent contractors. A number of forces are driving this shift.  Digitization has eliminated the need for many jobs, financial pressures on businesses lead them to cut costs, and the huge Millennial cohort is entering the workforce.

Moreover, in the digital age, the workforce is increasingly mobile. Work can be done from anywhere – decoupling jobs and locations. Employers can hire the best people for individuals for specific projects and save on overhead, and free-lancers can choose among temporary jobs and projects.

Ride-sharing services are a boon to large cities like New York. Aside from reducing downtown congestion, they provide a service of choice to neighborhoods under-served by public transit, provide public transit with private-sector competition, and make services available to visible minorities, who otherwise find hailing a cab to be difficult given driver fear and resentment.

But New York has been waging war on what could be a particularly valuable service to them. The imposition of a minimum wage on this arrangement is the latest in a frontal attack by the city on the ride-sharing industry. This past summer city council adopted a recommendation to prevent companies like Uber and Lyft from taking on new drivers for a year, a major roadblock for companies that depend on a constant stream of new contractors to meet growing needs and make up for a continuous flow of drivers to other occupations.

The attack on Uber and Lyft may be the thin edge of the wedge, as workers in more and more industries recognize that the principal challenge to their jobs comes not from trade with other countries but from technological advancements. And many politicians seem to forget, or simply are unable to grasp, the fact that the goal of an economy is to generate the goods and services we require in the most efficient manner possible, not to force the continued life of jobs that are no longer needed.

Increasingly, the status quo is changing. Politicians and other regulators need to recognize that – and step out of the way.