(Illustration by Mohamed Hassan/Pixabay)

LAST MONTH, Massachusetts Attorney General Andrea Campbell settled a years-long dispute with Uber and Lyft. The settlement dropped the state’s suit to classify the gig drivers as employees. In return, Uber and Lyft agreed to pay their drivers a minimum of $32.50 per hour for their time and expenses while picking up and transporting passengers.

The agreement adds a 3 percent cost of living increase to that rate, to about $33.35, effective next January. It also includes company-sponsored auto insurance coverage, health benefits for a small proportion of drivers, contributions to paid sick leave, and some pay transparency for drivers. It also empowers the attorney general to conduct an annual audit to respond to driver complaints. Importantly, the companies also agreed to withdraw their ballot measure, which would have provided a much lower pay guarantee.

Is this settlement a good deal for the drivers? It depends.

As an economics professor and gig economy expert, I’ve been hired by California, Minnesota, New York City, and Seattle to evaluate the pay of gig passenger drivers and propose pay standards. I’ve also closely followed the developments in Massachusetts.

According to my calculations, the Massachusetts settlement offers about $10 more per hour than the companies’ now-withdrawn ballot measure. That’s good, but the settlement is much less generous than it sounds.

Drivers spend roughly a third of their working time between rides, repositioning themselves to be available on very short notice to pick up passengers. Although Uber and Lyft benefit, they do not pay drivers for their working time between rides. Accounting for all the time they work
reduces the value of the settlement by about one-third.

Moreover, the drivers pay all their driving expenses — gas and regular maintenance, and the wear and tear on vehicles. The one-third or so of drivers who work 20 hours or more every week also handle 80 percent of Lyft and Uber rides. They drive 20,000 to 30,000 or more miles per year and need to replace their vehicles every few years. As a result, their overall expenses
amount to nearly half of gross earnings.

Taking these important details into account, $33.35 translates into net driver earnings (after expenses) of somewhere between $12.90 and $15.40 per hour. (Uber and Lyft refuse to share the data that would allow me to be more precise.)

A brand-new Minnesota driver pay standard provides an interesting comparison to Massachusetts. The two states have similar populations, similar climates and similar vehicle purchase and operating costs, but traffic congestion is much greater in Boston than in Minneapolis and St. Paul. The new Minnesota standard amounts to $39.68 per hour, much higher than the Massachusetts settlement and 47 percent above average Minnesota driver pay
in 2023.

Can Uber and Lyft pay that much in Massachusetts? Data from other cities says yes. The New York City and Seattle pay standards, which are comparable to Minnesota’s, have increased driver pay in both cities. Passenger fares increased, but not more than in Chicago, which does not have a pay standard.

And the settlement is not self-regulating. A good pay standard needs to monitor and correct imbalances that are likely to accrue over time. For example, the pay standard will attract more drivers; as a result, individual drivers will receive fewer rides each hour, reducing their pay.

Massachusetts would do well to enact policies to monitor and correct any growing inefficiencies in how driver time is utilized.

The economic conditions of Massachusetts drivers could clearly be improved beyond the level in the settlement. A November ballot measure organized by driver advocates would give many drivers the right to unionize and bargain collectively for higher pay, benefits, and improved working conditions. Attorney General Campbell has announced her support for this measure. Bills introduced in the state Legislature could also increase the $33.35 minimum.

And what about the rapidly growing number of gig delivery drivers, whose pay is even lower than that of the passenger drivers? They deserve higher pay as well. Massachusetts could follow the lead of Seattle and New York City, which have established minimum pay standards for these workers. The $16.95 pay standard in New York City raised pay by more than 100 percent without deterring customers from ordering delivered meals.

The Massachusetts settlement constitutes a substantial improvement over the companies’ withdrawn ballot measure. But the state and the voters can and should do more to help gig drivers.

Michael Reich is a professor of economics at the University of California, Berkeley, and the author of numerous studies of gig driver pay.