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Seattle Passes Minimum Pay Rate for Uber and Lyft Drivers

The Seattle City Council approved a minimum pay standard for Uber and Lyft drivers on Tuesday, becoming the second city in the country to do so.

Under the law, effective in January, ride-hailing companies must pay a sum roughly equivalent, after expenses, to the city’s $16 minimum hourly wage for businesses with more than 500 employees.

“The pandemic has exposed the fault lines in our systems of worker protections, leaving many frontline workers like gig workers without a safety net,” Mayor Jenny Durkan said in a statement.

Seattle’s law, passed in a 9-to-0 vote, is part of a wave of attempts by cities and states to regulate gig-economy transportation services. It is modeled on a measure that New York City passed in 2018. Last year, California approved legislation effectively requiring Uber and Lyft to classify drivers as employees rather than independent contractors, which would assure them of protections like a minimum wage, overtime pay, workers’ compensation and unemployment insurance. The companies are backing an initiative on the November ballot that would exempt their drivers from the California law.

Uber and Lyft have received more favorable treatment from federal regulators. Last week, the Labor Department proposed a rule that would probably classify their drivers as contractors, though it would not override state laws like California’s.

As in New York, the Seattle law will create a formula for minimum compensation for each trip — a combination of per-minute and per-mile rates that are “scaled up” by what is known as the utilization rate, or the fraction of each hour during which drivers have a passenger in their car. The idea is that a lower utilization rate should correspond to a higher per-minute and per-mile rate, to compensate drivers for being less busy.

The formula is intended to produce hourly pay of just under $30 before expenses and to motivate the companies to keep their drivers busier rather than flood the market with cars to reduce passengers’ waits.

A Lyft spokesman, CJ Macklin, said, “The city’s plan is deeply flawed and will actually destroy jobs for thousands of people — as many as 4,000 drivers on Lyft alone — and drive ride-share companies out of Seattle.”

Uber declined to comment, but said in a recent letter to the Seattle City Council that New York’s policy had resulted in fewer rides and higher prices for passengers, and that it had led the company to restrict the number of drivers on the platform at once.

Michael Reich, a labor economist at the University of California, Berkeley, who was an architect of the New York measure and advised Seattle on its new law, said that average driver pay had increased in New York and that overall revenue had risen enough to offset the drop in demand because of higher fares.

The growth in rides slowed after the policy went into effect, Mr. Reich said, but added that this was largely for reasons unrelated to the policy.

Beyond the pay standard, the Seattle measure stipulates that the companies must hand over all tips to drivers, that the tips cannot count toward the minimum and that the companies must provide protective equipment like masks to drivers or reimburse them for these costs.

A broader program proposed by Ms. Durkan, Fare Share, was approved last fall. The agenda included a tax on Uber and Lyft of 51 cents a ride, part of which has helped fund a streetcar project downtown and provide support for drivers, including help with appeals if they are removed from either platform.

The Fare Share measure required the city to set a minimum pay standard for ride-hailing drivers, but mandated a study to determine the amount.

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Franchise Workers Win Victory Over U.S. Effort to Curb Lawsuits

A federal judge has struck down key portions of a Trump administration rule that made it more difficult for workers to win lawsuits against companies over violations committed by contractors and franchisees.

The rule, which the Labor Department proposed last year and made final in January, raised the bar for employees of a franchise like Burger King or Subway to win a judgment against the parent company if the restaurant violated minimum-wage or overtime laws.

Because the contractors and franchisees that directly employ workers often have limited resources, suing the larger companies is often the best hope for workers seeking to recover wages they are owed.

In a decision on Tuesday in U.S. District Court in Manhattan, Judge Gregory H. Woods largely sided with the more than 15 states that challenged the rule. He said the Labor Department had departed from the statute governing minimum-wage and overtime rules without adequate justification, rendering the rule arbitrary and capricious.

Judge Woods also said the department had failed to “make more than a perfunctory attempt” to consider the costs of the new rule to workers. All told, he wrote, the new approach to liability for parent companies was “flawed in just about every respect.”

A Labor Department spokeswoman said that the decision was disappointing and that the department would review its legal options.

David Weil, who oversaw enforcement of wage and hour laws during the Obama administration, said that he expected the department to appeal the case, but that an appeals court would almost certainly not rule before the presidential election.

The Labor Department “cannot wish away our basic workplace law,” said Mr. Weil, who is now dean of the Heller School for Social Policy and Management at Brandeis University. “The slapdash nature of the department’s rule was vividly demonstrated by Judge Woods’s scathing opinion.”

Under the Obama administration’s approach, a broad set of circumstances could make a parent company a so-called joint employer, meaning that it has liability for violations committed by a contractor or franchisee. Those circumstances include anything from direct control of workers to simply providing facilities and equipment that the workers use.

But the Trump Labor Department required evidence of control to render the parent company liable as a joint employer. Under its rule, a company like Burger King could typically be held liable for violations only if it hired and fired employees of the franchisee, if it supervised them and dictated their schedules, if it set their pay, or if it oversaw their employment records.

Judge Woods said those criteria were “impermissibly narrow,” though he did leave intact a separate portion of the rule that doesn’t typically apply to employment relationships mediated through contractors and franchisees.

The National Labor Relations Board in February authorized a similar rule, which made it harder for employees of contractors and franchisees to win lawsuits against parent companies over violations of other aspects of labor rights, like firing workers who try to unionize.

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Big Boost for Bottom Earners Comes in Part From Minimum Wage Increases

These days, wages in the United States are doing something extraordinary: They’re growing faster at the bottom than at the top. In fact, recent growth for workers with low wages has outpaced that for high-wage workers by the widest margin in at least 20 years.

The main story here is the long economic recovery, now entering its 11th year. For much of the early phase of this recovery, wage growth for the bottom group was weaker than for others, but it began gradually accelerating in 2014 as unemployment continued to fall. This was around the same time the labor market started tapping into people some economists had all but given up on as work force participants, such as those who had been citing health reasons or disability for not having a job.

But there has been another factor at play: the rise in state and local minimum wages.

For the last decade, the federal minimum wage has been unchanged at $7.25 an hour. But over that period, dozens of states and localities have enacted their own minimum wages or raised existing ones. As a result, the effective U.S. minimum wage is closer to $12 an hour, most likely the highest in U.S. history even after adjusting for inflation.

And with two dozen states and four dozen localities set to raise their minimums further in 2020, the effective minimum wage will keep rising this year.

These state and local actions are affecting wage data, especially for workers at the bottom. To get a sense of this impact, I have used data in the Current Population Survey to look at minimum wage workers as a group and calculate the pressure their wage gains have put on aggregate wage growth over time, controlling for compositional changes in the share of minimum wage work.

Note that this approach doesn’t settle whether minimum-wage increases are a net benefit to Americans, since among other things wage data will by definition capture only those who stayed employed after an increase. If people were laid off because of a minimum-wage increase, their loss of wages wouldn’t factor into the average.

This analysis shows that growth in average wages has been running about 3.9 percent per year in the Current Population Survey over the past two years, a bit firmer than the pace right before the Great Recession but below the near 5 percent reached in 2000.

But increases to minimum wages at the state and local level have put 0.4 percentage points of upward pressure on this recent growth. Absent that pressure, wage growth in the Current Population Survey over the last two years would have been 3.5 percent. That’s still a fine result, but it’s a bit cooler than the unadjusted data suggest.

Wage pressure from minimum wage workers is magnified when you look at only the lowest wages. That’s because while minimum wage work makes up about 6 percent of all usual hours worked, it’s around 13 percent of hours worked by Americans in the bottom third of wages.

As the analysis has shown us, wage growth at the bottom is doing well. It has been around 4.1 percent over the last two years — above the 3.6 percent at the top end, and above the overall average of 3.9 percent.

But absent the pressure from minimum wage workers, growth at the bottom would have been closer to 3.3 percent.

It’s important to keep the effect of these minimum wage increases in perspective. The increases aren’t responsible for most of the wage growth, or for most of the acceleration in wage growth, during this recovery. Even among the bottom third, minimum wage workers have contributed around a fifth to a quarter of wage growth over the last two years.

As notable as the recent rise in state and local minimum wages has been to this effect, it has probably not been as important as the tightening labor market. In a tight labor market, firms have to compete more to hire and retain the workers they need, which among other things gives those workers more bargaining power to bid up their wages.

The Federal Reserve chair, Jerome Powell, has argued that reaching workers traditionally “left behind” is one of the most compelling reasons to sustain the expansion for as long as possible.

Still, this analysis suggests these minimum-wage increases are having a meaningful impact on wages, at least for the employed workers who benefit from them. For the bottom third, state and local minimum wage increases have probably been the difference between the wage growth just before the economic crisis and the wage growth that is now above that pace.

But that benefit also brings with it a cautionary note for policymakers.

Economists look to wages as one thermometer of how hot the economy is getting: Accelerating wages may eventually spill over into higher prices and signal an economy at capacity, though this hasn’t happened yet in this recovery.

But these continuing increases to state and local minimum wages — and any possible future action at the federal level — could skew wage data, making the American labor market look tighter than it actually is.

The recent rise in minimum wages, although not producing a giant effect, still might suggest overall wage growth is progressing about a year further along than the reality. For low-wage workers, whom policymakers are citing more often, the minimum wage effect can be worth closer to two years’ worth of wage acceleration.

The risk of misdiagnosing an overheating economy is one reason it’s important to be clear and precise about what role minimum wage increases have played in recent wage growth: They have been important, but they’re most likely not the biggest factor.

Methodology: This analysis defines “minimum wage pressure” as the growth in the effective minimum wage — the average binding federal, state or local minimum wage received per hour of minimum wage work — over 12 months, weighted by the share of minimum wage work at the beginning of the 12-month period. In a shift-share framework, this is the equivalent of the compositionally adjusted contribution to aggregate wage growth from minimum wage workers.

The analysis uses average hourly wages for private nonfarm wage and salary workers calculated from the Current Population Survey Outgoing Rotation Group. It takes hourly wages as given when available for hourly workers; for others, it divides usual weekly earnings by usual weekly hours. The analysis imputes usual hours when unavailable or varying, and adjusts weekly earnings for top-coding using a log-linear distributional assumption. It also trims outlier hourly wages. Despite these adjustments, wages in the C.P.S. invariably differ from average hourly earnings reported in the Current Employment Statistics, another Bureau of Labor Statistics data source for wages, because of differences in scope, design and concept.

The analysis uses the same methodology for calculating state and local minimum wages, and for identifying minimum wage workers, as in a previous analysis from April 2019.

Ernie Tedeschi is an economist and head of fiscal analysis at Evercore ISI. He worked previously at the U.S. Treasury Department. The analysis here is solely his own. You can follow him on Twitter at @ernietedeschi.


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