Uber and Lyft currently treat their California drivers as independent contractors, despite state employment law giving the drivers employee status. The companies claim that drivers are already well-paid and that employee status would bring the industry to its knees. Driver advocates claim that drivers are low-paid and do not receive basic benefits and protections, such as unemployment insurance and workers’ compensation, and that the companies should treat the drivers as employees and adhere to California employment law.
I examine here the economic and financial consequences of switching the drivers to employee status. In particular, I examine the effects on pay and employment of the drivers, the effects on passengers, and the profitability of the industry. I find that: most drivers are paid much less than the current minimum wage and that overall compensation of drivers would increase 30 percent; that driver schedule flexibility would not be affected; passenger demand would fall by 1 or 2 percent; and profits of the companies would increase.