December 14, 2018 12:00 AM Lack of choice hurts ride-hailing across the city

Passengers and drivers are at the mercy of the companies they have come to depend on

In theory, ride-hailing technology is about freedom and choice for passengers and drivers alike. For passengers, it should allow them to get a ride whenever and wherever they’d like. And for drivers, it should provide the ability to work when and where they want.

But in reality, the ride-hailing model is broken. Passengers’ fees continue to increase, as drivers continue to see smaller wages.

This model continues to worsen because of a lack of choice and transparency. Passengers face surge prices during rush hour, can’t see their driver’s ranking before they arrive, and have little to no say in how much their ride should cost. Drivers, meanwhile, have no choice but to hand over significant portions of their fares to large corporations.

Bloomberg reported that the gap between what the passenger pays and what the driver takes home is widening. The response from the major ride hailing companies? They are charging some passengers more because they need the extra cash.

A recent report shows that while U.S. wages are growing, ride-hailing drivers monthly earnings are down 50% since 2014. The situation is bleak in New York City, where drivers are barely getting by. In July, professors at The New School and the University of California-Berkeley found that hourly pay for full-time drivers in the city dropped by 30% between 2014 and 2017.

This trend is devastating in a city like New York, where so many drivers rely on ride-hailing as full-time employment.

How to fix it

First, we need to improve the amount of choice in ride-hailing. Passengers can see when their ride is to arrive, but they have no idea how their price is set nor any ability to change it. And if passengers want to negotiate, they are not allowed. During times of increased congestion, surge pricing puts many people out of the market, once again removing choice from the process.

Second, we need to change the incentives. The ride-hailing model incentivizes the wrong things: It leaves drivers to stay in Manhattan and take shorter rides, ignoring the outer boroughs and longer-distanced fares. Yet more than 80% of New York City’s 8.6 million residents don't live in Manhattan.

Third, drivers need to be paid better, without raising costs to riders. A 2017 study showed that 96% of drivers of a major ride-hailing company left within one year. The No. 1 reason was driver pay. This comes as no surprise. The big ride-hailing companies charge commissions as high as 25%, which have steadily increased over the past few years. When you factor in that drivers must also pay for insurance, gas and maintenance, their take-home pay shrinks even further.

Last week, the New York City Taxi and Limousine Commission approved a minimum wage for app-based drivers—a historic move that was criticized by some ride-hailing companies. But drivers have been taken advantage of for long enough. The change is a step in the right direction.

The current model is broken, but fixable. Ride-hailing was invented to help both passengers and drivers, and with improvements that give both parties more choice, we can do just that.

Arsen Tomsky is the founder and CEO of inDriver.

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