Impact Analysis of the Massachusetts AG Settlement
This data brief compares the Massachusetts Attorney General’s settlement with Uber and Lyft, the 2024 Minnesota minimum compensation standard, the industry’s preferred ballot initiative in Massachusetts, and the status quo situation for Massachusetts drivers.
Summary of findings:
The Massachusetts AG settlement sets a minimum standard that is 39% lower than what Massachusetts drivers already make. For the average driver, it provides a net pay guarantee of just $6.61 per hour – compared to their current net pay of $10.92 per hour. The standard also falls well short of achieving equivalence with the Massachusetts minimum wage.
This is because of two key failings in the Massachusetts AG settlement framework:
First, the $32.50 per hour minimum only applies to about 70% of drivers’ actual working time. If you spread the rate across all working time, it equates to $22.70 per hour.
Second, it does not include any reimbursement for working expenses even though the average Massachusetts driver incurs $16.08 in hourly expenses. This absence is noteworthy because both the TNC’s own ballot proposal and the Minnesota standard provide a per mile minimum to reimburse drivers for their substantial driving expenses.
The AG settlement also includes a “top-off” pay system, which makes the settlement act more like a pay ceiling than a minimum floor. This is because TNCs have free reign to practice algorithmic discrimination below the standard instead of pushing that practice above the standard. Workers are distrustful of top-off systems that do not provide genuine data transparency.
Does the Massachusetts AG settlement address all components of driver earnings?
The Massachusetts AG settlement’s minimum compensation rate only applies to about 70% of the average driver’s actual working time. It does not count time drivers spend between rides or while in ready status, which is a crucial factor in the TNCs ability to provide quick response times to customer ride requests. If you spread the $32.50 per hour minimum across 100% of working time, it equates to $22.70 per hour.
Whatsmore, the Massachusetts AG settlement does not include any reimbursement for working expenses. This is exceptional because the TNCs own ballot proposal and the Minnesota standard both provide a per mile minimum to reimburse drivers for their substantial driving expenses. On average, Massachusetts drivers travel 24.0 miles per hour in their work and incur $16.08 of driving expenses per hour (24mph x IRS mileage rate of 67 cents per hour).
How will the Massachusetts AG settlement affect drivers and how does this compare to other standards?
To assess the impact of the AG settlement and other standards on the Massachusetts workforce, we first estimate drivers’ current net pay. This calculation is based on current Massachusetts workforce ridehail compensation data, and uses the 2024 IRS standard mileage rate and average Boston utilization rates to determine gross pay and driving expenses on an hourly basis. We find the current hourly net pay for the average Massachusetts driver is $10.92, which is one-third less than the effective Massachusetts minimum wage of $16.15 ($15.00, with a 7.65% markup for payroll taxes).
We then apply the elements of each minimum compensation standard to the current Massachusetts workforce to measure their relative impact for the average driver. We find that the Massachusetts AG settlement is 39% less than the status quo and the TNC preferred ballot proposal is 94% less than the standard.
Applying these calculations to individual drivers provides insight into the distribution of pay across the workforce, revealing that 85% of drivers have average net hourly pay below minimum wage (Figure 1).
What are the economic impacts of the “top-off” pay model?
The “top-off” framework is a system in which minimum rates are not paid at the time that rides are performed. Instead, on a post hoc basis, the companies calculate whether they paid a given worker below the minimum standard and, if they did, they subsequently make an additional payment to the driver to bring them up to the minimum.
The Massachusetts AG settlement uses a “top-off” framework. It is also a key part of the Prop 22 standard in California, the new Minnesota legislative standard, and the TNC ballot proposal in Massachusetts.
Uber and Lyft prefer this “top-off” pay model over fixed minimum rates because it doesn’t restrict their dynamic pricing systems. But, from a driver's perspective, there are two reasons to be wary of such a system.
First, a minimum standard that relies on a top-off compensation puts downward pressure on worker pay. When a new pay standard that includes top-off compensation goes into effect, it effectively becomes a ceiling instead of a minimum floor. Recent research indicates that the Prop 22 top-off system has resulted in declining pay in California. Whereas minimum standards that include fixed rates of minimum pay (no top-offs) such as New York City have seen increases in worker pay.
Second, experienced drivers have become increasingly distrustful of TNC fare systems ever since the TNCs began implementing new “up-front fare” models in which pay is no longer based on fixed per mile and per minute rates. Drivers are generally skeptical of “top-off” systems that do not provide true data transparency.
The complete data brief is available here.