New minimum pay levels from the food apps will have a mixed impact

Don’t look now, but there’s actually at least one American-born and college-educated food delivery person in the army of faceless workers who perform this service for our fellow New Yorkers. I know because I’m that guy. And as an economics major — and at one time a successful businessman — I can see the issue of fair pay for delivery people from more than just the workers’ side. The new city law going into effect that will guarantee delivery workers the minimum wage is going to change the industry significantly.

Ordering through Doordash or Uber Eats is already very expensive. Not only do the companies charge the receiver of that food a delivery and service charge, but they suggest the recipient tip as well. Add on that the restaurant raises the price of its food (delivery companies take a cut from them) and the consumer ends up paying a harshly inflated price. And if you think it’s just fancy New Yorkers who use this service, guess again! I’ve done dozens of deliveries to NYCHA housing projects.

Despite all the upsells in this formula — and the reality that the services pay poorly and thus, the delivery people make as much or more of their paycheck in gratuities — Doordash and Uber Eats operate in the red.

In 2022, Doordash generated $6.6 billion in sales but spent $7.9 billion. It’s kind of like the old George Burns joke about his friend the counterfeiter who made gorgeous undetectable twenties. The only problem was it cost him $22.50 to make them.

Venture capital keeps Doordash going. Some economists find Uber and Doordash to be operating a failed business model. Owners of the big boys in the field figure that eventually, the less-capitalized will fall by the wayside whereupon they will become profitable. However the drama eventually works out, being forced by law to provide the minimum wage to workers while they hemorrhage money won’t help them turn a profit.

During the pandemic, that wouldn’t have posed a huge problem. I routinely earned $15-30 per hour on a pedal bike (no electricity). But that has changed drastically. Now I earn around $10/hour when my app is turned on. Granted, I’m sitting around on benches, in parks, and even at home during a lot of that time simply waiting for the phone to ping. For me, it’s just a retirement activity that keeps me alive and my finger on the pulse of the city. But I can’t imagine having to support a family on what I’ve been earning recently.

And that’s why New York passed the new law. That $7/hour reference to how much delivery people earn isn’t far off the reality.

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The new law will benefit workers who are actually trying to make a living delivering food. But there will be a cost involved. We will no longer be able to reject job offers (as independent contractors, we can do that now). And the company will draw down on its delivery staff (firing less efficient workers) and hump the remaining workers harder.

I see it at fast food restaurants when I pick up from the likes of McDonald’s, Chipotle, and Sweetgreen. The company pays its workers a living wage. But they also work them to death to get their money’s worth. And that’s what it will be for dashers as well.

For customers, prices will have to go up even further. Whether the service will actually improve is questionable. Fewer workers won’t help the situation. But on the other hand, the company won’t have to search for a delivery person who will accept a low-paying job. We’ll have to take them.

Customers’ food will probably arrive more rapidly, as the services will prevail upon restaurants to have the food ready when the delivery person arrives now that Doordash will have to pay delivery people for waiting time. In short, there will be a delicate balance all around. Doordash will need just enough workers to get the job done — but not too many so that the corporation sinks deeper into the red.

In the end, fewer people will order out through these apps. The bike lanes will be less clogged with bikes. The less efficient delivery people will lose their jobs. And the companies that offer this service will continue to lose money until most of them fold leaving just one or two to finally turn a profit on the backs of people who are willing to pay a small fortune for the luxury of having restaurant food delivered.

This is capitalism and the American way at work. As usual, we’ll find a way — until we don’t.

Mersey is a freelance writer.