A new minimum wage law for gig workers in Seattle — and the subsequent response from tech companies — is changing the dynamics of food delivery in the city.
As the law went into effect last month, companies such as Uber, DoorDash, and Instacart responded by adding new fees for customers in Seattle and adjusting tip mechanisms.
We’ve been talking with key stakeholders this week to understand how the new law and the response from the tech platforms are playing out across the city, and changing the economics of food delivery.
- Many consumers are frustrated with the additional fees. Reddit users say they are ordering less, opting to pick up their orders, or deleting the apps altogether.
- Fast-casual pasta restaurant Due Cucina and salad chain Evergreens told GeekWire they’re seeing around a 15% decrease in third-party delivery orders.
- Reaction from drivers is mixed. Wei Lin, a longtime app-based delivery driver, said he’s earning more with the new minimum wage law, for example. But another driver, Tony Illes, said he’s earning less and that “demand is dead.” This week he launched his own delivery service touting lower fees.
Seattle is one of the first cities to implement this type of minimum wage. New York City passed a similar ordinance last year.
Seattle’s law, originally approved in 2022, enforces a minimum per-minute and per-mile amount for app-based workers. DoorDash and Instacart say this amounts at least $26 per hour — higher than the citywide $19.97 minimum wage.
The intent of the ordinance was to provide worker protections. Some studies show that gig workers — treated as independent contractors — are sometimes paid less than minimum wage or subject to poor working conditions.
“App-based workers help fuel our city’s economic engine and deserve fair wages like any other worker,” Seattle’s Office of Labor Standards said in a statement.
An Uber spokesperson told GeekWire on Thursday that there has been a “steady decline in demand from customers, resulting in couriers spending on average 30% more time waiting for delivery work than before the ordinance went into effect.”
However, Hilary Wething, an economist at the Economic Policy Institute, said more data is needed to fully determine the impact of the new law.
“I would push back against the idea that this is hurting drivers,” she said. “We don’t know that yet.”
A key issue is the decision by the delivery companies to increase fees for consumers as a response to the law, instead of subsidizing the cost themselves or taking a bigger cut from restaurants.
The higher cost for consumers will test the price elasticity of demand for food delivery in Seattle, said Vladimir Dashkeev, an assistant professor of economics at Seattle University.
“If demand is highly price sensitive, especially for small orders — then you would expect that demand will shrink,” he said.
Studies show that lower-income customers tend to use food delivery apps more frequently.
Another factor to consider is the potential for an increased supply of workers, driven by the promise of higher pay.
“If the number of orders doesn’t go up, more of those drivers are going to be ‘off the clock,’ earning nothing because they don’t have an order to deliver,” said Jacob Vigdor, professor of public policy and governance at the University of Washington.
Working Washington, a nonprofit that supported the ordinance, said in a statement that the new fees instituted by the delivery companies are a “clear attempt to distract from the fact that their business model is built on paying workers almost nothing while their CEOs and shareholders make millions.”
Uber this week reported its first full-year profit as a public company, with net income of $1.8 billion. Gross bookings for its delivery business, which includes UberEats, grew 19% year-over-year to $17 billion in the fourth quarter.
DoorDash, which reported a 27% increase in revenue to $2.2 billion in its most recent quarter, is still not profitable.
In a blog post last month, DoorDash said “we warned the City that while well-intentioned, these extreme policy changes would have adverse effects on all members of our community – Dashers, merchants, and consumers.”
“Our hope is that the newly elected Council will come to the table in search of a solution that works better for Dashers, merchants and consumers in Seattle,” a DoorDash spokesperson said in a statement this week.
The companies fought the minimum wage law in New York City, and made similar changes to their apps — such as only allowing tips after checkout — once that ordinance was implemented. Drivers there said the changes could reduce their hours and limit long-term earnings potential, Bloomberg reported in December.
Evergreens CEO Ian Courtnage told GeekWire that third-party apps make up as much as a quarter of total revenue across his stores. He’s concerned that a decrease in delivery orders could reduce work or stability for his own employees.
For restaurants that rely more heavily on the apps, “this has to be bordering on existential for them, or will be in the not-too-distant future,” he said.
Courtnage said he supports the intent of the minimum wage ordinance, but believes the implications should be closely examined.
“It’s worth revisiting to make sure we’ve done something that’s at least working for some portion of the ecosystem,” he said. “If everyone’s losing, then it would be silly to keep moving forward.”
The minimum wage ordinance was the first of several unique “PayUp” gig worker protection laws approved recently in Seattle.
Other “PayUp” policies include an ordinance related to the worker deactivation process and a 10-cent per-order fee approved in November that will help fund the implementation and enforcement of the “PayUp” laws. Seattle also passed a sick leave law for delivery workers last year.
The new laws in Seattle coincide with the broader debate over how gig workers should be compensated, and whether they should be treated as employees or independent contractors.
- Companies like Uber and DoorDash have long lobbied against legislation that would classify delivery drivers as employees.
- A new rule announced last month by the U.S. Labor Department could make it easier for independent contractors to be considered employees — which would provide benefits and other protections.
- The European Union last month reached a deal in December on new legislation that could bolster worker rights for gig workers in Europe.
Seattle will be closely watched as a testing ground for the impact of labor standards in a growing food delivery market facilitated by tech companies that tout the flexibility and independence offered by their platforms.
“Gig workers are critical to Seattle’s economy — and implementation of these new ordinances further reflects our shared efforts to advance the nation’s strongest set of labor standards, so workers have the stability and support needed to succeed in our city,” Mayor Bruce Harrell said last month.
