CareCredit - Women's Health April 2024

Wage Hikes and Regulations May Spur Gig Platform Consolidation

Wage Hikes, Regulations May Pinch Gig Profits, Spur Consolidation

Wage hikes and new regulations impacting the ways in which gig workers are classified may shake up online platforms, pinching profits and spurring consolidation.

In the meantime, a few firms are raising prices, which might have a dampening effect on consumer demand.

Instacart and DoorDash boosted prices in Seattle in the wake of the city’s embrace of new laws that have increased the minimum wage. As it pertains to delivery drivers, the platforms operating in Seattle must pay drivers at least 44 cents a minute with another 74 cents per mile driven during the delivery of orders.

Per Instacart’s own disclosures, the new compensation rules mean that drivers will be getting more than $26 hourly (where the minimum wage is a bit less than $20 hourly). DoorDash said its drivers in Seattle will now earn over $26 an hour too.

The changes are translating into new fees charged to consumers at checkout.

“Due to the changes …, merchants may experience significant declines in order volume as well as negative impacts to service,” said DoorDash in a statement.

A Wider Stage

The pressures seen on the platforms in Seattle are likely to be felt on a wider stage in the months ahead. New rules from the U.S. Department of Labor mandate that firms (possibly including gig platforms) re-classify workers who are “economically dependent” on a business as employees rather than independent contractors, which means they will get more benefits.

In response to the Labor Department’s new rules, Uber said in a statement that the move would apply to traditional industries (and thus not to gig economy companies), “and that it is unlikely to result in any large-scale classification changes.” But elsewhere, the company had noted that changes in the

Consequently, platforms may hike prices. Uber said last fall that a proposed European gig worker law could trigger price increases of as much as 40%.

Will the days of linking up — and scaling — see a renaissance in the wake of higher operating costs? It was not all that long ago that DoorDash acquired technology company Wolt in June 2022 or that Uber bought delivery service Postmates in December 2020. The pandemic helped give some momentum to dealmaking. The new laws and wage surges may do the same. Earnings before interest, taxes, depreciation and amortization is a positive metric for some of the platforms (including DoorDash), and higher operating costs will pressure that line item.

For workers and merchants, the pressures look to be pronounced. DoorDash has already signaled that order volumes might fall. Inflation seems to be on the rise again, according to the most recent Consumer Price Index data. And PYMNTS Intelligence found that “tipflation” incentivized 17% of consumers to pull back on their spending — with half of them saying they did so with food delivered from quick-service restaurants.