Impact of Driver Classification Regulations on Transportation Network Companies

This paper studies the impacts of driver classification regulations on the profitability of transportation network companies (TNCs). These impacts are assessed by a market-equilibrium model that captures the arrival of passengers and drivers and quantifies the TNC’s pricing decisions in the presence/absence of regulation. We analyze how TNC profit is affected by the driver classification regulations due to two effects: (a) increase in driver wages due to minimum wage and overtime compensation requirement; (b) loss of flexibility of driver working schedules. We deconvolved the contribution of these two effects on TNC profit reduction and estimated each of these effects using empirical data from San Francisco. Our results suggest that the increased driver wage effect contributes substantially to the loss of TNC profit (45% of original profit). On the other hand, the loss of flexibility effect varies significantly (6-41% of original profit) depending on the flexibility of driver working schedules. We also evaluated the impact of the proposed regulation on TNC market outcomes such as drivers earnings, utilization rate, trip fares and total number of trips.