Experience Stern | Faculty & Research

In a new, forthcoming paper entitled, “Platform Design, Earnings Transparency, and Minimum Wage Policies: Evidence from A Natural Experiment on Lyft,” NYU Stern Professors Arun Sundararajan and Xiao Liu and NYU Stern PhD student Rubing Li examine how consumers, gig workers, and business could collectively benefit from platforms embracing earnings policies that are a market-driven alternative to government-mandated minimum wages, while balancing societal and regulatory goals with operational realities.

In February 2024, Lyft introduced a policy guaranteeing drivers a minimum fraction of rider payments while also increasing per-ride earnings transparency. The rollout of this policy was staggered, first introduced in “major markets” that were more urban, providing a natural experiment to compare “treated” drivers with a natural “control” group and assess how this new model of platform transparency and earnings guarantees affect ridesharing availability, driver engagement, and rider satisfaction.

By analyzing trip-level data from over 47 million Lyft rides in a major urban market over six months, the authors find that the earnings transparency policy led to a win-win-win outcome for drivers, riders, and the platform:

• Higher driver earnings driven by multiple factors
  • Anticipated increase in driver earnings caused by higher driver engagement that lead to more hours spent on the Lyft platform, longer sessions, and more trips being completed per hour
• Greater engagement rates from drivers:
  • Expansion of between 8.6% and 33.3% in the weekly hours that “treated” drivers spent driving for Lyft
  • Rides per active hour for treated drivers increased between 6.1% and 20.1%
  • Treated, full-time drivers added 26.4% more hours than treated part-time drivers
  • Drivers that drove for other ride-sharing platforms and drivers whose prior platform activity suggested a lower tolerance for uncertainty responded more favorably to the policy change
• Financial upside for Lyft:
  • Increased platform revenue
• Enhanced rider experience:
  • Increased rider ratings
  • Lower rider wait times in high-demand areas

“Our results have important policy implications, suggesting that platform-led earning floors may serve as a viable substitute for externally imposed minimum wage policies,” note the authors. “City-mandated regulatory minimums significantly constrain the extent to which the market mechanism shapes pricing and allocation. Our research points to a natural alternative to minimum pay laws—let market forces dictate both consumer pricing and the division of revenues. Rather than relying on complex and often opaque formulas—such as per-minute or per-mile rates that drivers may not fully understand—an earnings guarantee simplifies earning structures while preserving platform flexibility. We hope our results inform future debates on gig worker protections by offering a hybrid solution that balances regulatory objectives with operational practicality.”

Click here for access to the full paper.

Note: This study was conducted as an independent academic research project. No consulting fees, research grants, or other payments were made by Lyft to the authors.