What Is the Food Delivery Tipping Point?

When the minimum wage rises, so too will what workers earn?

Not necessarily.

New York’s Food Delivery Workers

As New York’s food delivery army, more than 65,000 drivers and cyclists will be paid close to $20 an hour. With $11.72 the average from a year ago (with tips), the boost was big.

Since DoorDash, Grubhub, and Uber had been hiring their delivery workforce as independent contractors, they did not have to pay the minimum wage. Then, when the new law passed, they objected but lost in court. According to a NYC report, although their hours plunged by 22%, workers earn 42% more than a year ago.

However, even before the wage hike, New York Magazine said delivery prices entered the stratosphere. A Chipotle $17.95 chicken-and-rice bowl with chips soared to $32.06 after the tip. A Chinese dinner that had been $28 rose to $42. When a delivery fee could be $4.99, a service fees, $4.80, and a tip $4.00, not to mention tax and inflation, you easily double the price of the order. Suddenly, delivery is less appealing and Grubhub is canceling worker accounts.

We should add that that comparing walk-ins to deliveries, one restaurant owner said their profit margin sunk from 2.5% to 1.5% because of what the delivery companies charge them.

Our Bottom Line: Elasticity

Consequently as we said during June, an elevated wage has unintended consequences. The reason is demand elasticity.

Reflecting the law of demand, when price changes, so too will the quantity we are willing and able to buy. The question though is how much that quantity changes. For medicines and milk, displaying inelasticity, price changes impact us minimally. However, for the luxury of food delivery, a price hike could have that unintended consequence of a pickup rather than a delivery because our demand is elastic.

Or…reflecting a truly unexpected unintended consequence,

Moss and Fog tells us that the future might just be an autonomous car delivering our food.,

My sources and more: Thanks to Bloomberg (gated) for inspiring today’s post. From there, Gothamist, NY Magazine, and the NY Post, had more detail.