Converting someone to an employee means a lot more than just paying them more. There is entirely new infrastructure that has to exist now.

Lyft already has the infrastructure in place, as they already have employees.

Are you implying that Lyft is going to give every driver a salary, or are you intentionally being obtuse? This is like saying "you should be able to make dinner for a restaurant, as you already have a kitchen"

They're already losing money as is...

Uber and Lyft aren't profitable, never have been and may never be. The idea is that if only you build a strong enough brand and network, somehow there will be money in it.

In the meantime, they'll operate at a loss. If they leave the California market, they'll simple lose money slower.

I never understood the way Uber wanted to win. There is essentially zero moat, especially because the drivers are not employees in their model. So even a small competitor can just slightly pay more to the drivers, and cost slightly less to the riders, to grow. The only way out is replacing the driver, and protecting that technology. I don't see either of that happening. If technology gets good enough, Tesla/GM/VW will have it too. And they have a cheaper access to cars.