The claim that corporations paying legal wages below a certain level are mooching off the state is an oversimplification. People are working for below a “living wage” and so the state provides lower or negative marginal tax rates to support them. It’s an unstated assumption that this is the corporations’ fault.
But we cannot presume from where these extra dollars are coming from, when the State legally forces corporations to pay more to these workers.
Maybe there ends up being less of the lowest value workers overall, costing the low-skill working population their jobs.
Maybe there ends up being a greater incentive and ROI to automate, shifting the cost/benefit analysis and driving greater investment to eliminate manual jobs.
Maybe the costs are passed on directly to the consumer, which directly reduces demand and therefore also reduces employment.
Maybe a greater share of corporate profits end up being spent on this labor.
Certainly it’s some mix of all of the above. You could put elasticity ratios on all of these effects and you can model how much of the added burden will fall on each.
The challenge is that of course the corporate profit numbers will move last of all. And that’s presuming that the margins currently in effect even allow for some slack.
What we saw here is that the Uber’s operating profit margins didn’t support the regulation, so prices had to move.
The fatal error is thinking that the State is somehow in a better position to set prices than the Corporation. A key piece of IP that Uber/Lyft have developed is their pricing algorithm. They know the supply curve for how much they can spend per driver to recruit, they know the demand curve for how much they can charge per ride. They price in real-time dynamically based on supply and demand. And they solve this equation systematically, to induce demand when they know they have excess drivers waiting for fares, and to induce supply when they have too many.
Their incentives are fully aligned (based on their commissions) to maximize total fare revenue.
My prediction is that this will drive down total fare revenue in Seattle and ultimate earnings per driver will be reduced although this will happen along with a reduction in fares per driver and the number of drivers. It’s possible the driver count will fall fast enough to maintain average earnings per driver, but I doubt it in this macroeconomic environment.
Ultimately if the goal is to force ride-share drivers to find alternate sources of revenue, I think this is a good solution. That’s not an invalid goal, but I think it’s the most reasonable expectation.
Going back to the original hypothesis, if you outlaw low paying wages, certainly there will be no low paying jobs. The question then becomes, what becomes of the low-skilled workers?
I have a theory, I’m not sure if it’s well supported in academia but it probably relates to a kind of Nash Equilibrium.
My theory is that people are generally pretty lazy, but that this is not by any stretch an insult. We search for shortcuts, low friction solutions, easy outs. We don’t strive for peak performance, we mostly look for good enough. The best we can hope for under such a hypothesis is this will force the hand of workers to avail themselves to higher paying jobs if they are able.
In the context of ride hailing, there is a large demographic where the push-button-get-job dynamic was extremely economically valuable. To the extent that they would accept technically “below-market pay” for the convenience of cramming in a fare between classes and dinner, or going out for a few hours at night to bank some cash.
But this is mainly a failure of properly accounting for the opportunity cost.
I’ve often felt that working is way more expensive than most people realize. Even aside from the high marginal tax rates when you stop getting free health insurance or food stamps.
Working a 40 hour week means you have to endure a flaky and expensive hiring process, you have to endure a flaky and stressful boss, you likely end up procuring food supplies at a higher cost than you might otherwise pay, and most of all you have to keep up your housing, hygiene, transportation, wardrobe, health, household, hobbies, and other engagements (e.g. education) all in a fashion that allows you to be reliably available during business hours in a geographic area that you can commute to which has an excess job available. All of that is actually extremely fucking expensive.
Uber lowers the marginal costs of employment very significantly. This is almost never properly factored into the analysis when people consider whether it’s a good idea to reduce the size of the on-demand economy.
So in the end, some of those ride-hailing workers will find ways to reduce their expenses, tighten their belts and forgoe the “cheap revenue”. Other workers will be forced to find more expensive revenue sources and be forced what we naively see as “upwards” but from an holistic perspective in a fully priced out economic model is almost surely a short-term loss to that individual.
An optimist would say it might lead to long-term gain, by pushing drivers out of a local maxima. I’d say that’s highly presumptuous.