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Markets, not Regulations, Can Make the Most of our Differences

Mayors of New York have never been economists, but the administration of Mayor Bill De Blasio may be unrivaled for an economic ignorance that harms the less well off. Its latest idea is to require ridesharing companies like Uber and Lyft to pay drivers S17.22 in earnings per hour. This is not a minimum wage, because drivers have expenses to pay, but the notion is that this amount would be roughly equivalent to a fifteen dollar an hour minimum wage.

Begin with the obvious bad effects of a minimum earnings requirement, similar to the bad effects of a minimum wage. Minimum earnings requirements will drive down employment in the ridesharing as the prices of rides goes up. And many New Yorkers going places will lose as higher prices force them to take less preferred forms of transportation.

Even beyond these relatively familiar points, the proposal is based on a flawed assumption, namely that driving with Uber or Lyft is equivalent to work in jobs with fixed hours, like those in the fast food industry. But as anyone who has talked to ridesharing drivers should know, they enjoy the tremendous perk of stopping and starting work at any time they want. Economists have estimated that this benefit is equal to as much as 40 percent of earnings.

Moreover, because of this flexibility, ridesharing is perfect part-time work. As I have learned from many drivers, it allows people to pursue other passions and hobbies, take care of sick relatives or work within their own medical constraints. It also permits people a steady stream of income while they work on startups or try to launch an acting career. For many, such part-time flexibility makes these jobs worth a lot more per hour than equally paid full-time jobs. By creating less work for such drivers, the earnings requirement will harm strivers and caregivers alike.

Finally, as Uber and Lyft drivers have noted to me, their job is a lot safer than its closet equivalent—that of a  medallion taxi cab driver, because the drivers can expect good behavior from his or her passenger, who is known to a ridesharing company and rated by the driver.

The economic and political lessons here extend farther than those usually given by opponents of the minimum wage.  These regulations ignore the differences among jobs and among the people who do them. And because people naturally gravitate toward jobs with high non-monetary rewards shaped by their own endowments and circumstances, the cost of these regulations are even greater than might first appear.

Markets make differences—in our situation and talents and in the available occupations work for our benefit. Regulations that interfere with voluntary contracts, like these pay requirements, do the opposite: they ignore our differences and so make us worse off.

Reader Discussion

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on July 06, 2018 at 11:49:33 am

The more cynical might see in these regulations concern primarily for the interests, not of the Uber & Lift drivers, but for the medallion taxi cab drivers, the New York Taxi Workers’ Alliance, and of course, most importantly to the DNC, the AFL-CIO.

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Paul Binotto
on July 07, 2018 at 00:23:56 am

McGinnis makes the traditional arguments about minimum wages—and ignores the traditional arguments in favor of minimum wages. Yes, any form of price regulation may block certain transactions that otherwise would have occurred, all else being equal.

But often, all else isn’t equal. We’ve observed over time the diminishing bargaining power of many forms of labor, and the increasing return to many forms of capital. In this sense, minimum wage laws act like union contacts, with many of the same benefits and burdens. On balance they tend to result in laborers being able to retain a higher share of the wealth they help produce, even as they restrict the number of laborers in the sector. In short, the policy generates both benefits and burdens, and people can disagree about whether the one outweighs the other.

Markets make differences—in our situation and talents and in the available occupations work for our benefit. Regulations that interfere with voluntary contracts, like these pay requirements, do the opposite: they ignore our differences and so make us worse off.

This begs the question: Which contracts are “voluntary contracts”? If you agree to buy my land, and I agree to sell it to you, that may well constitute a voluntary contract as between you and me. But the concept of property rights reflects the idea that I exercise control over something to the exclusion of THE ENTIRE WORLD, and that government will defend my claim. There is absolutely nothing voluntary about my claim to that property; it is enforced by force.

Likewise, the City of New York issued a bunch of medallions for the right to drive a taxi. Those medallions are traded via voluntary transactions. But the medallions had value only to the extent that they reflected a claim AGAINST THE WORLD for the right to drive a taxi, a claim that government would enforce. Government has been failing to enforce this claim. And taxi drivers, confronting the loss of their life savings invested in those medallions, are now committing suicide.

Is this appropriate public policy. The answer is … maybe? Perhaps government did something really stupid in granting this kind of right against the world, and perhaps the best social outcome is to simply default on its grants—even if it results in terrible hardship to some individuals. And who knows? Perhaps government will someday reach similar conclusions about other forms of property rights. But I suspect McGinnis would express a few words of opposition to the abdication of property rights in land; I have to wonder at his silence regarding the abdication of the property rights in medallions.

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nobody.really
on July 07, 2018 at 07:36:14 am

Nobody,

Respectfully, you seem to acknowledge, this move by De Blasio is more about helping medallion drivers (et al) than raising up Uber/Lift drivers. And, the drivers, may very well be deserving of the support - your point is taken.

But, its probably more appropriate to acknowledge, De Blasio did it for the "Union" who gets fat on drivers, and for himself, who's campaign fund gets fat from donations that flow into it from the union (Unions, which by the way, seem to have largely managed an exception from many, most, all, campaign finance laws).

I come from a big union town, where once USW reigned supreme; my experience is that union leaders are mostly parasites and leaches who rule like mob bosses, but without the charm. In high school, I worked for a supermarket whose owner also happened to be the president of the union his workers (even part-timers) were required to pay monthly dues to, oh, and by the way, for the first year and a half I hadn't met him because he was in federal prison on an embezzlement charge (perpetrated against that same union).

So in my view, this latest statute in NYC is not to help the independent Uber/Lift drivers but to leverage them under the thumb of the mayor and of the union, and to make them beholden to them, as if to the Godfather. And, only indirectly to help the taxi driver.

Unions had a place in the early days, but in my view, they quickly became little more than pass-through, shake-down instruments for politicians, and meal-tickets for the union leaders, neither of which (the union leadership and the politician) have the rank & file's interest very much in mind.

So forgive me if I think you misconstrue or mischaraterize the extent of De Blasio's altruism here.

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Paul Binotto
on July 07, 2018 at 07:41:57 am

Just to follow up:

"Perhaps government did something really stupid in granting this kind of right against the world" - Politicians, (i.e. government), are not stupid; they issued these "rights against the world" because there was something in it for them, not out of some misguided policy consideration.

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Paul Binotto
on July 07, 2018 at 08:23:40 am

And you therefore concede that all laws defending property rights are wrongful, because they were adopted by self-interested politicians?

I don't dispute your characterization of politicians and laws. But laws OFTEN have the quality of benefiting one group while harming another. Thus, this characterization, while accurate, does not really say much. To make your point, you'd have to not only argue that unions are less than perfect, but that a world without them would be better than a world with them REGARDLESS of the motivation of politicians.

And I don't dispute your characterization of unions. Heck, Marlon Brando's On the Waterfront won eight Oscars telling a story of union corruption, so it's hardly a secret. That said, can you imagine that some people have had bad experiences dealing with employers when they DIDN'T have unions? And if so, how would you balance the benefits and burdens?

Many people look back to the post-WWII era as a desirable time for employment. It was an era of high unionization and declining rates of income stratification. Arguably, Trump's successful "Make American Great Again" appeal was to make American more like those bygone days. In contrast, today we have unprecedented rates of income stratification and declining rates of unionization--and SCOTUS just reversed precedent to exacerbate this situation.

Like you, I find many aspects of unionization challenging. And like McGinnis, I acknowledge problems with minimum wage laws. So, like Charles Murray, I'd like to explore shifting to a basic income guarantee--or, at a minimum, stronger social safety net laws. After all, the argument to dispensing with unions is strengthened by the fact that many of the gains won by unions have now been codified in law or culture. But unions still play a large role in shifting income down the income ladder.

I also try not to let the perfect be the enemy of the good. Laws defending unions lead to imperfect results--but I suspect that a world without unions would lead to still more imperfect results.

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nobody.really
on July 07, 2018 at 10:17:41 am

No, I don't concede that at all.

I am merely appealing to you to be realistic, even cynical, about political motives, and in this instance of unions, in most cases, unions only shift the role of tyrant from the business owner to the union leader, or rather, only adds a vice-tyrant as overlord of the employee , and the worker still eats hotdogs so their liege may eat steak.

Universal Basic Income is just coming at socialism from another angle, and it is just as doomed for failure and tyrannical abuse.

You seem like a good person, thoughtful, intelligent, with good intentions for the common folk, all admirable and worthy of respect, but I sometimes get the impression you are a little top heavy with theory and light on application.

Speaking of On the Waterfront, excellent movie and it is playing on TCM this month, if you'd like to catch it.

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Paul Binotto
on July 07, 2018 at 10:24:57 am

Nobody / Paul:

Staying out of this but here is something on *INCOME* that may be of interest:

https://www.nationalaffairs.com/public_interest/detail/redistribution-selfish-socialism

FWIW

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gabe
on July 07, 2018 at 10:27:35 am

NOBODY:

As the commercial (for cheap beer goes) 'This one is for YOU"

https://object.cato.org/sites/cato.org/files/pubs/pdf/pa-839-updated.pdf?mod=article_inline

As I have indicated many times, what is typically most salient in income distribution analyses is WHAT'S LEFT OUT OF THE CALCULATIONS, as demonstrated in the above link.

Again, FWIW!!

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gabe
on July 08, 2018 at 00:01:03 am

Yes, markets did so well for people before regulation. Like the Triangle Shirtwaist Fire, the massacre of the Molly Malones, the lives of many ended by no safety regulations...

As for Uber and Lyft, I would rather ride with a driver that had been checked for a criminal record. Sissy, perhaps, but there you are.

And let's not forget Upton Sinclair's THE JUNGLE. Yeah, markets were great! Not.

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excessivelyperky
on July 08, 2018 at 19:24:56 pm

At last, my perky one - we agree.

We can not let these Little Girl Smurfs sell lemonade. It just might give them notions and the money and means to escape my clutches.
Thank Gaia that there are REGULATIONS prohibiting these little females from selling lemonade!!!!!

BTW: I actually do agree with you on Uber vs a medallion taxi. Who knows who and what these unverified Uber drivers are, or what crimes they may have committed.

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gargamel rules smurfs
on July 10, 2018 at 12:41:59 pm

Interesting piece in National Affairs, Mr. Gabe; I'd like to read the reverenced book!

Of course my comments were directed at the Socialism that is, not the one true one that might or ought to be. I suppors I should state for the record, I hold the position that Lochner was correctly decided. Hopefully, Janus does signal a walking back towards protections contained in Lochner.

UBI is in the news again today: http://www.foxnews.com/politics/2018/07/10/californias-foreclosure-capital-to-give-away-500-month-to-residents-in-experimental-welfare-program.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+foxnews%2Fpolitics+%28Internal+-+Politics+-+Text%29

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Paul Binotto

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