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.