Yeah. We should get a UBI or expanded EITC that works automatically (the current version requires too many hoops for recipients) and then prohibit laws like this.
There's no other business where hourly employees can just make their own hours, regardless of if the employer wants them to show up, and get paid for however long they desire to be considered working. Real hourly employees worry about "getting hours", this is just rideshare legislation reinventing the concept in the least efficient way possible.
That does indeed seem to be the implied perspective of the Jacobin article: People should be able to work whenever they want, as much as they want, at wages set by the government.
(I'm actually somewhat sympathetic to the idea that people should be able to do this. But it would have to some kind of social safety net program all of society invests in, not some weird thing that we can just conjure into existence at no cost to anyone by putting enough epicycles onto the minimum wage...)
Sorry for my ignorance, but I wonder what happens if you make the supply/demand curves have non-zero width, and the equilibrium point becomes and equilibrium area?
For extra credit, this might be plotted with 3 dimensional conic volumes representing both sets of supply/demand curves - cost/ride and price/driver.
If I wasn't planning on pretending to work today I'd do a literature search
I'm not sure exactly what the width would represent? Something like, "the number of rides demanded is only known to be between this lower bound and upper bound"?
Mathematically, I think the intersection would just be called a "bounded region". I guess that would represent all possible equilibria that could be obtained via (zero-width) supply and demand curves that "fit inside" the others.
Hi, your argument for the maximum of 50% of the wage increase going to the drivers seems incorrect. You base this on the assumption that usually the derivative of the supply curve is larger than supply/price but I think it is the other way around. The higher the wages, the less people care about a small wage increase leading to a flattening of the supply curve e.g. at 1$ wages a 1$ increase, increases supply a lot while at 100$ a 1$ increase does not. This means the slope of the supply curve will usually be larger than supply/price. This is also the way it is usually drawn if you look up supply curves but the axes are swapped as compared to yours. Am I missing something?
I don't claim to have empirical proof, but I definitely do think the assumption I made is correct when it comes to the supply of driver hours. To be specific, if driver pay were, say, cut from $15/hr to $7.50/hr, my intuition is strongly that the number of hours people are willing to drive would drop by more than 50%, because most people want to make as much money as possible, and there are other jobs and the majority of people would shift to those rather than take a 50% pay cut.
Well but a 50% pay cut is not a good proxy for a derivative, the derivative is the change in labour based on a (infitesimally) small change in wages, halving it is not a small change. You have to look at the effect of a small change in wages at different points on the graph and then I think my argument holds. You don't have to take my word for it if you look at any economy textbook they draw the labor supply curve as I have described (again the axes are swapped so it looks visually identical to yours but if you would take the same axes the curvature is actually opposite)
I know that's how the curves are sometimes drawn. But it's not always or even close to always—it's more common that they are just drawn as straight lines:
When the curves are drawn the way you describe, that's because they're modeling a situation where as wages increase, people will offer less labor because they will value leisure more. E.g. if I could earn more per hour I'd work more, but I wouldn't keep working more forever. I don't think that's very relevant to this situation where we're changing the price in one job while leaving other jobs fixed, so the most important variable is how many people work *this particular job* rather than other jobs.
I see what you are saying but I still think it is correct to say that an increase an increase of 2$/hour at 5$/hour will have a larger marginal effect pulling people in to this job than an extra 2$/hour at 50$/hour leading to the shape I am positing.
I do understand your intuition with the 50% but even if it is true it does not prove your conjecture as the supply curve usually does not cross the origin i.e. there is a certain minimum wage below which nobody will want to work. This means both of our claims can be true: the curvature of the supply curve can be opposite of what you drew matching my reasoning that changes in wages become less important at high wages and your assertion that a 50% cut reduce the labor supply by more than 50%. If you draw the curve this way it means that at very low wages the derivative of the curve is indeed higher than supply/price but at higher wages this is reversed. So again this invalidates your proof. Also with this shape of supply curve it becomes necessary to not just look at the derivative but actually look at how much the wages are increased further decreasing the strength of the statement you can make even at low wages where the assumption of derivative>supply/price holds. Lastly I think the assumption with the 50% cut leading to more than a 50% reduction in labor is shakier than you present it as this intuition is mainly based on a sudden 50% wage cut which feels very unfair but if you instead look at e.g. a 1$ decrease every year from a 30$ wage until you hit 15$ it becomes less clear if this intuition is correct.
I agree that the supply curve probably does not go through the origin, but I think that "helps" my case? The SUPPLY(P)/P line goes from (0,0) to (P,SUPPLY(P)). The other curve goes from (x,0) to (P,supply(P)). The means it needs to cover the same vertical distance with less horizontal distance, which means the "average" derivative must be higher. (Though not *necessarily* the derivative at the end.)
Also, one small nitpick. You keep saying that my proof is wrong, but as far as I can tell, you don't actually disagree with my proof? Essentially, my proof is that A implies B and (I think) you agree that A implies B, you just don't think A is true. If that's right, would be helpful to clarify.
Yes you are correct that I don't disagree with your proof itself just with the feasibility of the assumptions (I don't think A is true as you say).
Let me state my points more clearly:
a) I think the curvature of your curve is not feasible; as discussed above I expect the curve to flatten at higher wages: changes in wages become less important at high wages. Do you agree with my reasoning on that as described in detail above? This is also what is assumed in economics text books (although the axes are swapped) e.g. https://tinyurl.com/36n62mup so I do think I am probably correct here.
b) Your intuitive statement of 50% less wages would give less than 50% labor supply also seemed feasible to me.
c) I realized however that if your supply curve doesn't go through the origin both a and b can be true. But again the curvature would be opposite to yours.
d) This would mean that derivative>supply/wages at low wages "helping" your claim there but not at high wages, an example is SUPPLY=SQRT(W-2) where if W<4 your assumption holds while at W>4 derivative<supply/wages. It would be easier with drawings but if you type this in google you can see what I mean : "sqrt(x-2), sqrt(4-2)/4*x"
e) A nitpick of my own: although it sounds feasible to me I also question the validity of b) because it heavily relies on the big jump of 50%, the same argument with a 2% wage cut probably resulting in more than a 2% drop in supply already sounds way less convincing. Seeing as a number of subsequent small drops can eventually lead to a 50% drop the arguments doesn't seem as plausible as it sounds. This might be our intuition leading us astray here.
f) But again my argument does not rely on e) as described in c)
It looks like we're not going to agree, but I don't think I have much novel to add, so I guess I won't prolong this discussion. It seems like we mostly just differ on our intuitions for an empirical question for which neither of us has much firm evidence. But thank you very much for your comments which are intended in good faith! (I responded to "curves in textbooks" issue in the other thread.)
Love the jab towards realtors at the end - pure deadweight loss. I'm amazed no technological solution has obsoleted them yet - even today YOU basically do all the work while they spam you with totally irrelevant houses / buyers, then they take 6%, it's monstrous.
If this legislation is to be successful I think it would be this route: Uber just became profitable this year, so whatever demand and quality of service they are offering right now they can't afford to go lower. This post describes what happens if Uber decides to pass all new costs onto riders, but like you said that WILL result in bad things and loss of customers. Uber can't afford that, so they need to cut into their profits.
I guess it depends on whether you think Rideshare companies are willing to cut into profits. Which I'm not sure. Long term I bet they will find a way to squeeze this out of the consumer, if not a subset of consumers.
This is a similar argument Uber made when everyone was demanding they add tipping. You can’t outsmart the market.
FWIW, drivers would much rather get paid to sit sit around than to drive (and less vehicle cost incurred), so they’d support the tradeoff explained in this post - although I suspect this will cause wages to fall below pre-minimum wage baseline since it’s a more pleasant job now.
I worked at a ride sharing company for years - the public’s lack of understanding of the relevant dynamics was an endless source of frustration.
Good point regarding drivers being happy sitting around. (Although it makes me even more skeptical!)
Tipping is just such a strange thing, economically. It really seems like tipped employees at restaurants make "above market" wages (whatever that means) simply because the tipping norm exists. At least, that's what I conclude from how bitterly they resist proposals for tip sharing, etc.
For ridesharing, it does seem like tipping will probably even out and ultimately it sort of becomes a sort of "tax on niceness", a small transfer of wealth from agreeable people (who will tip more) to less disagreeable people (who get subsidized) with little impact on drivers.
That all makes sense, but why wouldn't it be true in ALL cases of a minimum wage? (And we know from experiment that it's NOT true for all cases of a minimum wage.)
Particularly since the Attorney General's policy is addressed "(versus) Uber Technologies and Lyft Inc", I'd believe the wage policy is largely intended to curb the apps' rake.
You'll likely math this out better than me, but: If Uber doesn't change their rake, they'll probably net the same as the drivers. But they'll bear the burdens of the new price floor being more annoying: more users and drivers will churn, it will cost money to attract new ones. The apps could avoid that by reducing their rake. The result is a return to market equilibrium, with more of the transaction money in drivers' pockets and less in Uber & Lyft's.
2)
The government is responsible for the commons and the public. Drivers, passengers, and rideshare apps don't really care about these.
If rideshare prices are low enough, people will hail cars when they could have walked or taken public transit. Increased pollution and traffic congestion. Less walking impacts peoples' health.
Public transit is already funded by government and produces some government revenue. There's probably an undesirable feedback loop where sparsely-used trains are not just a waste of resources, but receive less funding (and receive more crime?), reduce service or shut down, and communities thus grow dependent on rideshares, giving them exceptional pricing power.
For #1, I agree, it's possible that some of the extra money may come out of the company's profits. (With a profit margin of 23% I wouldn't think this would make *too* much difference, but who knows.)
For #2, I think it might work just the other way? With higher prices, you encourage more drivers to wait around. They're waiting somewhere, probably with their cars on, so I expect this would increase traffic. (At least, with a MA-style minimum price. This shouldn't be an issue with a NY-style minimum price.)
I think that minimum wages make sense when an employer is paying below the (middle of the range of) the market wage, because the employer has more leverage. (Or occasionally other effects, but that's much more common.)
I agree that if prices between worker and customer are liquid, fiddling will only make it worse.
I think the question should be, how often are wages NOT a fair market value. I think that's common but I don't know how to tell how common it is. I'm interested whether you agree or disagree!
For ride sharing, I think it depends how much the market is liquid and how much the ride share company is actually in control.
Yeah. We should get a UBI or expanded EITC that works automatically (the current version requires too many hoops for recipients) and then prohibit laws like this.
There's no other business where hourly employees can just make their own hours, regardless of if the employer wants them to show up, and get paid for however long they desire to be considered working. Real hourly employees worry about "getting hours", this is just rideshare legislation reinventing the concept in the least efficient way possible.
That does indeed seem to be the implied perspective of the Jacobin article: People should be able to work whenever they want, as much as they want, at wages set by the government.
(I'm actually somewhat sympathetic to the idea that people should be able to do this. But it would have to some kind of social safety net program all of society invests in, not some weird thing that we can just conjure into existence at no cost to anyone by putting enough epicycles onto the minimum wage...)
Sorry for my ignorance, but I wonder what happens if you make the supply/demand curves have non-zero width, and the equilibrium point becomes and equilibrium area?
For extra credit, this might be plotted with 3 dimensional conic volumes representing both sets of supply/demand curves - cost/ride and price/driver.
If I wasn't planning on pretending to work today I'd do a literature search
I'm not sure exactly what the width would represent? Something like, "the number of rides demanded is only known to be between this lower bound and upper bound"?
Mathematically, I think the intersection would just be called a "bounded region". I guess that would represent all possible equilibria that could be obtained via (zero-width) supply and demand curves that "fit inside" the others.
Woohoo dynomight!
Hi, your argument for the maximum of 50% of the wage increase going to the drivers seems incorrect. You base this on the assumption that usually the derivative of the supply curve is larger than supply/price but I think it is the other way around. The higher the wages, the less people care about a small wage increase leading to a flattening of the supply curve e.g. at 1$ wages a 1$ increase, increases supply a lot while at 100$ a 1$ increase does not. This means the slope of the supply curve will usually be larger than supply/price. This is also the way it is usually drawn if you look up supply curves but the axes are swapped as compared to yours. Am I missing something?
I don't claim to have empirical proof, but I definitely do think the assumption I made is correct when it comes to the supply of driver hours. To be specific, if driver pay were, say, cut from $15/hr to $7.50/hr, my intuition is strongly that the number of hours people are willing to drive would drop by more than 50%, because most people want to make as much money as possible, and there are other jobs and the majority of people would shift to those rather than take a 50% pay cut.
Well but a 50% pay cut is not a good proxy for a derivative, the derivative is the change in labour based on a (infitesimally) small change in wages, halving it is not a small change. You have to look at the effect of a small change in wages at different points on the graph and then I think my argument holds. You don't have to take my word for it if you look at any economy textbook they draw the labor supply curve as I have described (again the axes are swapped so it looks visually identical to yours but if you would take the same axes the curvature is actually opposite)
I know that's how the curves are sometimes drawn. But it's not always or even close to always—it's more common that they are just drawn as straight lines:
https://duckduckgo.com/?q=supply+and+demand+labor&iax=images&ia=images
When the curves are drawn the way you describe, that's because they're modeling a situation where as wages increase, people will offer less labor because they will value leisure more. E.g. if I could earn more per hour I'd work more, but I wouldn't keep working more forever. I don't think that's very relevant to this situation where we're changing the price in one job while leaving other jobs fixed, so the most important variable is how many people work *this particular job* rather than other jobs.
I see what you are saying but I still think it is correct to say that an increase an increase of 2$/hour at 5$/hour will have a larger marginal effect pulling people in to this job than an extra 2$/hour at 50$/hour leading to the shape I am positing.
I do understand your intuition with the 50% but even if it is true it does not prove your conjecture as the supply curve usually does not cross the origin i.e. there is a certain minimum wage below which nobody will want to work. This means both of our claims can be true: the curvature of the supply curve can be opposite of what you drew matching my reasoning that changes in wages become less important at high wages and your assertion that a 50% cut reduce the labor supply by more than 50%. If you draw the curve this way it means that at very low wages the derivative of the curve is indeed higher than supply/price but at higher wages this is reversed. So again this invalidates your proof. Also with this shape of supply curve it becomes necessary to not just look at the derivative but actually look at how much the wages are increased further decreasing the strength of the statement you can make even at low wages where the assumption of derivative>supply/price holds. Lastly I think the assumption with the 50% cut leading to more than a 50% reduction in labor is shakier than you present it as this intuition is mainly based on a sudden 50% wage cut which feels very unfair but if you instead look at e.g. a 1$ decrease every year from a 30$ wage until you hit 15$ it becomes less clear if this intuition is correct.
I agree that the supply curve probably does not go through the origin, but I think that "helps" my case? The SUPPLY(P)/P line goes from (0,0) to (P,SUPPLY(P)). The other curve goes from (x,0) to (P,supply(P)). The means it needs to cover the same vertical distance with less horizontal distance, which means the "average" derivative must be higher. (Though not *necessarily* the derivative at the end.)
Also, one small nitpick. You keep saying that my proof is wrong, but as far as I can tell, you don't actually disagree with my proof? Essentially, my proof is that A implies B and (I think) you agree that A implies B, you just don't think A is true. If that's right, would be helpful to clarify.
Yes you are correct that I don't disagree with your proof itself just with the feasibility of the assumptions (I don't think A is true as you say).
Let me state my points more clearly:
a) I think the curvature of your curve is not feasible; as discussed above I expect the curve to flatten at higher wages: changes in wages become less important at high wages. Do you agree with my reasoning on that as described in detail above? This is also what is assumed in economics text books (although the axes are swapped) e.g. https://tinyurl.com/36n62mup so I do think I am probably correct here.
b) Your intuitive statement of 50% less wages would give less than 50% labor supply also seemed feasible to me.
c) I realized however that if your supply curve doesn't go through the origin both a and b can be true. But again the curvature would be opposite to yours.
d) This would mean that derivative>supply/wages at low wages "helping" your claim there but not at high wages, an example is SUPPLY=SQRT(W-2) where if W<4 your assumption holds while at W>4 derivative<supply/wages. It would be easier with drawings but if you type this in google you can see what I mean : "sqrt(x-2), sqrt(4-2)/4*x"
e) A nitpick of my own: although it sounds feasible to me I also question the validity of b) because it heavily relies on the big jump of 50%, the same argument with a 2% wage cut probably resulting in more than a 2% drop in supply already sounds way less convincing. Seeing as a number of subsequent small drops can eventually lead to a 50% drop the arguments doesn't seem as plausible as it sounds. This might be our intuition leading us astray here.
f) But again my argument does not rely on e) as described in c)
It looks like we're not going to agree, but I don't think I have much novel to add, so I guess I won't prolong this discussion. It seems like we mostly just differ on our intuitions for an empirical question for which neither of us has much firm evidence. But thank you very much for your comments which are intended in good faith! (I responded to "curves in textbooks" issue in the other thread.)
Love the jab towards realtors at the end - pure deadweight loss. I'm amazed no technological solution has obsoleted them yet - even today YOU basically do all the work while they spam you with totally irrelevant houses / buyers, then they take 6%, it's monstrous.
This is great. Changed my view definitely.
If this legislation is to be successful I think it would be this route: Uber just became profitable this year, so whatever demand and quality of service they are offering right now they can't afford to go lower. This post describes what happens if Uber decides to pass all new costs onto riders, but like you said that WILL result in bad things and loss of customers. Uber can't afford that, so they need to cut into their profits.
I guess it depends on whether you think Rideshare companies are willing to cut into profits. Which I'm not sure. Long term I bet they will find a way to squeeze this out of the consumer, if not a subset of consumers.
This is a similar argument Uber made when everyone was demanding they add tipping. You can’t outsmart the market.
FWIW, drivers would much rather get paid to sit sit around than to drive (and less vehicle cost incurred), so they’d support the tradeoff explained in this post - although I suspect this will cause wages to fall below pre-minimum wage baseline since it’s a more pleasant job now.
I worked at a ride sharing company for years - the public’s lack of understanding of the relevant dynamics was an endless source of frustration.
Good point regarding drivers being happy sitting around. (Although it makes me even more skeptical!)
Tipping is just such a strange thing, economically. It really seems like tipped employees at restaurants make "above market" wages (whatever that means) simply because the tipping norm exists. At least, that's what I conclude from how bitterly they resist proposals for tip sharing, etc.
For ridesharing, it does seem like tipping will probably even out and ultimately it sort of becomes a sort of "tax on niceness", a small transfer of wealth from agreeable people (who will tip more) to less disagreeable people (who get subsidized) with little impact on drivers.
That all makes sense, but why wouldn't it be true in ALL cases of a minimum wage? (And we know from experiment that it's NOT true for all cases of a minimum wage.)
Because the whole utilization issue doesn't exist in most minimum wage jobs. See the comparison to New York's policy at the end.
I love this article! But two important considerations:
1)
Your models assume a two-party market, whereas in rideshare the app is a MAJOR third party. Various articles claim they take 20-30% of the fare (duckduckgo.com/?q=what+percent+does+Uber+take+per+ride)
Particularly since the Attorney General's policy is addressed "(versus) Uber Technologies and Lyft Inc", I'd believe the wage policy is largely intended to curb the apps' rake.
You'll likely math this out better than me, but: If Uber doesn't change their rake, they'll probably net the same as the drivers. But they'll bear the burdens of the new price floor being more annoying: more users and drivers will churn, it will cost money to attract new ones. The apps could avoid that by reducing their rake. The result is a return to market equilibrium, with more of the transaction money in drivers' pockets and less in Uber & Lyft's.
2)
The government is responsible for the commons and the public. Drivers, passengers, and rideshare apps don't really care about these.
If rideshare prices are low enough, people will hail cars when they could have walked or taken public transit. Increased pollution and traffic congestion. Less walking impacts peoples' health.
Public transit is already funded by government and produces some government revenue. There's probably an undesirable feedback loop where sparsely-used trains are not just a waste of resources, but receive less funding (and receive more crime?), reduce service or shut down, and communities thus grow dependent on rideshares, giving them exceptional pricing power.
///
thoughts?
For #1, I agree, it's possible that some of the extra money may come out of the company's profits. (With a profit margin of 23% I wouldn't think this would make *too* much difference, but who knows.)
For #2, I think it might work just the other way? With higher prices, you encourage more drivers to wait around. They're waiting somewhere, probably with their cars on, so I expect this would increase traffic. (At least, with a MA-style minimum price. This shouldn't be an issue with a NY-style minimum price.)
I think that minimum wages make sense when an employer is paying below the (middle of the range of) the market wage, because the employer has more leverage. (Or occasionally other effects, but that's much more common.)
I agree that if prices between worker and customer are liquid, fiddling will only make it worse.
I think the question should be, how often are wages NOT a fair market value. I think that's common but I don't know how to tell how common it is. I'm interested whether you agree or disagree!
For ride sharing, I think it depends how much the market is liquid and how much the ride share company is actually in control.