Minimum Earnings Regulation and the Stability of Marketplaces

36 Pages Posted: 17 Dec 2019 Last revised: 30 Aug 2022

See all articles by Arash Asadpour

Arash Asadpour

City University of New York

Ilan Lobel

New York University (NYU)

Garrett van Ryzin

Amazon

Date Written: December 13, 2019

Abstract

New York City and Seattle recently enacted minimum earnings regulations for ride-hailing providers that are based on their utilization rates. The regulations are intended to deliver minimum earnings while preserving the flexibility of the independent contractor model of work. However, this kind of regulation has the potential to impact marketplace stability, which we define as the ability of platforms to keep wages bounded while maintaining the current flexible (free-entry) work model. We build a theoretical model to study the marketplace implications of this kind of regulation and identify precise conditions under which a utilization-based minimum earnings rule causes marketplace instability. We then calibrate our model using publicly available data, showing the extent to which the law can (or cannot) increase earnings while preserving both worker flexibility and marketplace stability. For reasonable ranges of supply and demand elasticity, the law's ability to increase earnings while maintaining the free-entry work model is quite limited, and even when earnings increases are achievable they cause significant increases in driver idleness. Given the law's potential to cause instability, affected ride-hailing companies may need to respond to the law by reducing driver flexibility to limit supply.

Keywords: ride-hailing, ridesharing, market design

Suggested Citation

Asadpour, Arash and Lobel, Ilan and van Ryzin, Garrett, Minimum Earnings Regulation and the Stability of Marketplaces (December 13, 2019). Available at SSRN: https://ssrn.com/abstract=3502607 or http://dx.doi.org/10.2139/ssrn.3502607

Arash Asadpour

City University of New York ( email )

55 Lexington Ave
New York, NY NY 10010
United States

Ilan Lobel (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
498
Abstract Views
2,006
Rank
104,538
PlumX Metrics