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The gig economy, minimum wages, and unemployment

Summary:
Although the gig economy still employs only a tiny share of American workers, at the margin it might help to explain the relatively strong labor market. Today, an unemployed worker has an option not available as recently as 2000—working as an Uber driver. This may reduce what is often (and misleadingly) called “involuntary unemployment”. Of course governments cannot leave well enough alone. Soon after the ride sharing companies began breaking up the government-created taxi cartels, the regulators struck back by applying minimum wage laws to drivers—even though they are independent contractors.  That then created an additional unintended consequence, as these sorts of regulations always do.  How do we determine the number of hours worked?  Is it hours spent in the

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Although the gig economy still employs only a tiny share of American workers, at the margin it might help to explain the relatively strong labor market. Today, an unemployed worker has an option not available as recently as 2000—working as an Uber driver. This may reduce what is often (and misleadingly) called “involuntary unemployment”.

Of course governments cannot leave well enough alone. Soon after the ride sharing companies began breaking up the government-created taxi cartels, the regulators struck back by applying minimum wage laws to drivers—even though they are independent contractors.  That then created an additional unintended consequence, as these sorts of regulations always do.  How do we determine the number of hours worked?  Is it hours spent in the car, or hours spent actually driving customers?  The regulators opted for hours spent in the car.  But many drivers work for more than one company—so who pays for the downtime?  The regulators decided to split the cost evenly, a practice that favors Uber over its competitors:

Because Uber is bigger, drivers are most likely to be called to drive for them first. But all the dead time on the app counts against smaller companies like Lyft and Juno, even if drivers aren’t picking up rides. . . .

According to Juno’s filing, the TLC tried to address this in a December revision to the rule by splitting the idle time evenly between each company. “Far from fixing the Rule’s flaws,” Juno wrote, “this new methodology exacerbates them by disproportionately harming companies like Juno”—a fairly new competitor in the market that relies on drivers already hooked on Uber and Lyft, but that offers more flexibility by freeing them from ride quotas.

Markets want to be free, but governments abhor a situation where everyone who wants to work is free to work.  In a free labor market the government would not be able to control wages and working conditions.

The gig economy, minimum wages, and unemployment

Scott Sumner
Scott B. Sumner is Research Fellow at the Independent Institute, the Director of the Program on Monetary Policy at the Mercatus Center at George Mason University and an economist who teaches at Bentley University in Waltham, Massachusetts. His economics blog, The Money Illusion, popularized the idea of nominal GDP targeting, which says that the Fed should target nominal GDP—i.e., real GDP growth plus the rate of inflation—to better "induce the correct level of business investment". In May 2012, Chicago Fed President Charles L. Evans became the first sitting member of the Federal Open Market Committee (FOMC) to endorse the idea.

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