UCL School of Management is delighted to welcome,Arash Asadpour, lyft,to host a research seminar discussing ‘Minimum Wage Regulation and the Stability of Marketplaces’
Spurred by concerns about the welfare of sharing economy workers, many localities are considering imposing minimum wage rules on such work. In particular, New York City enacted in 2019 a new minimum wage rule that applies to the four largest ridesharing companies in the city. This new regulation is unique in that it takes into account worker utilization in order to account for worker idle time. We analyze a new kind of market failure that we call instability and study whether utilization-based minimum wage causes instability. Stability means the ability of platforms to eventually earn non-negative profits while maintaining wage bounds and the current flexible (free-entry) work model. We provide a precise characterization of the maximum hourly earnings that can be sustained in a stable marketplace given supply and demand curves, and calibrate our models to obtain numerical estimates. Affected ridesharing companies may need to implement driver entry restrictions into their marketplaces to avoid negative profits in response to such laws. (Joint work with Ilan Lobel and Garrett van Ryzin).