A minimum wage mandate for app-based delivery drivers in Seattle, intended to improve worker compensation, led to unintended consequences including higher prices for consumers and a decrease in available work, an examination of the policy's impact reveals.
In an effort to address concerns about gig economy worker exploitation, the Seattle City Council established a $26 per hour minimum wage for delivery drivers. This initiative aimed to ensure a baseline income for workers in roles such as food delivery and ride-sharing, which often lack traditional employee benefits and minimum wage guarantees.
However, the policy's implementation two years prior resulted in increased costs for consumers. Apps like DoorDash and Uber Eats introduced new fees, with one reported example showing a $12 sandwich order costing $32 due to these added charges. This led some consumers to abandon the services, with one individual reportedly deleting their food delivery app after experiencing the price increase.
Gig workers themselves reported a slowdown in available work following the wage mandate. DoorDash, for instance, experienced a significant drop in orders within Seattle, with estimates suggesting a reduction of 1.7 million fewer orders. This outcome suggests that government-set wage floors can disrupt market dynamics in complex service industries.
Economics professor Judge Glock stated that increasing business costs inevitably leads to increased consumer costs. He described app-based delivery services as intricate platforms connecting restaurants, delivery personnel, and customers. Glock criticized the regulatory approach, suggesting that city councils or mayors, lacking deep market understanding, attempt to dictate wages based on generalized information rather than market realities.
Former Seattle City Council President Sara Nelson acknowledged the policy's shortcomings, admitting that the council had created a problem and needed to address it. However, instead of repealing the regulation, the focus shifted to adjusting the wage standard, with the belief that a corrected minimum pay would prevent revenue decline.
Critics argue that such attempts by politicians to unilaterally set wages overlook the complexities of market-driven compensation. The prevailing view is that competition naturally adjusts pay and prices to attract both workers and customers. Imposing a fixed wage is seen as an inflexible approach that fails to account for these market forces. Glock contends that such interventions do not improve worker well-being or increase wages in the long term, calling the idea of politicians accurately setting the 'right' wage "patently absurd."
A similar minimum wage policy in New York City, which guaranteed app-based drivers an hourly rate of approximately $20, also faced challenges. According to Glock, a reduction in customer tips and increased competition for jobs offset the gains from the mandated minimum wage. He described a cycle where market responses to new regulations prompt further regulations, an ongoing process that fails to achieve desired outcomes.
John Stossel, author, commented that the Seattle experience illustrates that price controls are ineffective. He noted that instead of benefiting workers, the policy increased costs for consumers and negatively impacted the businesses involved in the gig economy. The underlying issue, as suggested by Glock, is a potential misconception among some politicians about the nature of economic resources, viewing them as a fixed amount to be distributed rather than a product of market activity.