Seattle’s collective bargaining law for Uber drivers won’t do much to raise incomes

The Seattle City Council has unanimously passed groundbreaking and controversial legislation that effectively allows drivers to bargain collectively with Uber, Lyft, and big taxi companies that treat drivers as independent contractors. Seattle Mayor Ed Murray has refused to sign the legislation, but it is expected to become law anyway.

The measure’s supporters hope that it will raise drivers’ take-home income, perhaps providing them with a “living wage.” But the way the ride-sharing market is structured means this isn’t likely to work very well. Even assuming that drivers for Uber, Lyft, or other companies negotiate higher compensation for themselves, these gains are likely to be fleeting.

Supporters of the Seattle legislation envision a future in which drivers join “exclusive driver representative” organizations that represent drivers in collective bargaining with a company such as Uber. The EDR might ask Uber to charge customers higher fares, take a smaller cut of passengers’ payments, or compensate drivers for common expenses such as gas or wear and tear on vehicles.

Suppose Uber agrees, and drivers see their take-home pay jump. What will happen next? Well, these drivers will tell their friends about the great living they’re making on Uber. Some of those friends will sign up and will tell their friends about the opportunity. As a result, there will be more drivers on the street competing for the same pool of customers. Each driver will have to wait longer between fares. And so even if drivers are making more per fare, the income per hour will fall.

How far will hourly incomes fall? This depends on what economists call the elasticity of supply for driver labor. If there were a driver shortage in the Seattle area, the incomes of existing drivers might stay high. But in this case it seems more likely that there’s a large pool of low- and moderate-income people who would be attracted by the higher compensation. So any deal that increases the average amount drivers make per passenger is likely to just mean there’s more competition for passengers.

There are a couple of ways drivers’ representatives could try to avoid this downward spiral. One would be to push for a deal that compensates drivers by the hour instead of by the ride. In that case, Uber would have an incentive to limit the influx of new drivers to make sure its hourly drivers weren’t sitting around idle. That might be good for existing drivers, but it would come with some significant downsides: As hourly workers, they’d probably lose the flexibility to decide when, where, and how much to drive.

The other option would be to explicitly limit the number of drivers on the road. Not coincidentally, this is the technique regulators in cities like New York used to boost the incomes of taxi drivers before Uber entered the market.

But we can expect Uber to strongly resist this kind of proposal, since it would limit the company’s potential growth.

In practice, then, the kind of collective bargaining envisioned in the Seattle legislation is unlikely to boost drivers’ wages very much. It might have some other positive effects — like helping drivers get more reliable insurance or more predictable rules and regulations. But it will take a fundamental change in the ride-sharing business model — or a significant improvement in the economy-wide labor market — to boost the wages of Uber, Lyft, and taxi drivers.