Category Archives: Managerial Econ

The California lawsuits against Uber over whether drivers are employees, is reminiscent of the dispute over the Clean Air Act enforcement at the Ports of Los Angeles and Long Beach.  There, it was drayage truck drivers, who pick up containers at the terminal and drop them off, much like cab drivers pick up and drop off passengers.  The ports’ attempt to make these independent drivers employees of the drayage companies and terminal operators failed in court.  But it failed because the court found that a local government had no right to interfere with the Commerce clause of the constitution.  I’m not sure that argument will win here, because it is hard even in San Francisco to argue that taxi drivers are participating in interstate commerce.

But the actual issues are the same.  Many drivers want to be independent contractors because they can be flexible in their work conditions.  This is called mobility in labor theory.  If they are simply contractors, they have no employee obligations to Uber and can select how they work.  One could argue that the Uber app is simply a tool for reducing drivers’ search costs for finding a rider.  These— high search cost, low mobility, and varied preferences for other non-wage working conditions— are the typical factors that let employers have a monopsony in a labor market.  Monopsony is a condition in which the drivers’ elasticity of supply as a function of the wage is low, so they cannot easily switch jobs to seek a higher wage.

Uber argues in court that drivers want independence, flexibility | IT News.

It’s clear to me that the workers that want to be contractors, not employees, are3 trying to preserve their ‘elasticity’ of labor supply. they want few barriers to entry or exit from the taxi work force.  It’s because they want to be able to move to another job if they can figure out how to earn more in conditions they like.  they don’t want to be trapped.  That’s exactly like the drayage drivers at the Port of Los Angeles/Long Beach.

And those that want to be employees?   They are an example of certain preferences for job conditions.

We have to remember that in a monopsony, like in a monopoly for products, employers can pay less for labor; but if they need more workers, they have to pay everyone more.  Perhaps making them employees is just a way of creating barriers to job switching, which allows employers to pay less for workers.  Clearly the drivers that want to be contractors think so.  And so perhaps supporting the monopsony of taxi firms or trucking companies has the effect of keeping wages for drivers low, and preventing raises when more drivers are needed.  It bears thinking about.