Labor Welfare in On-Demand Service Platforms

accepted for publication in Manufacturing and Service Operations Management

50 Pages Posted: 17 Jan 2018 Last revised: 29 Dec 2020

See all articles by Saif Benjaafar

Saif Benjaafar

University of Minnesota - Minneapolis - Industrial & System Engineering

Jian-Ya Ding

Tsinghua University - Department of Automation

Guangwen Kong

Temple University-Fox School of Business

Terry Taylor

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2020

Abstract

Problem Definition: An on-demand service platform relies on independent workers (agents) who decide how much time, if any, to devote to the platform. Some labor advocates have argued that an expansion of the labor pool hurts agents—by reducing the wage and agent utilization (i.e., the fraction of time an agent is busy serving customers). Motivated by concern for agent welfare, regulators are considering measures that reduce the labor pool size or that impose a floor on the nominal wage or effective wage (i.e., the product of the nominal wage and agent utilization). Are agents indeed hurt by an expansion in the labor pool size? Which type of wage-floor regulation is preferable? Are consumers hurt by the imposition of a wage floor? Academic/Practical Relevance: Because independent agents work without the traditional protections intended to ensure the welfare of employees, the welfare of those agents is an important concern. Methodology: We employ an equilibrium model that accounts for the interaction among price, wage, labor supply, customer delay and demand.Results: Average labor welfare increases and then decreases in the labor pool size. That is, agents are harmed by an expansion in the labor pool size if and only if the labor pool size is sufficiently large. The effective wage floor is superior to the nominal wage floor in terms of labor-welfare maximization. More generally, the two types of wage floors have structurally different effects on labor welfare, with a floor on the nominal wage only beneficial to agents if it is sufficiently small. Contrary to the view that consumers are hurt by an effective wage floor (because they face a higher price—due to upward pressure on the wage—and longer delay—due to upward pressure on agent utilization), consumers actually benefit. Managerial Implications: Regulators, labor advocates, platform managers and agents benefit from understanding the forces that create and destroy labor welfare.

Keywords: On-Demand Service Platforms, Labor Welfare, Equilibrium Models, Sharing Economy

Suggested Citation

Benjaafar, Saif and Ding, Jian-Ya and Kong, Guangwen and Taylor, Terry, Labor Welfare in On-Demand Service Platforms (April 23, 2020). accepted for publication in Manufacturing and Service Operations Management, Available at SSRN: https://ssrn.com/abstract=3102736 or http://dx.doi.org/10.2139/ssrn.3102736

Saif Benjaafar

University of Minnesota - Minneapolis - Industrial & System Engineering ( email )

111 Church Street S.E.
Minneapolis, MN 55455
United States

Jian-Ya Ding

Tsinghua University - Department of Automation ( email )

Beijing, 100084
China

Guangwen Kong (Contact Author)

Temple University-Fox School of Business ( email )

531 Alter Hall
1801 Liacouras Walk
Philadephia, PA 19122
United States
19122 (Fax)

HOME PAGE: http://https://www.fox.temple.edu/about-fox/directory/guangwen-kong/

Terry Taylor

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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