In one of the latest posts on this blog, I took a look at the economics of why Uber, a cornerstone of the sharing economy, took a social justice stance in its fight against New York Mayor de Blasio. Last week Airbnb, another linchpin company in the sharing economy, took a political stand that might have surprised some. USA Today reported that Airbnb would join the SEIU in its campaign for a $15 nationwide minimum wage.
Why would they take this position? There is no immediately obvious benefit for them in doing so. Does benevolent Airbnb just empathize with the plight of the proletariat? Perhaps that is part of it, but if we want to be able to sniff out any ulterior motives, it is necessary to understand the economic consequences of instating and raising a minimum wage.
Markets for labor are just like markets in bread, shoes, microwaves, or anything else. Labor is sold by workers and bought by employers for a price, which is called a wage. Employers derive a certain amount of utility from the labor they buy in the form of revenue produced by that labor. If a worker can produce $10 of revenue each hour for the employer, the employer will be willing to pay up to $10 per hour for his labor, but not more. A minimum wage creates a price floor in the market for labor. Like in all markets, if the price floor is set above the market clearing price (i.e. the point at which all producers who wish to transact at the prevailing price can find a consumer with which to trade and vice versa) there will be more producers who wish to sell than there are consumers who want to buy—a surplus. In the case of the market for labor, this means a greater quantity supplied of labor than the quantity demanded—unemployment.
Let us imagine a price floor in the market for labor set at $15 per hour. Now the worker who was supplying $10 of revenue each hour to his employer is still only capable of supplying $10 of revenue, but his employer is no long legally able to pay him the hourly wage of $10. The employer must pay the worker $15 for every $10 the worker creates in revenue; the employer is losing $5 for every hour of labor he buys from the worker. The worker cannot legally offer to work for a wage that would be of any benefit to the employer, so the employer must lay off the worker or suffer losses.
This logic is rarely acknowledged by proponents of the minimum wage, but the actions of some of the Fight for Fifteen’s most conspicuous champions suggest that they are familiar with it. When a $15 minimum wage was passed in Los Angeles, the SEIU, who had led the push for the law, quickly asked for an exemption for all unionized workers. Union officials clearly understand that such an exemption would make the nonunionized uncompetitive, allowing low-skill jobs to be filled with their union members. The average hourly wage for a private-sector union employee, it is worth noting, is $22, and minimum wage hikes are often followed by boosts in employment for low-wage union workers and drops in employment for minimum wage workers.
This phenomenon is not new and it is not limited to the United States. The first nationwide minimum wage in the U.S. came in 1931 and was campaigned for by white construction unions in the North who were threatened by nonunion black workers from the South who could underbid unionized labor. In apartheid-era South Africa, white labor unions supported a minimum wage law to keep blacks from taking jobs away from white workers by working for lower than union wages.
What we have is a case of “bootleggers and Baptists” supporting political action in tandem. As the originator of the phrase describes it,
“Baptists” point to the moral high ground and give vital and vocal endorsement of laudable public benefits promised by a desired regulation. Baptists flourish when their moral message forms a visible foundation for political action. “Bootleggers” are much less visible but no less vital. Bootleggers, who expect to profit from the very regulatory restrictions desired by Baptists, grease the political machinery with some of their expected proceeds. They are simply in it for the money.1
Examples of this phenomenon abound. The namesake is a duo of evangelical Christians who want to prohibit the godless act of selling alcohol on Sunday and the bootleggers who are attracted to the prospects of selling illegal booze while the legal liquor stores are forced to close up shop on the Lord’s Day. In the case of the minimum wage, our “Baptists” are the common do-gooders who genuinely believe pushing up the price floor in the labor market will help the country’s least well-off. The labor unions are our “bootleggers,” financing the Fight for Fifteen with the expectation that, once the new minimum wage is put in place, it will enrich their dues-paying members. To borrow a phrase from the dry lips of Marco Rubio, Let’s dispel with this fiction that they don’t know what they’re doing! They know exactly what they’re doing!
So in which of these two categories does Airbnb fall? Are they the “Baptists”—the well-intentioned (though thoroughly mistaken) type that simply wants to ensure a higher standard of living for the economically disadvantaged? While we cannot know where Airbnb executives stand in their private lives, we can safely assume that they are aware of the economic consequences of a minimum wage hike and how it affects their company. We can squarely consider Airbnb to be the “bootleggers.”
Since its inception, Airbnb has been in direct competition with hotel industry. The battle does not just take place in the form of market competition either. Hoteliers have lobbied for laws to cripple their newfangled competitor. For Airbnb, the minimum wage is a way to strike back. A $15 minimum wage means a significant increase in the labor costs for hotels who will have to up the pay their of maids and other staff, but likely would not affect Airbnb’s bottom line. If a nationwide $15 minimum wage were instated, hotels would have to increase the prices they charge consumers and would see a lot of their would-be customers renting rooms from Airbnb renters.
This is a process through which much economically wasteful policy comes about. Self-interested firms are able to identify when benefits will be conferred upon them by popularly-supported regulations, and will lobby for and even help shape these regulations.
We can juxtapose Airbnb’s actions here with those of Uber’s social justice stance in New York to glean an important lesson: Economic actors are self-interested and self-serving. In the latter’s case, profit motivations combine with market forces to lead Uber to alleviate a social ill that their competitors neglect. But in the case of Airbnb, the regulatory infrastructure of the State incentivizes a firm to engage in destructive, antisocial behavior—creating unemployment and impoverishing those most vulnerable—in order to get a leg up on the competition.
Economic actors will always have as their top priority improving their own lot. It is a matter of political institutions whether these actors’ efforts to do so are channeled toward practices that contribute to human flourishing or toward those which butter the parsnips of some at the expense of the rest of society.
- Yandle, Bruce. 1999. “Bootleggers and Baptists in Retrospect.” Regulation 22 (3): 5.