Labor Welfare in On-Demand Service Platforms
51 Pages Posted: 8 Jan 2021
Date Written: October 31, 2020
We study labor welfare in on-demand service platforms that rely on agents who decide whether and how much to work. Such platforms beneﬁt from having access to a large supply of agents, as the availability of more agents implies lower labor cost and shorter customer delays. It has been argued by some labor advocates that this comes at the expense of agents who see, as a consequence of the expansion of labor supply, lower wages and less work. In this paper, we examine the extent to which the interest of platforms in increasing labor supply is indeed at odds with those of agents. Using an equilibrium model that accounts for the interaction between labor supply and demand, we show that factors that aﬀect labor supply, such as labor pool size, delay cost, and variability in the agents’ opportunity cost, may have a non-monotonic eﬀect on labor welfare. In particular, we identify two regimes, depending on the level of congestion in the system, one in which an expansion of labor supply improves labor welfare and makes agents busier and one in which an expansion of labor supply harms labor welfare and makes agents less busy. We compare these results to those obtained in a setting where customers are not sensitive to delay and to settings where agents must commit to working a speciﬁed amount time and are compensated at a ﬁxed wage rate.
Keywords: Labor welfare, sharing economy, on-demand services, ride sharing, equilibrium models
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