New Gig Worker Act May Raise Prices, Reduce Earnings, Damage Competition


By Jennifer Harpole and Michael Lotito

Last month, Colorado lawmakers introduced the Gig Worker Transparency Act, a law regulating app-based companies. The law would make the companies disclose certain information about transactions on their apps, including the amount workers make for each ride or order, the amount a consumer pays, the amount charged to a retailer (like a restaurant or grocery store) and the amount the app-based company keeps for itself.

Lawmakers say they want this information to be public because it will help make sure workers, consumers and retailers are treated fairly. But the law may cause consumers to pay more and workers to make less.

In 2020, a Harvard Business School study looked at the effect of pay transparency in private-sector employment. It concluded that on average, the laws tended to reduce pay by about 2%. Another study from the National Bureau of Economic Research found that in the public sector, pay transparency drove down compensation by 7%.

At first, that result may seem confusing. But the results can be explained by behavioral economics.

When pay rates are public, everyone can see them — not just workers and consumers, but also competitors. A company will know exactly what the organization across the street is paying and charging. The company, therefore, has no incentive to bid above that rate. To the contrary, it knows that if it does bid higher, its competitors will see its bid and raise their own to match it. That is, raising pay or lowering costs will spark a bidding war. To avoid that, the company keeps its rates where they are, as do their competitors. Prices and pay rates stagnate, or even fall.

Courts have long recognized that pay transparency can have this effect. Judges have limited the kinds of information employers can share voluntarily. For example, in 2001, former 2nd Circuit  Court of Appeals Judge Sonia Sotomayor held that a group of companies violated federal antitrust law by sharing pay information for certain jobs. She reasoned that the information made it easier for the companies to coordinate the wages and benefits they would offer workers. And coordination made it harder for workers to bargain for better terms: they could no longer bid the companies against each other. The ruling held the information harmed competition and suppressed wages.

The bill has backing from some of the country’s biggest labor unions, including the AFL-CIO, the Service Employees International Union and the Teamsters.

Jennifer Harpole is a Colorado-based management side employment lawyer with significant pay transparency experience. Michael Lotito is a lawyer who advises companies on the intersection of labor law, public policy and communications.

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