Supports: Microeconomics and Economics, Chapter 16, Section 16.4.
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Regulations don’t always have the effect that policymakers hope they will. In 2022, the Seattle City Council unanimously passed the App-Based Worker Minimum Payment (ABWMP) ordinance, which took effect in January 2024. Most app-based (or gig) workers who deliver for DoorDash, Uber Eats, or Grubhub are independent contractors rather than employees of those companies. The ordinance was intended to raise the compensation of these workers by requiring that they receive a minimum payment for each delivery based on the time they worked and the distance they traveled. The intention was for gig workers to receive compensation similar to the minimum wage that hourly workers receive.
In December 2025, a research paper by Yuan An, Andrew Garin, and Brian Kovak of Carnegie Mellon University concluded that the ordinance was not having its intended effect. They found that for experienced (or “highly attached”) drivers, “the ordinance increased pay per delivery, but decreased the number of delivery tasks completed per month” and, as a result, there was “
no effect on total delivery earnings among highly attached workers after the first month.” The authors note that “free entry [of drivers in the gig delivery market] plays an important role” in their results and that “the equilibrium value of doing delivery work must always remain equal to the fixed, constant outside option available to all workers.”
a. What effect would we expect Seattle enacting a regulation increasing the pay per delivery for gig delivery drivers to have on the number of gig delivery drivers working in Seattle?
b. Explain the reasoning behind the authors’ statement that “the equilibrium value of doing delivery work must always remain equal to the fixed, constant outside option available to all workers.”
c. Use your answers to parts (a) and (b) to explain why the authors found that the Seattle ordinance increasing pay per delivery did not increase the monthly pay of gig delivery drivers in the city.
Solving the Problem
Step 1: Review the chapter material. This problem is about compensating differentials, so you may want to review the section “Compensating Differentials.”
Step 2: Answer part (a) by explaining what effect a regulation increasing the pay per delivery for gig delivery drivers will have on the number of gig delivery drivers working in Seattle. There is free entry into being a gig delivery driver. Anyone who has a car (although a bike, motorcycle, or scooter is also acceptable) and a good driving record can become a gig delivery driver. As a result, we would expect that a Seattle regulation increasing the pay per delivery will increase the number of gig delivery drivers by making gig delivery more attractive in comparison with other jobs.
Step 3: Answer part (b) by explaining the reasoning behind the authors’ statement that: “the equilibrium value of doing delivery work must always remain equal to the fixed, constant outside option available to all workers.” Although stated in technical terms, the authors are making the basic point that the compensation a worker receives in a job must be at least equal to the worker’s opportunity cost—the compensation the worker would receive in his or her next best available job. In this case, the next best available job might be working in a warehouse for Amazon, being a server in a restaurant, or some other job that has free entry and doesn’t require significant training. At any given time, workers in Seattle will have chosen jobs with compensation packages that fit their particular preferences, which include the wages received, as well as some of the other job characteristics—such as health insurance—that we’ve mentioned in this section. Holding the level of compensation in other occupations constant, raising pay for gig delivery drivers will make those jobs more attractive and therefore cause more workers to switch to gig delivery from other jobs. We would expect that the supply of gig delivery drivers will increase until the compensation from being one of those drivers falls back to the “fixed, constant outside options” available to drivers.
Step 4: Answer part (c) by explaining why your answers to parts (a) and (b) will lead to the authors’ conclusion that the ordinance increasing gig delivery drivers’ pay per delivery did not increase their monthly pay. We’ve seen in the first two parts of this problem that raising the pay of gig delivery drivers will increase the supply of these drivers and that the supply will continue to increase until their compensation is competed back down to the compensation they can receive from similar alternative jobs. As a consequence, drivers earn more per delivery because of the ordinance—but they make fewer deliveries because the higher pay attracts additional drivers. As An, Garin, and Kovak found, the result is drivers’ monthly pay was no higher after the Seattle City Council passed the ordinance than it was before.
