Voter initiatives can be a double-edged sword. While they often allow voters to bypass legislative sclerosis, they can also produce some truly disastrous policies. So it is this year in Massachusetts, where voters will consider a petition to create a system of “sectoral bargaining” for app-based rideshare drivers. Backed by the Service Employees International Union (SEIU), the petition would give one union an effective monopoly over bargaining in the industry. Monopolies are usually bad in any form; they drive out competition, boost prices, and kill innovation. But they’re especially bad in digital markets like the rideshare economy, which depends on flexibility, dynamism, and choice. Sectoral bargaining would not only counteract those features; it would threaten to snuff them out altogether. In fact, it might be the worst imaginable policy for the rideshare industry and its drivers.

Unfortunately, that risk may not be apparent to voters. Most voters won’t even have heard of sectoral bargaining. Sectoral bargaining isn’t complicated; it’s just a name for collective bargaining at the industry level. It gathers all employers and unions in a sector to hammer out a single contract. That contract then covers all workers in the industry. In effect, the contract acts like a regulation: it applies to every qualifying workplace, whether or not any particular worker or employer agreed to it.  

The sectoral model is common in Europe, but largely unknown in the United States. Here, most collective bargaining is governed by the National Labor Relations Act (NLRA). The NLRA uses an “enterprise bargaining” model, which presumes that most bargaining occurs between one employer and one union. It allows bargaining at a higher level, but only when the parties agree. No one can be forced to engage in multi-employer bargaining. And even when the parties agree to multi-employer bargaining, their agreements apply only to them. The agreements have no effect on other workplaces.

Unions have long seen the enterprise model as a barrier. It’s hard work to organize employees enterprise by enterprise. So as a shortcut, unions have started to look to the sectoral model. They’ve argued that sectoral bargaining streamlines organizing by bringing every employer to the table at once. And recently, some states have started to put that theory into practice. California, for one, recently adopted a quasi-sectoral scheme for the fast-food industry. And New York took a similar approach when it revived its fast-food wage boards.

Still, states can go only so far. The NLRA preempts all inconsistent state laws. And since the NLRA still dictates an enterprise model, states can’t simply adopt a different one. The enterprise model is the only real option for workers covered by the NLRA.

But that’s not necessarily true for workers falling outside the NLRA—which is where the SEIU’s petition comes in. Rideshare drivers are exempt from the NLRA because they are not “employees”; they’re independent contractors. And independent contractors are explicitly excluded from the NLRA’s coverage. So states theoretically have more leeway to regulate their working conditions. States can adopt a different system without worrying about preemption.

The petition tries to slide into that gap. If adopted, it would cover all Massachusetts rideshare drivers with a sector-wide bargaining scheme. That scheme would allow a union to trigger bargaining by getting signatures from as few as 25% of drivers. The union could then bargain on behalf of every driver in the state. Any agreement would go to a state regulator for approval. And if approved, the agreement would apply to the whole industry.

The petition’s legal merits are uncertain. It is literally unprecedented. It raises unresolved questions under labor law, antitrust law, and the Fourteenth Amendment. Similar doubts sank a 2015 rideshare-bargaining scheme in Seattle. The Massachusetts petition could easily meet the same fate in court.

But legal doubts aside, the petition’s policy merits are clear. Everything we know about labor markets, competition theory, and the economics of work tells us that the petition, if adopted, would be an unmitigated disaster.

Start with the basic economic rationale for collective bargaining. In most cases, collective bargaining is just another name for a labor monopoly. It allows a union to control the supply of labor in a defined market. And generally speaking, monopolies are bad. They allow the monopolist to charge above-market prices—“rents”—by virtue of its market dominance. The monopolist produces less, consumers pay more, and society suffers the “dead weight” costs of lost transactions. Collective bargaining is no different. In most cases, it simply allows a union to extract rents in the form of higher wages. The employer has to pay those wages because it has nowhere else to go for workers.

That said, collective bargaining makes economic sense in at least one scenario: when the market is already distorted by an employer-side “monopsony.” A monopsony is the reverse of a monopoly. It occurs when the market is dominated by one buyer. If a company has a monopsony in a labor market, it can use its position to pay sub-competitive wages. And in that case, collective bargaining may help rebalance the market. It effectively creates a bi-lateral monopoly: it sets up a dominant seller to deal with the dominant buyer. These two players then face off in relative equality. And while they may not restore competition, they may at least agree to something closer to competitive wage levels.

Economists disagree about how widespread labor monopsonies are. Some say they’re common; others say they’re basically nonexistent. But wherever we come down on that debate, we can be sure that monopsonies are least likely to show up in markets like the rideshare one. In fact, because of certain unusual features, the rideshare market may be uniquely resistant to buyer-side domination.

Consider first the drivers themselves. Rideshare drivers have an extremely low job attachment. They almost always work part time, often fewer than 15 hours a week. They also own their own capital—their cars—which they can easily redeploy to other activities (e.g., commuting to a regular job). So they should be able to easily exit the rideshare market for other work opportunities. And in fact, the data suggest that they do exactly that. In 2016, a J.P. Morgan study found that rideshare earnings fluctuated in inverse proportion to earnings from regular employment. That means people dipped into rideshare work when they needed to offset smaller paychecks from their main jobs. They also dipped back out when their regular jobs picked up. The market, then, seemed to enjoy high permeability. From week to week, drivers could substitute rideshare work with other work—and vice versa. And there’s no reason to think that dynamic has changed in the intervening years. If anything, drivers now have more options than ever—including more options for traditional employment.

Drivers also have high mobility within the rideshare market itself. Unlike employees, rideshare drivers experience little “friction” when they change jobs. They don’t have to send out résumés, sit through interviews, or look for new apartments. They can change from one rideshare platform to another simply by opening a different app. They can also change types of work, jumping from rideshare work to delivery work with the flick of a finger. They can, in short, instantly react to market pricing and substitute higher-paying work.

Those conditions make the rideshare market one of the most dynamic on earth. Drivers can easily move in and out of the market. They can react to market conditions in real time. If a rideshare platform lowers prices below the competitive level, they can quickly switch to better paying options. In economic terms, they have high inter-market mobility. That means they have little reason to worry about a labor monopsony and no need for a countervailing monopoly.

 

Yet that is just what the petition offers. If passed, the petition would saddle the industry with an unprecedented, sector-wide monopoly. And it would do so at enormous cost. All monopolies blunt competition, inflate prices, and soften demand. They also destroy work opportunities. The petition’s first victims, therefore, will likely be the drivers themselves. Rather than enjoying the world’s most flexible work, they may find themselves with scarce work opportunities—or no work at all.

Note from the Editor: The Federalist Society takes no positions on particular legal and public policy matters. Any expressions of opinion are those of the author. We welcome responses to the views presented here. To join the debate, please email us at info@fedsoc.org.