Lyft/Uber Fire Workers; Socialists Clueless on Wages

Uber user – free use image

Lyft and Uber are pulling out of Minneapolis because the city council is demanding that they raise wages, making the business model untenable. The Socialists won! Now the workers are unemployed and drawing on social services. As an added bonus, the city lost tax revenue not only from the two companies but also from the workers.

Firms factor in various costs, including wages, rent, insurance, raw materials, utilities, and advertising when considering market prices. If selling at the market price covers all expenses and yields a reasonable profit, they proceed. However, if the costs go up, then the price has to go up. If the increased price is too much for consumers to bear, the company goes out of business.

In the case of Lyft, Uber, and other ride-hailing apps, customers are highly price sensitive. If they weren’t, they would opt for traditional taxis or private drivers. Increasing Lyft or Uber prices would reduce demand to a level where the company cannot sustain operations. Hence, Lyft and Uber’s departure from Minneapolis illustrates why similar services may exit Democrat-led cities with exorbitant minimum wage requirements.

If Lyft and Uber workers believed they could earn more elsewhere, they’d have already switched jobs, indicating that Lyft and Uber paid market wages. Now that Lyft has left the market, they are all unemployed. The City Council’s actions made the workers worse off.

In addition to determining the value of people’s labor, the government wants to dictate product prices. According to a White House Fact Sheet on the State of the Union Address, “President Biden believes housing costs are too high,” implying he knows the ideal selling price for your house.

Moreover, the president believes that cutting commissions will make houses more affordable. First, if house prices were too high, sellers would be unable to sell them and would naturally lower the price until buyers materialized. The fact that the houses are selling, and quickly, at current prices means that they are the right prices.

If you’re currently in the market to buy, it’s challenging, and homes may seem “too expensive.” However, if you’ve worked your entire life, paid off a mortgage, and are preparing to retire, high house prices are welcome news. Regardless of your position in the transaction, government price-setting is a disastrous idea. If the government capped house prices, sellers would withdraw homes from the market, and builders would halt new constructions, resulting in a shortage.

The Biden administration is targeting the National Association of Realtors for allegedly “artificially inflating real estate commissions.” However, in a free market, a private organization cannot “artificially inflate commissions.” They have the right to set whatever rate they want. Additionally, if buyers and sellers opt not to pay the commission, they are free to conduct the sale without an agent.

The Washington Post claimed the change could reduce house prices “by aligning fees closer to the true value of services from real estate agents.” However, the fees are already aligned with the service, hence why it’s called a fee for service. If you want the service, you pay the fee.

Some buyers and sellers may have misunderstood the fees, and the industry might have failed to properly disclose them. Agents were also motivated to prioritize houses with higher fees, raising concerns about disclosure. The government’s argument may have some validity; people paid fees without full awareness, and these fees need to be made clear to them. The new rules permit a private contract between the agent and the buyer, facilitating negotiation and disclosure of fees. So, the solution is still free-market, with buyer and seller negotiating the price.

However, the government’s claim to know “the right fee” is preposterous. When I get my hair cut at a barber, I pay $20, but at a salon, I pay $60. Though the two prices differ significantly, both are “right”. I wouldn’t want the government to mandate all haircuts cost $30. Haircutters and barbers wouldn’t want that either. Currently, we operate in a competitive market where barbers can compete on price, while salons compete on service or image, allowing consumers to decide.

Assuming the government knows the correct fee for real estate marks the beginning of a slippery slope, implying the government knows the right price for everything and the right wage for everyone, which suggests we should let the government decide for us.

Houses sell based on supply and demand. There is no shortage of houses at the current price, including commission. However, if commissions decrease and overall out-of-pocket expenses for houses decline, demand will rise, driving prices up, despite commissions being a lower percentage. Ultimately, Biden’s policies are unlikely to increase the percentage of homeowners or make homes more affordable for most people.

None of us enjoy paying fees, but if we allow the government to abolish free markets to “protect us from fees,” we may as well let the government provide free housing, clothing, and jobs. However, in doing so, the government, not the individual, would dictate the color, type, and quantity.

 

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Dr. Antonio Graceffo, PhD, China MBA, is an economist and national security analyst with a focus on China and Russia. He is a graduate of American Military University.

You can email Antonio Graceffo here, and read more of Antonio Graceffo's articles here.

 

Thanks for sharing!