The chief failure in labor markets is that wages tend to be too high, leading to durably high unemployment.
Why? Mostly because so many workers view employers with resentment and suspicion. To contain this resentment and suspicion, employers compress wages and avoid wage cuts even when there’s high unemployment. The unintended effect is to make unemployment far higher – and hence more traumatic – than it needs to be, especially for the least-skilled. It’s the Tinkerbell Principle at work. Involuntary unemployment, free labor markets’ chief shortcoming, exists largely because workers believe that free labor markets are bad for workers.
Several links omitted. Read the whole post. I think it could provoke a lot of useful discussion.
For the most part, Bryan challenges the view that in the boss-employee relationship, the boss takes advantage of higher status and power. That is the way I think that sociologists view labor markets.
Bryan writes,
Everyone talks as if bosses have the better end. But talk is very different from action. If everyone were trying to start their own businesses and hire workers, that would count as “acting as if bosses have the better end of the deal.” Most workers, however, make no effort to become entrepreneurs. You could object that most workers don’t have the money to open their own businesses, but most rich workers make no effort to become entrepreneurs either.
Almost nobody likes having a boss. But going out on your own is risky and stressful, so most people put up with it. Still, I think that one could argue that in the workplace, this fact gives bosses the sort of power that sociologists impute to them.
From this point of view, the best public policy to support workers would be to make it easier to go out on your own. Starting your own business can be daunting from the standpoint of paperwork: getting a license, filling out tax forms, etc. Also, health insurance is much more subsidized for large businesses, particularly those that do business in more than one state. If government were to take its thumb off the scale, perhaps the “exit option” would be more valuable to employees, which would raise their bargaining power in the workplace.
Just as almost nobody likes having a boss, Bryan would turn that around and ask whether anybody likes having employees. Employees grouse and they malinger. Public policy also could mitigate this by improving the “exit option” for bosses, that is by make it easier to screen potential employees and easier to fire those who fail to perform.
As for the non-marketable outputs?
If he really believed this he should support higher inflation but I haven’t heard him do so, or does he now believe us incapable of it?
IIRC he is somewhat if a monetarist but thus is irrelevant for 2 reasons I can think of off the top of my head, well 3 reasons if you count first that I suspect monetarists (and Keynesian monetatists) are wrong. Second, he is talking about real wages here, not nominal, cyclical, aggregate-demand style sticky wages. Third, I forgot what was third, so I’ll say if the problem is labor crowding out labor how do we know labor price inflation doesn’t make that problem worse? The whole premise is that money is non-neutral, so who knows how it propagates through the economy?
I’m reading Popular Law-making: A Study of the Origin, History, and Present Tendencies of Law-making by Statute, Frederic Jesup Stimson (1910). I found it interesting that the first labor law in the Anglosphere was the 1349 Statute of Laborers, which set a wage cap in the wage of the labor shortage following the Black Death. This law persisted in England until the mid-19th century, although is said to have been ignored starting in the late 16th century. Over the years the law was amended to impose movement restrictions on agricultural workers, force sons to follow their father’s trade after age 12, force acceptance of work on offer at the lawful wage, outlaw charity to able-bodied men and even impose death on vagrants and beggars who idled after being given work. The laws also outlawed guilds and strikes as restraints of trade as well for the latter a conspiracy against the law that set wages.
Even with the shift from labor shortage to the labor surplus, probably around the late 16th century, it still seems the animosities these labor laws started seem to persist in our employer-employee relations.
It is interesting the persistence of such societal conditioning and does not bode well for the underclass conditioning of hostility toward education to the extent of attacking students who do put effort into schooling.
It appears on first blush that the Black Death trauma is still very much in influence of the human psyche.
Is there any objective sense in which than could have been a “shift from labour shortage to surplus”?
In a society ruled by aristorcrats who were allowed to force others to work for them, then society will perceive a shortage because “problem” will be that it is not always actually easy to obtain that work which is supposed to be your right.
As a society becomes more humane then the problem will turn out be a surplus because the least skilled workers can’t find decent wage.
After I posted the above comment, I went looking for info on the Medieval population of England. Turns out that after a 50% loss by 1277, the population did recover about 1500. Also, real wages had declined which would have subverted the problems of wage-fixing by government.
http://www2.warwick.ac.uk/fac/soc/economics/staff/sbroadberry/wp/medievalpopulation7.pdf
Should have went back to the paper before writing.
The Black Death halved the population by 1377 and the population had recovered by 1600.
I like to point out to my students that no employer wants to hire employees. Employees are people and people are problems. No one really wants to hire a problem.
Employers only hire employees because they have to get stuff done. Employers preference is to get stuff done without the potential people problems.
Arnold, of course we know that #Uber4Welfare solves this debate, once and for all. https://medium.com/@morganwarstler/guaranteed-income-choose-your-boss-1d068ac5a205
#U4W is what tech wants. It is the natural path.
“Everyone talks as if bosses have the better end. But talk is very different from action. If everyone were trying to start their own businesses and hire workers, that would count…”
For many desirable boss jobs, you start with a fantasy idea and the hard part is turning that into something that justifies financing and hiring salaried staff. Usually, people don’t get that far, and that’s not for lack of interest.
There are relatively undesirable boss jobs that most skilled workers pass on, such as being an assistant manager at a chain restaurant or retail store. Many non-boss jobs are generally considered more desirable than those.
“I like to point out to my students that no employer wants to hire employees. Employees are people and people are problems. No one really wants to hire a problem.”
And we wonder why people vaguely sense that economists and the economic system they so dispassionately study, capitalism, encourages meanness.