The key difference between the employment relationship and other mutually agreed contracts is simple: high switching costs that are mostly asymmetrical. Losing your job is extremely disruptive to an work, much more so than losing an employee is to a corporation[1]. Because of this, the labor market is in a constant monospony situation.
This is unlike, say, the market for going out to eat at a restaurant. There are very low switching costs for customers with regards to restaurants (and vice versa), so the market is efficient.
[1] Of course in some situations the opposite applies: highly skilled workers are very costly for a corporation to replace and generally have no trouble finding other work. So their bargaining position is excellent and they tend to get market wages. For example, programmers.
But if your job puts you in the Monopsony position, wouldn't it be fair to say you picked the wrong job? It might make more sense to try to pick another job that is in higher demand?
I know switching isn't easy - but nobody ever said that life is easy. Why is it the corporations problem if people make the wrong career choices in their lives?
ADBOC[1]. Your statement is technically true, but I disagree with the subtext.
Factually, workers with no marketable skills don't have them because they didn't acquire them as students. Factually, it's not Walmart's fault that its workers have no marketable skills and thus no alternatives. However, those two facts don't imply that it is just (or societally optimal) for us to do nothing about the problem.
Workers are being paid below market wages because their switching costs are too high. This is both inefficient (market prices are efficient prices) and unfair (the very poorest workers are being paid even less because they are poor). Therefore, it is right and good that we should pass laws to help improve that situation and return wages to their market values.
Now, there's the separate question of what the best laws to do that actually are. It seems unlikely to me that allowing employees to sue for something as nebulous as "infringement on free speech" is a good idea. But I hope I've made a strong case for why some legal intervention in this situation is reasonable.
Corporations can artificially create a monopsony, just like they can artificially create a monopoly. The music industry, for example, relies on making its talent pool—who are in high demand by the customers—feel like they are in lower demand compared to the record labels themselves, so the industry will be in a better bargaining position.
Sure, once the market is as efficient as it can be, if there's still a monopsony, that's tough for the employee. But if the monopsony can be annihilated without affecting its constituent employers and employees, all the better for all involved.
How can they artificially create a monopsony? By talking secretly to each other? It seems to me that if there is a real need, then they would have a hard time doing that.
Take software developers - if it is still true that they are still in high demand. How would corporations go about creating a Monopsony for software developers? Stop producing software? But if software is in high demand, how would they be able to prevent other companies starting up that develop software?
Comments
The key difference between the employment relationship and other mutually agreed contracts is simple: high switching costs that are mostly asymmetrical. Losing your job is extremely disruptive to an work, much more so than losing an employee is to a corporation[1]. Because of this, the labor market is in a constant monospony situation.
http://en.wikipedia.org/wiki/Monopsony
This is unlike, say, the market for going out to eat at a restaurant. There are very low switching costs for customers with regards to restaurants (and vice versa), so the market is efficient.
[1] Of course in some situations the opposite applies: highly skilled workers are very costly for a corporation to replace and generally have no trouble finding other work. So their bargaining position is excellent and they tend to get market wages. For example, programmers.
But if your job puts you in the Monopsony position, wouldn't it be fair to say you picked the wrong job? It might make more sense to try to pick another job that is in higher demand?
I know switching isn't easy - but nobody ever said that life is easy. Why is it the corporations problem if people make the wrong career choices in their lives?
ADBOC[1]. Your statement is technically true, but I disagree with the subtext.
Factually, workers with no marketable skills don't have them because they didn't acquire them as students. Factually, it's not Walmart's fault that its workers have no marketable skills and thus no alternatives. However, those two facts don't imply that it is just (or societally optimal) for us to do nothing about the problem.
Workers are being paid below market wages because their switching costs are too high. This is both inefficient (market prices are efficient prices) and unfair (the very poorest workers are being paid even less because they are poor). Therefore, it is right and good that we should pass laws to help improve that situation and return wages to their market values.
Now, there's the separate question of what the best laws to do that actually are. It seems unlikely to me that allowing employees to sue for something as nebulous as "infringement on free speech" is a good idea. But I hope I've made a strong case for why some legal intervention in this situation is reasonable.
[1] http://lesswrong.com/lw/4h/when_truth_isnt_enough/
Corporations can artificially create a monopsony, just like they can artificially create a monopoly. The music industry, for example, relies on making its talent pool—who are in high demand by the customers—feel like they are in lower demand compared to the record labels themselves, so the industry will be in a better bargaining position.
Sure, once the market is as efficient as it can be, if there's still a monopsony, that's tough for the employee. But if the monopsony can be annihilated without affecting its constituent employers and employees, all the better for all involved.
How can they artificially create a monopsony? By talking secretly to each other? It seems to me that if there is a real need, then they would have a hard time doing that.
Take software developers - if it is still true that they are still in high demand. How would corporations go about creating a Monopsony for software developers? Stop producing software? But if software is in high demand, how would they be able to prevent other companies starting up that develop software?
Perhaps sites like glassdoor.com are the solution.