Notes on reforming employee, employer, and/or labor laws

Consider the proposed Stoa resolution:
The United States federal government should substantially reform its laws governing the rights of employers, employees, and/or labor organizations.


There are a great many federal employment regulations prohibiting or mandating employer/employee relations, and these regulations create unintended consequences that raise costs and reduce both wages and employment opportunities.

Students will have the opportunity to research the economics, politics, and history of employment regulations, and may be surprised to learn that early labor regulations were advocated as ways to keep African-Americans and women out of the labor force. (See The Eugenics Plot of the Minimum Wage for part of this story.)

This Concise Encyclopedia of Economics article on the economics of Discrimination begins:

Many people believe that only government intervention prevents rampant discrimination in the private sector. Economic theory predicts the opposite: market mechanisms impose inescapable penalties on profits whenever for-profit enterprises discriminate against individuals on any basis other than productivity. Though bigoted managers may hold sway for a time, in the long run the profit penalty makes profit-seeking enterprises tenacious champions of fair treatment.

Current anti-discrimination regulations create a fear of litigation that influences employers hiring decisions. If employers believe they are more likely to be sued if they decide to let go minority employees, for example, they will be reluctant to hire job applicants from that group. And when state and federal regulators fine them for having employees that don’t match the ethnic make-up surrounding their factory, companies can respond by relocating their factory.

Employment regulations mandating paid maternity leave leads companies to be wary of hiring women of childbearing age.  Mandating health care coverage for all employees leads to companies not wanting to hire part-time workers since health care costs are fixed.  These and thousands of other state and federal employment regulations raise costs and complications, especially for small companies.

Both employers and employees have their reputations to consider. Workers that quit suddenly, leaving employer and co-workers in a lurch, are unlikely to receive positive recommendations for their next job. And employers who arbitrarily fire workers send a signal to their other employees that they can’t trust the boss. Arbitrary company firings also signal potential employees who might learn from word of mouth or from employment agencies.

Benefits offered workers have a cost to employers. Mandating higher wages or additional benefits raise costs further and decrease wages available and demand for workers.


Coach Travis (Herche) argues this a good resolution, writing:

Here are a few examples of topical cases demonstrating how interesting this resolution can be: Legalize apprenticeship/voluntary slavery. Raise or abolish the minimum wage. Ban employment benefits. Mandate new employment benefits, like paid maternity leave or receiving company shares. Use legislation to fight the rise of the robots. Increase or loosen laws about work force diversity. Mandate that companies provide food, housing, and medical care to employees. Eliminate all paperwork associated with hiring and firing people.

All of the Progressive Era employment regulations have had unintended consequences. Students will have an opportunity to learn how wages are discovered in market economies.  Employers can try to “set” wages, but it is worker productivity that sets how high wages can go. Workers tend to be alert to alternative job and pay opportunities. Employers who try to pay less than market rates soon find people leaving the firm to work for competitors or for other jobs. Employers who overpay find it hard to compete with other firms, since their costs are higher.

The incentives of employers is to raise productivity, and to create incentives in the firm for employees to produce more. As productivity improves, wages can be raised (and if the employer chooses not to pay workers more as their productivity increased, competitors will hire them away).

Bryan Caplan discusses his economics of labor law classes in “The Standard History of Labor: Lemony Snicket Edition,” which links to his “Standard History of Labor.”

David Henderson asks “Is Labor Law More Oppressive for Workers than for Employers?” and this post on “The Role of Unions.”

State and federal legislation creates complex regulatory protections, restrictions, mandates, and privileges for labor organizations. It not at all clear that workers benefit from these labor market interventions.

On the minimum wage debate, there are many online resources from advocates and skeptics.   Here is video from GMU economist Don Boudreaux on “Three Reasons Why a $15 Minimum Wage Is a Bad Idea.”