Why Labor Laws Won’t Save Labor
A Twitter exchange yesterday between economists led me to this piece by Peter Frase in Jacobin magazine, a publication that I very much enjoy. It's interesting because on the one hand, it neatly describes society's inherent discomfort with capitalism -- that people, who are inherently valuable, may have their labor assigned a low or zero value by the marketplace. And on the other hand, its economic analysis is just fundamentally wrong. For example, this:
According to Bureau of Labor Statistics, there are about 620,900 people employed as "Advertising, Marketing, Promotions, Public Relations, and Sales Managers," and 2,590,600 employed as "Nursing, Psychiatric, and Home Health Aides." If the nurses make less money, even though there are more than four times as many jobs for them, then by Tabarrok's account it must be because the skills involved in marketing are so rare, and those involved in nursing so plentiful. And yet by many accounts there is a serious nurse shortage, while I've yet to hear of a serious PR flack shortage afflicting the nation.
The more obvious explanation would be that wages are largely determined by how powerful workers are, and how powerful their industries are. In the extreme case of high finance, you have a sector that has succeeded in extracting large rents from the economy, as Felix Salmon explains, and has shared those spoils with a privileged layer of bank employees. But to understand this you would have to understand economic outcomes as the result of power relations, not immutable and impersonal market forces.
It's wrong because entry-level nurses actually get paid more than entry-level flacks or advertising staff, and top-level nurses -- nurse-practitioners and those who have moved up into various administrative jobs in health care -- can do very well indeed. But it's more deeply wrong because nurses have a great deal more structural power than any PR or marketing flack. Many of them are unionized; all of them operate under strict licensing regimes. The hospital cannot fire an RN and replace her with someone from the local community college's biology program. But you can sack your promotions manager and no one will care if you replace her with a high-school dropout. Nonetheless, those at the tippy top of the marketing and PR industries are paid better than, say, a nurse anesthesiologist -- even though these people have basically no sources of structural power.
Obviously, sufficiently broadly construed, this is trivially true -- if we include things like the supply of workers with your skills and personal relationships, and the profitability of your industry, as part of "how powerful workers are, and how powerful their industries are." But then all we are saying is that it's hard to get paid a lot if you're one of thousands of job candidates for a position in an unprofitable industry, which is true, but not useful. It doesn't really suggest much of a solution, does it?
The answer for much of the left has been to go back to the 1950s, or maybe the 1930s -- a super-friendly National Labor Relations Board operating under super-labor-friendly laws. Yet the end result of this is General Motors. GM's union was incredibly powerful. Workers who would have been dismissed anywhere else sat for years in the "job bank," paid almost full pay for sitting there. They had very high wages and extremely generous benefits. They (and infighting managers) crippled the successful Saturn rather than let it challenge their corporate niche. Then came 2008, when their company was driven into bankruptcy -- helped along by many of the same people who spoke lovingly of the need for more unionization while never even dreaming of driving an unstylish, gas-guzzling American car.
Commanding institutional legal power, it turns out, is actually not all that valuable unless you also command consumer preferences. Yet who wants to mandate that Americans have to buy American cars?
Frase doesn't really answer that; instead his article lapses, as so many of these discussions do, into rhapsodic meditation on the intrinsic value of the working man and the dignity of socialism, when we shall be free from being measured by the price of our labor. But of course, people living in socialist systems are measured by the price of their labor all the time, just not in cash. People with the better jobs get not only better stuff but also more respect. This is one of the great and fundamental insights of the conventional economists he rejects: that not all prices are measured in dollars.
So let me state the central problem facing people who actually want to improve the plight of the average worker, rather than imagine an improvement: The easy solutions -- ending technological progress, shutting down immigration from poor countries, cutting off trade with all but our fellow rich industrialized nations -- would not only be bad for American consumers (most of whom are also workers), but also be terrible for millions upon millions of poor people in other countries. Coming up with something that gives workers more power, without those terrible side effects, will be very difficult, and may not be possible at all.
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Megan McArdle at email@example.com