There Is No Free Market For Labor

There is no free market for labor. 

Before you start screaming at me that it is the free market for labor that has destroyed US wages, let me elaborate about just how different the market for labor is from what Adam Smith imagined in the 18^th century. 

In the US, our labor market may be mostly free from government influence (other than that of fairly innocuous wages and hours laws) but the sellers and buyers are far from equal.  And it is the relative equality between seller and buyers that governs the exchanges between them.  Unfortunately, with labor, the laborers are selling themselves, and since industrialization, the power of large employers has dwarfed that of workers.  If you are a doctor or lawyer, or engineer or programmer (of the right kind of software) your special skill or monopoly license may give you a bit more power than the average worker, but for regular folks with average skills, you are a virtually a pawn.  And the situation gets worse the larger the employer and the lower the skills requirement of the job.

So when there is an vast imbalance between parties in an exchange, the marketplace that includes these exchanges cannot be celebrated as a "free" market.

Of course, large organizations only became necessary when labor saving machines began to displace craftsmen.  In the earliest stages of industrialization, Luddites attempted to destroy the machines.  The (British) government opposed them and the movement gradually faded away.  It has long been thought that Luddism was an economic fallacy.  The standard argument against Luddism was that while workplace efficiency created temporary dislocations, these would be short-lived as we discover new uses for labor.  Up till the 1970s this seemed true.  But since then, the level of efficiency of modern business organizations, and the globalization of the marketplace for goods and more recently, services, has created a situation where the jobs lost seem far more valuable than the new jobs that replace them.  Not only are there fewer good jobs, but there are even fewer junk jobs too, as big box stores like Walmart and on-line merchants like Amazon have taken over retail. 

So is it time to bring back unions?

Growing up, I didn’t favor unions.  I hated the thuggishness of union workers, when I had to interact with them.  Decades ago, I was non-union delivery man, and hated when I had to interact with union guys.  I typical example would be at the Brooklyn docks, where union rules and just plain orneriness would make a simple pick up take most of the day.   My encounters with unions ended some 30 years ago when I left the world of physical labor.  But my wife had her own encounters with unions in the mid 1990s when she took a museum bookstore on the road.  Once a year she would take her store into a well-known NYC sports venue.  Sadly, though we could have unloaded everything ourselves, the elevator operators (union men) controlled our goings and comings.  They used their skills to separate us from our load so that they could steal a box or two of the T-shirts we had for sale.  And this after we already bribed them. 

I was hoping to see what would happen in Tennessee after the UAW won the right to represent employees and German style worker’s councils were created.  I thought that a union that worked with the employer could be a godsend.  But it didn’t happen. 

So if not unions?  What?

Probably nothing.  There simply is no will to do anything other than rely on markets – even a flawed market like the one for labor.

Still, when we ask why there are not enough good jobs, the question really is why there are not enough good salaries.  And for salaries, the market is at fault.