Who has the bargaining power?

The question in the title is usually posed by people looking to decide which side of the employment table, labor or owners, has the constitutive upper hand in forging labor contract deals. Thomas DiLorenzo points out that the relationship is economically neutral:

If an employer attempts to exploit some or all of his employees, in a competitive, capitalistic labor market he will merely create a profit opportunity for his rivals, thereby harming his own business. If an employee's marginal revenue product is say, $500 per week but he or she is paid only $200 per week, then it will pay competing entrepreneurs to hire that worker away for $300, then $400, or higher, because they will still be earning a profit in doing so. As Mises wrote (p. 592), "There will be people eager to take advantage of the margin between the prevailing wage rate and the marginal productivity of labor. Their demand for labor will bring wage rates back to the height conditioned by labor's marginal productivity."


Even if some employers do exploit their employees by paying them less than their marginal revenue product, it is not at all clear that this would primarily benefit the employers, if it benefited them at all. Product market competition may well force them to pass their cost savings on to consumers in the form of lower prices, which would benefit the wage earners.

Thus it is true that in a general economic sense there is no inherent advantage to either side. Of course, due to the laws of supply and demand, should labor supply increase faster than demand, the price(wage) will drop, and vice versa, but that isn't a case of categorical advantage but simply economic reality. Some times labor is in a position to demand higher wages (due to greater demand or reduced supply), and sometimes it is not. This will remain true whether labor organizes or remains individual.

The rub in the above is the time factor. While it is certainly true that all that DiLorenzo said will come to pass as a matter of economic course, the question is "how quickly will the market adjust". Even assuming away government interventions, a pure free-market in labor may not necessarily clear quickly, especially if there are barriers to entrepreneurship (in a free market, assume such barriers would be cultural), or if communication is slow or costly, etc.

It is usually in those cases that the anti-market forces hang their arguments, saying that we can't wait for the market while people are suffering, we have to step in, etc. The problem and challenge for market advocates, I believe, is to show and explain how the market could fix these supposed "market failures" by simply providing more market (i.e. all the problems are really entrepreneurial opportunities), and eliminating 'artificial' barriers to economic/market actions that would otherwise work to level the playing field after any given imbalance.

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I'm a little skeptical of

I'm a little skeptical of this equality in bargaining power. The rabbit runs harder than the fox, because the rabbit is running for his life, while the fox is merely running for his dinner. Similarly Adam Smith says in Chapter 8 of The Wealth of Nations.

"It is not, however, difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily; and the law, besides, authorizes, or at least does not prohibit their combinations, while it prohibits those of the workmen. We have no acts of parliament against combining to lower the price of work; but many against combining to raise it. In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate."

I think its tempting (but wrong) for libertarians to gloss over these effects because they have some potential anti-free-market implications. On the other hand, these effects are much less nowadays because workers are so much wealthier. Its much easier for them to subsist a week or a month on savings than in past centuries.

I think that the general

I think that the general amount of capital accumulation and the development of markets in Adam Smith's time is not quite comparable to 21st century America or most of the world today.

People nowadays are not a week away from starvation, due to the wonders of industrial capital development and market extension and refinement. Food is unbelievably plentiful and cheap, as are most other basic staples of survival (of which Adam Smith concerned himself). So that's not much at issue.

The whole collusion factor is often brought up but I don't see much empirical evidence that employers collude either often or more successfully than any cartel/conspiracy-to-restrain-trade has ever been. Absent government regulation, US companies and firms seem more than reluctant to collusion, but downright averse to it. The usual model of the "mean company" model is of MicroSoft, which bullies its distributors as a way of playing hardball with its competition. I.E. MicroSoft tries to monopolize rather than cartelize, and as a function of that bids sky-high prices for programming talent to deny them to their competitors. That seems in line with DiLorenzo.

The most productive line of criticism v. DiLorenzo would be more of the time differential bit, but that is not an absolute advantage to either side, but rather that since it takes time to clear markets, there are temporary imbalances that allow deviations from a general salary trend in particular spot markets that may favor workers or employers (and thus seem like "bargaining power").