Labor Law Reform or Eliminatation

Supply and Demand - it seems funny that no one has come up with this idea before. A worker can decide how hard he or she wants to work and get paid according. They, the worker, negotiate and sign a contract that suits their skills and effort. If they don't like the contract they can go someplace else. The worker isn't forced to work where they are not compensated properly for what they do.

Oh wait, who's in control here? The worker, the union or management? It is about control, isn't it.


Don't Reform Labor Laws—Eliminate Them
Restrictions on work don't protect employees—they just take away their rights. WSJ 1-14-2011
By JAMIE WHYTE

David Cameron this week announced a plan to reduce the legal obstacles to firing employees within two years of their being hired. He hopes that, by reducing the risk involved in hiring new staff, it will happen more often. Bob Crow, general secretary of the Rail Maritime and Transport Workers union, does not like the idea. He thinks it will strip workers of their "hard-earned rights."

This is a peculiar complaint. An employee's rights are specified in his employment contract. He can negotiate any rights he wants, including obstacles to swift dismissal. Of course, his employer will seek compensation for agreeing to such burdensome terms, probably by paying a lower wage. Nevertheless, the low-risk, low-pay deal may suit some employees. Others will prefer a higher-risk, higher-pay deal. And they too are free to negotiate such a contract.

Or they would be if laws of the kind Mr. Crow likes did not restrict employees' freedom of contract. What Mr. Crow calls a right is really an obligation for employees to accept certain kinds of deal. Why would a trade unionist seek to limit his members' ability to negotiate deals that suit them?

To see why, note that, in the labor market, employees are the suppliers and employers are the consumers. Employers buy the labor offered for sale by workers. Labor laws are thus a kind of product regulation. Product regulations usually impose minimum standards. When it comes to labor, however, they impose maximum standards.

Among other restrictions, labor laws prevent workers from selling labor that functions on more than a certain numbers of days a year, that continues uninterrupted for more than a certain number of hours in a day, that costs less than £6 an hour or that can be terminated easily and at short notice.

In short, labor laws prevent workers from offering a product that exceeds certain standards. And that is precisely why trade unions support them. Regulated maximum standards are required by suppliers attempting to fix their prices above the market-clearing price.
Consider a different example. Suppose you manufactured a basic type of bicycle. If the most efficient bike-maker could produce such a bike at a cost of £100, then this would soon be its market price. In a free market, competition between suppliers drives the price of goods down to the cost of producing them. This is nice for consumers but not for suppliers. How might you avoid this unpleasant consequence of competition?
You could try collusion. Create the British Association of Bicycle Manufacturers and, at your annual conference, agree that no one will sell bikes for less than £200. Or lobby the government to set a minimum bicycle price of £200.

Alas, a minimum price will not work on its own, because it does not stop competition on quality. If everyone must sell bikes at £200, and your competitors' bikes are worth £100, then you can get an advantage by producing better bikes at a cost of £110. Your competitors will then retaliate with a yet better bike that costs £120 to make. This process will continue until you are all making bikes at a cost of £200, and no one is better off than when they sold for £100. To keep the benefits of our minimum price, you also need to restrict the quality of bikes. You need maximum standards.

Trade unionists are devoted to keeping the price of labor higher than its market value. So they must also stop the suppliers of labor from competing on quality. The endeavour is corrupt in principle—indeed, it would be illegal if the product were anything except labor—and futile in practice. The laws they favor do not eliminate competition between workers; they simply benefit some at the expense of others.

I recently managed a team of two consultants. They were of roughly equal value. John was brighter but Don worked harder, often violating the Working Time Directive. If I had stopped him, who would have benefited? Not Don. He would have been unable to achieve as much as John and his chance of promotion would have been reduced. A ban on long working hours benefits not those who work "too hard" but those with other qualities to offer. It rigs the competition in their favor.

It is impossible to eliminate competition between the suppliers of labor. Rule it out in one respect, such as effort, and it will merely shift to something else, such as talent. Rule it out in all economically relevant respects—allow no price or quality competition—and it will shift onto irrelevant preferences of the employer. A bigot might employ foreigners if they come at a discount. But why would he otherwise? Immigrants do better in America than in France, not because Americans are less racist, but because their labor market is less regulated.

Labor laws are intended to protect employees from employers. But no such protection is needed. Feudalism ended long ago, and the labor market is not a monopsony, with only one purchaser. No one is forced into any particular job. Indeed, unemployment benefits mean that no one need work at all.
Labor laws do not provide "hard-earned rights" for workers. They simply limit our freedom to negotiate contracts that suit us. David Cameron is wrong to trim some of them. He should eliminate them all.
Mr. Whyte is a management consultant.