Archive for October 28th, 2010

When most people refer to labor economics as a subset of neoclassical economics, they are actually referring to econometrics applied (usually, but not always) to the labor market. I didn’t realize this when I signed up for Advanced Labor Economics my senior year in college. I enjoyed the class immensely, because it was well-taught and endowed me with some key econometric skills. However, I often wondered why labor economists took such a narrow approach to their trade. Via Mark Thoma, I see that the Steven Greenhouse of the New York Times has a post about a new paper by Richard Freeman, a labor economist at Harvard. Freeman argues that our labor law needs to be fixed (quoting from the post):

He said unionization elections in the private-sector “have turned into massive employer campaigns against unions.”…

He argued that the penalties in the National Labor Relations Act were weak and “have failed to deter firms from illegal actions to prevent unionization.” He wrote that in the early 1950s firms fired about 0.5 workers for every 100 workers who voted in N.L.R.B. elections, but in the 1980s and early 1990s, firms “fired 4.5 workers for every 100 union voters,” with that percentage dropping slightly in recent years…

One big reason for this, he wrote, is that private-sector employers “have sizable monetary incentives to oppose unionism,” and the penalties that N.L.R.B. “has at its disposal are too limited to offset these incentives.”

In addition to calling for harsher and more targetted penalties (aimed at managers and not just companies), Freeman makes a suggestion that would give workers a voice even without a union:

Lastly, Professor Freeman recommends an idea that union leaders hate — allowing employers to set up employee committees that address not just productivity, but also issues that deal with workers’ well-being, like hours or pace of work. “Throughout the advanced world works councils perform this function, usually with members elected by employees, independent of collective bargaining,” he wrote.

Strong labor laws level the playing field of the labor market. Most labor economists who do study unions choose to apply methods like regression discontinuity to determine if unions raise wages. However, they may not be asking the right questions. Addressing labor laws per se requires an acknowledgment of worker-employer power dynamics, a move most neoclassical economists deem normative (and also hard to measure).

The paper was submitted as part of a symposium at GWU Law on the NLRA. There are a lot more interesting papers at the link above.

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