Comments on economics, mystery fiction, drama, and art.

Monday, May 16, 2011

On libertarianism, the Pauls (Ron and Rand), and the "employment-at-will" doctrine

Ron Paul's comments (and Rand's) on the appropriate role of the state--that it has no appropritate role, essentially, has been all over the web lately (here, here, here), in an interview with Chris Matthews in which Ron Paul comments on why he does not thing the Civil Rights Act of 1964 (and especially the "public accomodations" provisions of the act) should be law. Essentially, he sees requiring someone to sell to or provide a product or service to someone (in return for payment) should be a matter of choice by the seller or provider, and that no govrnment ought to have the authority to compel a seller to sell to all willing buyers.

When I started thinking about this, it occurred to me to wonder how he would respond to this situation: A restaurant owner refuses to serve African-Americans who wish to eat at his restaurant and are fully able and willing to pay for the meals. They respond by setting up an informational picket line, informing other prospective diners of the owner's actions. I would argue that, to be consistent he must support their right to picket (peacefully, of course) in such a situation.

And then I began thinking about the "employment-at-will" doctrine. Very simply, the "employment-at-will" doctrine holds that the job is the property of the employer, and that an employer may hire whomever the employer chooses, using any criteria the employer decides to use (including different criteria for different applicants). That the employer may retain or promote or discharge (at any time) any employee for any reason. And, of course, that an employee may quit for any reason, at any time. That is, taking the "employment-at-will" doctrine seriously, all anti-discrimination employment legislation is inappropriate.

Oddly enough, to economists who believe that markets work perfectly all the time, such a position makes a lot of sense. Simply, if there are enough non-discriminatory employers, and if labor markets are, overall, competitive, then the result of discrimination will be firms that are segregated by employment practices into three groups--those employing only workers from the "majority" group, those employing only workers from the minority groups, and those with mixed work forces. But all three types of firm will provide the same pay and benefits and working conditions.

It is, however, possible to interpret the 20th century as a time in which the "employment-at-will" doctrine has been continuously restricted. Consider almost all the important federal legiclation dealing with employment conditions:

The National Labor Relations (Wagner) Act (as amended; now the Labor-Management Relations Act) requires employers to bargain collectively with the chosen representative of their workers.

The Fair Labor Standards Act requires employers to pay a specified minimum wage and to pay overtime premiums to certain classes of workers.

The Civil Rights Act of 1964, in addition to its "public accomodations" provisions, prohibits (in Title VII) the use of race, gender, ethnicity, religion, or national origin in making employment decisions.

The Occupational Safety and Health Act requires that workplaces meet specified safety standards.

And that's just to mention the major legislation that occurs to me as I type.

In a world governed strictly by the "employment-at-will" doctrine, none of these laws would survive. So, again to be consistent, the Pauls would logically have to object to legislation and policies designed to eliminate discriminatory hiring practices, to protect the rights of workers to unionize(by requiring employers to bargain), to establish rules governine wages and overtime, or to oversee working conditions.

Why would a world in which the "employment-at-will" doctrine is strictly applied be a world none of us would want to live in?

First, the outcomes these laws and policies are designed to prevent are likely to be widely regarded as undesireable outcomes.

Second, labor markets are probably not sufficiently competitive to achieve these outcomes without government intervention. In many, if not most, labor markets, bargaining power is concentrated in the hands of employers(see Alan Manning, Monopsony in Motion: Imperfect Competition in Labor Markets, Princeton University Press, 2005).

Third, only if the "employment-at-will" doctrine creates benefits large enough to offset its disadvantages would we, in a utilitarian world (and most economists are at least quasi-utilitarians), even entertain it as a principle governing labor and employment relations.

So we have, as a society, slowly and imperfectly, hemmed in the "employment-at-will" doctrine, trying to deal with its imperfect outcomes, and protecting workers who have insufficient bargaining power to protect themselves without the assistance of government.


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