The Power Of Employers

Many economists like to think of the markets as a place where equals negotiate and bargain to find mutually beneficial deals. Employers and workers need each other and so come to a deal that benefits them both. As these agreements are reached voluntarily, there can be no injustice in the system, as otherwise why would they have agreed to it? There is therefore no need for government intervention as people are well able to look after themselves. Unfortunately, in the real world, things are very different. In the real world, employers have market power over workers that prevent the market reaching a fair balance. It is for this reason that strong unions and government intervention is needed.

There are several reasons why employers have more power. Firstly, there are thousands of employers but millions of workers. As there will always be more employees than employers, employees will always need employers more than the other way around. Secondly, there are always more people looking for work than jobs available. Even in the best of times there is unemployment and nowadays there are huge numbers desperate for any kind of work. You cannot bargain when it is obvious that there are many who will take your place without asking questions. Thirdly, if an employer cannot fill a vacancy, this is a nuisance, but for a person to not find work means poverty. Employers have far greater resources and can last much longer than any person can. Labour must work to support itself and therefore always dependent on Capital. Only Capital can support itself.

Libertarians claim that employees have agreed to the working conditions, so they mustn’t have a problem. After all, if they don’t like their job why would they choose to work there? But this ignores the crucial fact that people have to work somewhere. No matter where you go, you will more than likely have to work for an employer and be subject to their rules. Few people have the resources and skills to set up a business of their own and it is not possible for everyone to be self-employed. So while people have some degree of choice between where they work, few have any choice about working at all.

If you look at any job it becomes immediately clear that employers and employees are not equal. First of all, interviews are not negotiations between equals; instead they are an examination of the candidate where they try to prove themselves worthy of the role. For low skilled jobs in times of unemployment, they are more like begging than negotiating. The focus is on the candidate, surprisingly little is about the job (I have gone to interviews and been offered a job without even knowing what the job involved.) It is even consideration poor form to ask how much you will be paid. It is of course madness to ask how many holidays you will get or how long your break is (it would instantly make you seem lazy and ruin your chances).

There is a double standard in how the rules are applied. Arriving 5 minutes late to work is a serious offence that can cause you to be fired. But if you had to work 5 minutes extra you would get no reward nor be able to reprimand your boss. If you declared that your contract only required you to work until 5 o’clock and therefore you will not do a minute extra, you would be either quickly brought into line or else dismissed. Your boss can and will criticise you as much as they want, but I have never seen anyone dare criticise or even hint at a fault on the part of the boss (to their face). Does this sound like the free association of equals?

Likewise, looking at any contract will quickly rubbish any notion of equality or partnership. The contract is dictated entirely by the employer and mostly contains restrictions and requirements of the employee. Conditions such as pay, hours, conditions etc are fixed and the employee must take it or leave it. For example, most companies have a fixed working week, roughly 40 hours per week. Economists fool themselves when they think that a worker can work as little or as much as they want. If someone decided that they only felt like working 30 hours this week, they would be shown the door. No employee (apart from a handful of highly paid, highly skilled) would dare attempt to draft their own contract or request a better deal. The employer holds all the power; the employee must take what they are given.

Libertarians seem to believe that clear contracts will solve all problems. But a quick examination of any contract will show that they say very little about the job or working conditions. Every contract would be as long as a Tolstoy novel if they had to detail every aspect of the job. There is not enough time in the day to make a contract stipulating every aspect of a job and it is ridiculous to think that every employee completely agrees with every part. In fact, employees only see the contract after they have accepted the job, at which point it is a mere formality and too late for negotiation. Almost no employees have any idea what their job is like when they are hired. Most agree to do a job before fully knowing what it involves, what their boss and co-workers are like or their pay and conditions. To pretend that employees have agreed to every aspect of their job by signing a contract is an exercise in fantasy.

Most workplaces are authoritarian institutions where democracy ends at the door. There is the head that must be obeyed and cannot be criticised. Their will is law and the role of everyone else is to obey and follow. Whatever you might think of your boss, you can no more criticise them than you could a tyrant. Your true thoughts are to be whispered while looking over your shoulder. The idea of the employees having in a say in how the company is run is as unknown and unacceptable as the idea of medieval peasants running the Kingdom. If you think I am exaggerating, try setting up a union or suggesting that the company becomes a co-operative and see how far you get. Like Kings there are benevolent ones and tyrants and I have experienced my share of both. Thankfully, there are a range of government laws to protect workers from unchecked employer power.

However, Libertarians are so desperate to shrink the power of the state that they are blind to the power of employers. They fill books decrying the arbitrary rules of the government, but have nothing to say about the arbitrary rules of employers. Were the state to punish people for having the wrong opinions or forming associations it didn’t like (such as political parties) they would erupt in outrage. Yet when employers punish and blacklist people for having the wrong opinions or forming associations they don’t like (like unions) these so-called promoters of liberty are silent.

I have never been afraid of getting in trouble with the state over anything I write on this blog, the mere thought is ridiculous. However, sometimes I get hesitant about writing about some topics for fear a future employer may see it and decide I don’t have the right attitude for their company. I have never felt the slightest fear in joining a political party or organisation. However, as much as I admire them, I have never dared join a union for fear I would be fired or otherwise punished. I have never cared about whether or not the Irish government was spying on me, but I have looked over my shoulder to make sure the camera operated by the boss wasn’t watching me take a break.

Now a libertarian might argue that as long as an employee can quit, the employer has no power over them. But as I detailed before, employees simply cannot credibly threaten to leave as doing so would impose serious costs on themselves. Leaving a job means losing friends and job specific skills (which are the most valuable skills) and having to start from scratch. There is the danger that you may not find any work for a long time and have to live off handouts (which most people find shameful). Even if you do find a replacement job there is a good chance that it will be worse as the new company doesn’t know you. There is also the fact that no matter where they work, they will have to work for someone (just as no matter where a libertarian goes, they will be subject to some state power). Most people would rather stick with the devil they know.

But even more important is the fact that people rarely change jobs. Sure we can sit around all day about what employees could do, but it is meaningless if they never actually do it. Sure they could quit if their boss treats them badly, but few do. Many people stay for years in jobs they hate or suffer a boss they hate but still don’t quit. For most people, the thought of losing their job is a terrifying prospect that they will go to great lengths and put up with large amounts of crap to avoid. After all, even if you do get a new job, your new boss could be just as bad or worse. Most bosses make their changes in small steps so as to avoid people quitting. If your boss reduces your break by 5 minutes, who is going to quit? No one would quit if you had to stay 10 minutes later every night or if slight changes were made to the dress code. So piece by piece, the job becomes worse and worse but no one is going to quit over such minor issues (imagine going to an interviewer finding out that you quit your last job because the break was cut by 5 minutes?)

A libertarian cannot understand why an employee would stay in an exploited role, but why do women stay in abusive and violent relationships? Just because you don’t understand why someone does something doesn’t mean it doesn’t happen. Some people are too afraid of their boss to tell them they’re quitting or are so battered down that they believe it’s their fault they are being treated this way. Or they think it is normal and all bosses are jerks and nothing can be done about it. I once had an abusive boss who cursed me all down long in the foulest terms and even threatened to stab me in the throat with a knife. The thing is that by the end of the day, I started to believe that I was as useless as kept he saying.

Libertarians don’t really have any answers for these issues. The fact that employers push people around more than the government ever does, is a notion that has almost never occurred. The few traces I can find of them discussing it are pretty poor with little more than a vague belief that the market will solve any problem. They either presume that workers can easily walk away from their job (seemingly forgetting that unemployment exists) or a particularly silly idea that the market will pay them to compensate for bad bosses. Apparently, if my boss shouts at me, my wage automatically jumps to compensate me for the trouble. If my employer decides to punish me for my political or religious beliefs or setting up a union, they don’t fire me, no apparently they buy the right from me. It seems that all long workers really did have the right to be treated as equals, we just sold it off. Strange how none of us remember it? Is there any need to point out how delusional this is? If that is the argument that the most respected libertarian bloggers can come up with, it is clear that they have no clue.

It never ceases to amaze me how out of touch with reality some libertarians are. They get so caught up in perfect competition that they forget that the real world is completely different. Sure in theory the idea of workers and bosses as equals sounds lovely, but in reality bosses have huge power over their workers. They can use to push down wages and abuse their workers, safe in the knowledge that most have nowhere else to go. Why else have US wages not risen since the 70s despite an enormous growth in productivity? It is because of employers’ market power that we need labour laws, unions and minimum wages. Unless libertarians leave the fantasy world of perfect competition and face the reality of the power of employers they will never understand how the economy really works.


Filed under Economics

16 responses to “The Power Of Employers

  1. Once again, very well done! And you are oh, so right about what employers will do to hire the “right sort.” They will search all of your personal media accounts, looking for signs of a troublemaker or someone with objectionable morals (actually they worry about hiring someone incapable of covering up their own misdeeds as they are wont to do).

  2. And another problem with quitting a job when you’re unhappy with an employer is that a new prospective employer would call the last one for a reference. So if you’re stuck with a horrible boss, it would likely make your future job search even harder. I know, because I had that happen to me – a “we’re 99% sure we’re going to hire you” job opportunity somehow disappeared after they called my previous boss.

  3. Cheers! Robert! I love your essays. However, they are somewhat tedious. I would just like to type a few things here; in regards to your article. Life is not fair on this planet. It is not supposed to be. It never was. Does not look like it will ever be fair. There is just no way to make it fair for everyone( not even close) Accepting this makes life, easier. Try as one might, including the way human nature is. No one will conquer bringing about Fairness here in this world. If this world ever becomes fair for everyone, the human race will not exist anymore. Can Science change “unchangeable human nature” in the future? Hammering out negative thoughts being produced by the human brain? Don’t ask me! Because, how in all of , whatever, would I know that!?! X-D 😀

    • Greg

      Thank God someone out there gets the underlying problems of employment and can spell them out simply, and without sounding condescending. I feel pure rage every time a fearful American conservative bleats that “the government that can give you everything can take everything away from you.” Our EMPLOYERS give us “everything” by giving us the only thing we can really use to get anything–money! So the average American conservative seems unable to understand that the company that signs their paycheck ALREADY HAS the power they so fear the government having. And most of them abuse it.

  4. As there will always be more employers than employees, employees will always need employers more than the other way around.

    -This is surely a typo.
    All that you’ve written here strongly suggests wages are typically above equilibrium. If wages were below equilibrium, the typical employee would have more bargaining power than today. And if there’s such a scarcity of employers, and if employers have it so easy, why don’t you become an employer yourself?

    • You must have deeply, deeply misunderstood me if you think I’m arguing wages are too high. If employers have a lot of power, why would they overpay their workers? Clearly my point is that wages are too low.

      As I pointed out in the post, few people have the experience or capital to become employers.

      • If there is a perpetual surplus of labor, and employers behave as though there is a perpetual surplus of labor, there is no way the price of labor is too low. Likewise, if there is a perpetual surplus of Surface tablets, there is no way the price of Surface tablets is too low.

  5. Why else have US wages not risen since the 70s despite an enormous growth in productivity?

    -If I get five times better at producing spindles, but my revenue in nominal dollars stays the same due to the falling price of spindles, and if the rest of the economy gets no better at producing food, shelter, and energy, is it any wonder I’m no better off? This is not because of employers’ market power; it’s because of price deflator differences. The labor share of income in nonfarm business only really began falling since 2000, and has only significantly diverged from historic trend since 2008.

    • “This is not because of employers’ market power; it’s because of price deflator differences.”

      So pitcom, tell us. When employers move their businesses to cheaper labor markets have the always done so for reasons that support your libertarian notions of competition and survival? Or have many done it to under price their competitors, run them out of the business to gain market share and watch all of the proceeds go to their investors and CEO golden parachute retirement packages?

      Their primary goal in making such a move is to enhance their own wealth and do everything they can to avoid paying workers a livable wage. We gave up the right to protect jobs in each country when we allowed globalization to characterize tariffs as some form of evil.

      I think Robert’s point is that not all unions and government regulations are bad for businesses just like not all businesses and their free market values are good for workers. Even Adam Smith would attest to this.

      And while workers get low wages and very few benefits to enhance their meager incomes, large businesses like Walmart get million$ in subsidies from state and local governments that keeps their profits high. Profits that don’t go into a livable wage for their work force.

      Consider too the political influence large wealthy companies like Walmart have compared to hardly any for their labor force.

  6. It is because of employers’ market power that we need labour laws, unions and minimum wages

    Only 5.5 million workers in the U.S. are minimum-wage ones and 7.3 million private-sector workers in the U.S. belong to a union.
    Unions and high minimum wages in the U.S. are relics of the 1950s and 1960s.

    • Greg

      The “minimum wage” gets raised once in a blue moon, far behind the pace of inflation and is used as a false metric to pretend they’re still meeting a poorly defined obligation to ethical treatment.

  7. Redmond McDonagh

    He who pays the piper calls the tune.

    I bet the average put-upon-employee would feel quite justified in criticising the staff at their local eatery if the service is slow, or the food not what they ordered, or not to their liking, or if the shop was not open at the advertised time, or they were charged the wrong price, etc, etc, etc.

    Equally, that put-upon-employee won’t expect to receive any criticism from the staff, and if they did, they’d they would point out that said shop was not the only pebble on the beach, and they they could take their custom elsewhere.

    Again, if put-upon-employee had rung through an order they’d expect it to be ready when they arrived to pick it up, but expect the staff at the shop to take it in their stride if the put-upon-employee rolled in quite a bit late.

  8. Greg

    Also, these are exactly my grievances with the employment system. In America since the “Great Recession” we have only really “recovered” minimum wage and barely-more-than-minimum-wage or part time work. Half the jobs created that they report as positive statistics won’t support one person let alone a family. But don’t kill the buzz talking about real life when the economists are cherry picking the barely good news and pretending that people who’ve run out of unemployment benefits and still can’t find work don’t even exist… hey look, if we do THAT we can draw a line on a graph that looks like it’s moving in the right direction!!

    The very first thing that needs to happen for any meaningful recovery is to redefine the employment “social contract.” Mine would look something like this:

    1)Monetary distribution through employment *IS* a “zero-sum game” (even if idiot economists want to fight about whether an economy as a whole is.) You close out the books quarterly, each quarter is then a “finite pie.” Stop with the verbal judo and divide it transparently.

    2)Based on this definition, the use of PERCENTAGES LIMITS on maximum executive pay and minimum worker pay is not just morally justified, but demanded. Percentages mean no one’s income income will be definitively “capped” at a hard dollar limit as “excessive”, meaning everyone can grow. But they define the minimum and maximum tolerances for profit sharing and leave freedom in between for adaptability. This is what good rules do: define limits but permit freedom.

    3) Every company must publish a standardized summary of the percentage structure they use, along with meaning any potential employee can see with ease how big a share of all earnings the company will offer them. Upstarts with no financial data established only have to share the legally binding percentage model they will use. For businesses who have operated a full year or more, their financial summary will be published, including total profits, the percentage structure used for profit sharing, operating costs, and the amounts paid to each individual corporate officer, the median amount paid to employees, and the exact amount of the very lowest salary or total wage paid out. With the proper layout and visual aids, a “W-2 like” document could be used to show in minutes how much a company makes and how much of it they’re willing to part with for your benefit. It also allows the worker, usually ignorant of operational costs, to understand what barriers exist to their getting what they THINK they should earn.

    Obviously there’d be more to it, but you can see the basic principles it would be based on.

  9. Ben

    I didn’t read the entire article, but you do seem to suggest that economics does not recognise that “employers have power”. They do. The monopsony model of the labour market is commonly used in labour market models in economics, in replace of the competitive model. Alan Manning, Prof of Labour Economics, writes that “you do not have to be a monopsonist to have monopsony power”. Manning’s book is called “Monopsony in Motion:
    Imperfect Competition in Labor Markets”. Nobody in labour economics believes in the simple undergraduate models of perfectly competitive markets. Economists and econometricians are constantly trying to incorporate frictions into models, so they can better reflect reality. I really hate when people think that economists live by the content of their undergrad modules, in reality, things are very different!!!

    • Rolfus Adolfus Malthus

      There is something very wrong when you have to do a postgraduate degree to learn what is screamingly obvious to anyone with a job in the real world.

  10. Bill

    Good article. I just want to point out too that the power shift to the employer has been well coordinated by the powers that be. As one example, unemployment benefits must ultimately be approved by the employer, thus guaranteeing that they remain in control of you and well being upon your departure.

    Another example, even if you leave on your job at your own free will your employers impression of you will continue to matter in the customary reference checks required for new jobs. In the end, even if you dislike the job and bods you will need to continue sucking up and pretend nothing was wrong.

    I think the power shift to employers has been well coordinated and executed by the elitists.

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