Paul Krugman says that in a weak economy workers have weak bargaining power. In his opinion, that’s bad for workers, but good for their employers. He writes:
Now think about what this means for workers’ bargaining power. When the economy is strong, workers are empowered. They can leave if they’re unhappy with the way they’re being treated and know that they can quickly find a new job if they are let go. When the economy is weak, however, workers have a very weak hand, and employers are in a position to work them harder, pay them less, or both.
As a result, he says that workers are burdened by a “fear factor” and goes so far as to label our economy “the fear economy,” implying that the workplace is somewhat akin to a police state.
Now let’s turn to reality. In his book, The Road to Freedom, Arthur Brooks summarizes a number of studies on how people feel about work:
- It turns out that the vast majority of Americans instead of living in fear of being fired actually like their jobs: 89% are either very satisfied or somewhat satisfied with their jobs.
- Satisfaction is the roughly the same, up and down the income scale.
- Further, Americans are happier when they work more hours: those who are happiest work 50 to 59 hours a week (Europeans are happiest working 35 to 39 hours).
- Only 11% of American workers say they wish they could spend a lot less time on their jobs.
As for “bargaining,” alert readers will recall it is a word that Krugman has used before, with respect to health care. A “single payer” he says would have the bargaining power to push doctors’ fees below their current levels and reduce the price patient must pay. But why is it good for doctors to live in fear, but not ordinary workers? And if the single payer bargaining is good for medicine, why wouldn’t it work just as well for college professors — given that higher education seem to have all the same problems that the health care system has. (Think how much lower Princeton tuition might be if Krugman, Uwe Reinhardt and all their colleagues had their salaries cut in half.)
Moreover, if “bargaining power” is what counts, why not have government bargain for us in every market for every product we buy?
Before I go on, pick up any introductory textbook in economics and see if you can find the word “bargaining” or the word “fear.” I bet you can’t. That’s just by way of warning you that Krugman’s depiction is not the way real economists would describe any of this.
Take this job and shove it.
As for actual “bargaining,” it is very rare in our economy. It only happens for the sale of unique assets (e.g., a house) or unique services (e.g., a secretary who can put up with my demanding personality).
Let’s say Macy’s has a lot of Christmas decorations on hand — merchandise it didn’t sell before December 25th. Would you say that the store is in a weak bargaining position vis-à-vis its customers? You could say that, and before the science of economics developed many people might have said that. But economists have found a more precise way of describing the situation: they use the concepts of supply and demand.
The truth is that none of us actually bargains with Macy’s any more than most workers bargain with employers. What happens in this example is that supply exceeds demand at the current price. So what does Macy’s do? It drops the price and puts all the Christmas paraphernalia on sale. And if the store drops the price enough, supply will equal demand and it will clear out its inventory.
In most of the labor markets that Krugman writes about, no one bargains about anything. McDonald’s doesn’t bargain with its employees. It sets a wage for the services it wants and hires people who will accept that wage and who it thinks can do the job. As long as it is attracting the labor it needs, it keeps the wage at its current level. But if it finds it cannot get the labor it needs it raises the wage until it is able to man its restaurants.
Wage rates in most occupations do not change hourly or daily or even weekly. They change. But they change relatively slowly. Sometimes the wage is too high, reflecting a surplus of willing workers. There will be downward pressure on wages to clear the market. In the meantime, workers will be pushed to be more productive and the least productive among them probably are at risk of losing their jobs. At other times the wage is too low, reflecting a shortage. Workers will have more options with other employers and there will be upward pressure on wages.
Contrast this to a different model, however. Suppose that the labor market worked like the commodities market — with wages changing instantaneously to clear the market. Would you rather work in a market in which your wage income changes every minute — in which all of Krugman’s commentary becomes irrelevant? Or would you rather live with the current system?
One thing that is clear about the current labor market is that we have a surplus. The youth unemployment rate is 16% overall and 28% for young blacks. Just like Macy’s Christmas decorations, we can’t clear the market at the prevailing wage. So what is Krugman’s answer to this problem? Instead of advising job seekers to do what Macy’s did and lower their asking price, Krugman in an earlier column advocates outlawing such behavior with a higher minimum wage!
Maybe his next column will integrate the two previous editorials and make the case for a perpetual economy of fear.