The Economics of Labor Standards


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A job should be a source of stability and opportunity. Our job, in many ways, defines us; it is something
we want to be proud of. It is how we earn a living, contribute to our community, and take care of our
loved ones.

We know, however, that it is not often the case. Many workers in the state do not earn enough to make
a living, even with full-time jobs. Many employers, as we have argued in past articles, do no even
respect their workforce enough to give them stable schedules, let alone a stable paycheck. And workers
see jobs often come ahead of their own health; nine in ten workers in our state are not guaranteed to
have paid sick days.

No matter your political affiliation, I think we can all agree that this is a problem. Everyone should be
able to have a stable, full-time jobs that pays well, and offers good benefits. The inevitable
disagreement only emerges when we talk about how we solve this problem.

Some conservatives have argued in these pages that the best thing we can do is stand out of the way
and let the free market sort it out. Workers, however, have been waiting for a good forty years for this
to happen, and things have only gotten worse. We have only seen wage increases for those at the
bottom in periods of exceptionally low unemployment, and those gains have quickly faded away the
moment the economy hit a recession. The reason for that is that the labor market is not quite like any
other market out there, so the no-regulation approach is not just wrong, but counterproductive.
The foundation of any efficient, functional market is that buyers and sellers are abundant, and that they
are largely interchangeable. If I want to sell a product, it should not matter who is the buyer as long as
they are willing to pay a fair price; if they don´t, I can always sell to someone else.

The labor market doesn’t quite work like that. Workers are the sellers, offering their labor for a wage;
employers are the buyers, paying a wage in exchange for work. Most sellers in this market, however, are
not indifferent to who buys their labor – in fact, they are in a rush to sell their product, because if they
don’t, they do not have any income. Now, anyone that has bought anything knows what happens when
a company, homeowner, or car dealer is desperate to sell, and wants to get rid of some inventory as
soon as possible – they will be willing to offer a bargain. When this happens in the labor market, what
we see is that workers will accept jobs that pay less than what they would get in regular, competitive

The technical term for this behavior (economists do have a term for everything) is a monopsomy, a
market where a few buyers can dictate the prices of a good. It is the exact opposite of a monopoly, a
market where one buyer (or a small cartel of them) can set a price above what a regular market would
bear. Conservatives (and progressives) have the good sense of seeing monopolies as big bad things than
must be broken up, regulated, or nationalized outright. Monopsomies offer a similar challenge, and
should be treated as seriously.

There are two main strategies we can follow to give workers an equal footing in the labor market. The
traditional one, and one that businesses have done everything possible to outlaw outright, are labor
unions. If employers have power to set wages bellow market rate, workers can build an organization to
ensure they can ask for higher wages in a coordinated manner. Unfortunately, decades of anti-labor rulings and laws have made union organizing incredibly difficult in this country, and wages and benefits
have gone down accordingly.

The other solution to ensure workers have good jobs that pay well is legislation. The good news about
government intervention is that we have a lot of evidence it works. There are plenty of studies, for
instance, that show that rising the minimum wage does increase workers’ income without reducing
employment; businesses can and do offer below market wages routinely if we don’t set a floor, which is
what the minimum wage does. Introducing one simply pushes pay up to where it should be all along. We
have similar stories with pretty much any piece of legislation that protect workers, from the 40-hour
week to paid sick days to paid family leave: workers should be getting them, businesses use their market
power to avoid doing so, but once they turn into law, they work as intended, workers do better, and
everyone reaps the benefits.

Contrary to what conservatives like to argue, then, there is a strong economic case for economic
regulation. If we want to achieve the goals of good, stable jobs for everyone, we can only achieve them
by either letting workers organize into unions and/or government intervention. Otherwise, businesses
are well aware that workers are much more in a hurry to sell that they are to hire a worker, and they will
act accordingly.

This is why tip-workers’ consistently make less money than non-tip ones, this is why employers keep
imposing erratic, inconsistent, and wildly unpredictable to their employees, and why so many
companies seem to believe is fine to force workers to choose between their own health and their wage
when they are sick. And this is why, just last week, we were at the Labor Committee, calling for
legislation that raises the minimum wage of tip workers to the same level as everyone else, telling
workers their schedule two weeks in advance, and expanding paid sick days.

Want to make workers’ lives better? For many, many things, it requires legislation. The only way to
create an even playing field in the labor market is by actually asking businesses to abide by some fair
labor standards.