Invisible Hands, Invisible Objectives

Bringing Workplace Law and Public Policy Into Focus

Stephen F. Befort, John W. Budd

• Publisher: Stanford Economics and Finance
• Year: 2009
• ISBN:
  9780804771269
• Edition: 1
• Topic: Volkswirtschaftslehre
• Subtopic: Arbeitsmarktforschung

The global financial crisis and recession have placed great strains on the free market ideology that has emphasized economic objectives and unregulated markets. The balance of economic and noneconomic goals is under the microscope in every sector of the economy. It is time to re-think the objectives of the employment relationship and the underlying assumptions of how that relationship operates.

Invisible Hands, Invisible Objectives develops a fresh, holistic framework to fundamentally reexamine U.S. workplace regulation. A new scorecard for workplace law and public policy that embraces equity and voice for employees and economic efficiency will reveals significant deficiencies in our current practices. To create one, the authors—a legal scholar and an economics and industrial relations scholar—blend their expertise to propose a comprehensive set of reforms, tackling such issues as regulatory enforcement, portable employee benefits, training programs, living wages, workplace safety and health, work-family balance, security and social safety nets, nondiscrimination, good-cause dismissal, balanced income distributions, free speech protections for employees, individual and collective workplace decision-making, and labor unions.

Invisible Hands, Invisible Objectives is not just another book that sketches a reform agenda. The book provides the much-needed rubric for how we think about employment policy specifically, but also economic policy more generally. It is a must-read in these most critical times.

PART ONE

Workplace Law and Public Policy

The world is suffering, today, from an industrial yellow fever, not less fatal, but I am certain, as preventable. Search for the mosquito! That ought to be a slogan with investigators on both sides of the labor question.

—Mother Jones, 1913

CHAPTER 1

The Goals and Assumptions of Workplace Law and Public Policy

The Need for Explicitness

THE HEADLINES ARE FAMILIAR: “Survey Finds 43.6 Million Uninsured in U.S.” “Wal-Mart Looms over Two Bills to Improve Worker Health Care.” “After Years of Growth, What about Workers’ Share?” “Thousands Are Laid Off. What’s New?” “Job Discrimination Complaints on the Rise.” “Suits Allege Pay Violations at Restaurants.” “As Demands on Workers Grow, Groups Push for Paid Family and Sick Leave.”¹

It is therefore not surprising that calls to reform the U.S. legal regulations and public policies pertaining to work and the employment relationship are reaching a crescendo.² And there are signs that the political landscape might finally be ripe for significant policy reform—the increase in the federal minimum wage in 2007, for example, was the first such increase in a decade. Missing from all of the arguments and proposals, however, is a conceptual basis for understanding alternative perspectives on government regulation of the employment relationship and for designing effective laws and public policies.

The principal objective of this book is to provide such a conceptual basis. We start with what we believe is a simple yet powerful and overlooked principle: the rationale for government regulation of any market-based activity is rooted in the intersection of the objectives of that activity and its operation. Introductory economics courses, for example, typically teach that government regulation is desirable only when regulation is able to fix a market failure. Underlying this result are assumptions about specific objectives (the efficient allocation of resources) and operational features (rational agents pursuing economic self-interest in markets that ideally are perfectly competitive). Assuming different objectives (such as a fair allocation of resources) or operating features (such as individuals seeking psychological fulfillment) can yield very different prescriptions for government regulation. Workplace law and public policy, therefore, must be understood, analyzed, studied, and reformed within a framework of (1) explicit objectives of the employment relationship, and (2) explicit models of how the employment relationship works.

Unfortunately, this is usually not how workplace law and public policy is approached. Although scholars and policymakers may seek various ends and objectives in workplace law and public policy (and many are possible), they often fail to articulate them explicitly. Too often, law students are trained in the letter of the law and human resources students are trained in its application, but neither group is educated about the fundamental purposes of workplace law and public policy. A deeper understanding of either field requires the recognition of foundational objectives. Otherwise, administration of a policy is reduced to a myopic satisfaction of rules at the expense of a deeper fulfillment of critical objectives. The failure to identify fundamental objectives similarly causes policy debates to focus narrowly on incomplete or misguided objectives. For example, the failure to recognize that the ultimate purpose of a strike replacement ban is to achieve goals that we term “equity” and “voice” has reduced the debates over such bans to technical squabbles over whether a replaced striker has been fired or not, and to narrow disputes over whether such bans cause longer strikes and reduce investment. Although such questions are important, they ignore the fundamental questions of whether a strike replacement ban would promote equity and voice.

Compounding the problem of obscured objectives is the problem of unstated models of how the employment relationship works. As we show later in this chapter, one can believe that the employment relationship works in very different ways: labor markets may or may not be perfectly competitive; employees can be seen as seeking only economic rewards or as also wanting psychological and democratic fulfillment; and employers’ interests might align or sharply clash with their employees’ interests. These different conceptualizations underlie dramatically different visions of workplace law and public policy, but these visions too often lack explicitness. As a result, students and the public fail to fully understand workplace law and public policy while scholars, policymakers, and advocates from different perspectives talk past each other in their academic analyses and policy debates.

By emphasizing the pursuit of efficiency through the invisible hand of free markets, the neoliberal market thinking that currently dominates public discourse further stifles explicit discussions of employment relationship objectives while also obscuring alternative perspectives on how the employment relationship works. In other words, the area of workplace law and public policy has been reduced to an arena of invisible hands, invisible objectives. Bringing workplace law and public policy into focus requires recognizing that workplace law and public policy is rooted in the intersection of the objectives and the operation of the employment relationship. The central thesis of this book, therefore, is that understanding, analyzing, studying, and reforming workplace law and public policy requires recognizing explicit objectives and explicit models.

Explicit Objectives

Workplace law and public policy need to have an overarching purpose tied to the fundamental objectives of the employment relationship. These objectives provide the anchor for discourse and analyses of public policies on work. Without this anchor, there is little basis for evaluating whether current employment and labor laws need reform, and there is no foundation on which to build new policies. The long-standing emphasis in scholarship and policy debates on how processes work must therefore be replaced by a deeper discussion of what employment should achieve in a democratic society.

Analyses, debates, and reform proposals pertaining to employment-related public policies should purposefully revolve around the objectives of the employment relationship. But what are these objectives? We follow the framework developed in an earlier book and structure our analyses around a triad of fundamental objectives (see Figure 1.1): Efficiency: effective, profit-maximizing use of labor and other scarce resources;

Equity: fairness in the distribution of economic rewards, the administration of employment policies, and the provision of employee security; Voice: meaningful participation in workplace decision-making.³

Efficiency is a standard of economic or business performance; equity is a standard of justice; voice is a standard of employee involvement in shaping their lives. Note that voice is independent of distributional issues; it is an activity in which workers engage. Equity and voice can be pursued together (as in labor unions) or through different mechanisms (as in minimum wage standards for equity and employee free speech protections for voice).

FIGURE 1.1 The objectives of the employment relationship. Source: John W. Budd, Employment with a Human Face: Balancing Efficiency, Equity, and Voice (Ithaca, N.Y.: Cornell University Press, 2004).

The framework of efficiency, equity, and voice is a powerful one. Collectively, these three dimensions succinctly capture the key objectives of the employment relationship; individually, they allow for a wide range of underlying components. This framework can therefore be used to compare employment systems in different countries, analyze different labor union strategies, evaluate options for workplace dispute resolution, analyze international initiatives for improving labor standards on a global basis, and teach courses on labor relations.⁴ In this book, we apply this powerful framework to employment-related public policies. We assert that workplace law and public policy can be fully understood only by analyzing the effects on competitiveness and productivity (that is, efficiency), on the fairness of the distribution and security of economic rewards (equity), and on opportunities for workers to shape their working lives (voice). In effect, efficiency, equity, and voice provide an explicit scorecard for work-related public policies. Part Two of this book applies this scorecard to the contemporary U.S. system of workplace law and public policy; additional details on the dimensions of efficiency, equity, and voice are developed and discussed at that time.

Admittedly, we are not the first to call for a more purposeful approach to analyzing workplace law and public policy. More than twenty years ago, noted Harvard law professor Charles Fried wrote that “the time has come for a review of the premises, and not just the details, of our employment-law system” and that “we should consider afresh what goals such a system should seek to attain.” The goals Fried noted specifically are “freedom of association; the provision of a social minimum of resources; the redistribution of proprietary rights in the products of labor; job security; freedom from harassing, demeaning, and arbitrary treatment; industrial democracy; efficiency; and industrial peace.” In effect, these goals reduce to considerations of efficiency, equity, and voice. Another noted Harvard law professor, Paul Weiler, has argued that employment and labor law reform needs to be based squarely on the objectives of workers. Paul Osterman has identified efficiency, equity, opportunity, voice, and security as the labor market objectives that public policies should shape. A distinguished team of MIT researchers has argued that “it is time to revisit and recommit to the core values regarding the role of work and its place in society” and that policy reforms must be “constantly [tested] against these values.” Ellen Dannin also has forcefully advocated for a values-based approach to reforming U.S. labor law.⁵ We applaud these efforts, but they are exceptional rather than the norm. As such, we believe that there remains a void that can be filled by the framework we develop here.

Some might disagree with our specific employment relationship objectives. Marxist and other critical scholars might criticize the omission of power in our employment relationship objectives. To this we respond that power is not an objective in its own right. This is not to say that power issues are not important. Each country’s system of workplace law and public policy is shaped by power dynamics in the political process, and employee power is critical for delivering equity and voice—just as free markets underlie efficiency. But power and free markets are not ends in themselves, and they are therefore not explicit objectives. More generally, regardless of the specific objectives used, it is essential that scholars, activists, and policymakers explicitly identify the desired objectives and ground their research, proposals, and policies in them. Otherwise, there is little basis for analysis, understanding, and debate. Note further that efficiency, equity, and voice (or other objectives) can be used analytically to understand the employment relationship without normatively judging the relative importance of each dimension. In Part Three, we apply this analytical framework to the normative challenge of assessing how workplace law and public policy should work. There we argue that efficiency, equity, and voice should be balanced. While some might disagree with our normative recommendations in Part Three, the analytical power of focusing on these explicit objectives of the employment relationship is not weakened by such disagreements.

Explicit Models

Public policies on work and the employment relationship consist of laws and regulations establishing labor standards with which employers and employees must comply. But embedded in these public policies is a deeper issue—what are the rules for making the web of workplace rules that define each person’s employment? How are the literal rules of behavior as well as broader written and unwritten policies regarding compensation, benefits, advancement opportunities, and other “rules” determined? Are they mandated by government laws? Are they dictated by the marketplace? Are they established unilaterally by managers and human resources professionals, or by workers themselves? Or do they result from negotiations between employers and labor unions or other employee associations? Each of these possibilities represents a different form of workplace governance.⁶

Public policies critically affect the nature of workplace governance not only by specifying standards for some workplace “rules”—such as those requiring minimum wages and nondiscriminatory hiring and firing—but also by establishing the broader parameters of workplace governance. A general lack of work-related public policies leaves workplace governance in the invisible hand of the marketplace and the visible hands of human resource managers and common-law judges. Extensive government-mandated standards insert lawmakers into workplace rule-making. And the legal protection or promotion of labor unions or other employee associations can create a shared model of workplace governance, such as through collective bargaining or mandatory employee consultation.

The different forms of workplace governance are rooted intellectually and analytically in four visions or models of work—the egoist, unitarist, pluralist, and critical employment relationships. As summarized in Table 1.1, these four frames of reference differ along three dimensions : (1) the extent to which markets are seen as perfectly competitive, (2) whether labor is seen as just an economic commodity, and (3) the nature of conflict (or lack thereof) assumed to characterize the employment relationship. Understanding these fundamental perspectives is essential for understanding the employment relationship generally, and workplace law and public policy specifically.⁷

The egoist model of the employment relationship is derived from mainstream economics and is driven by rational, individual self-interest, especially as pursued through market-based economic transactions. Labor is conceptualized as a commodity like any other useful resource, and work is conceptualized as a lousy activity that individuals endure only to earn income. As such, there is not a conflict between employers and employees; rather, they simply engage in voluntary, mutually beneficial transactions buying and selling units of labor as in any other free-market transaction. In short, economics sees itself as “a science of exchange rather than production” or conflict, and assumes that “both parties must benefit from voluntary exchange; otherwise that exchange would never have occurred in the first place.”⁸ Our egoist label is therefore not intended as a pejorative term with negative connotations; rather, it is intended to highlight the centrality of self-interest rather than benevolence or conflict. In the famous words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”⁹

TABLE 1.1 Four Explicit Models of the Employment Relationship

Model	Key Assumptions	Workplace Law and Public Policy Applications
The Egoist Employment Relationship / Neoclassical Economics	Markets are perfectly competitive, so employers and employees are equals and must abide by the market	Pre-1930s “old deal” and current global era with emphasis on free markets, individual liberty, and personal responsibility
	Labor is just an economic commodity; employment is an economic transaction
	Voluntary, self-interested, mutually beneficial transactions, not conflict, define the employment relationship
The Unitarist Empl...