Employees can be protected by
government intervention from the behaviour of businesses in a number of ways.
Governments could, for instance, set minimum levels of pay, holiday
entitlement, and protected sick leave for employees. They could define the
processes whereby employees are disciplined or dismissed.
Governments could regulate the
entitlement to healthcare, pensions, or insurance of employees in such a way as
to protect employees. They could set minimum redundancy standards for employees
who were being laid off. They could protect employees whose business was
transferred to another employer because of a merger or takeover. They could set
rest periods, define times when employees were not expected to work, and
attempt to balance the power of employers against employees so that the latter
were not in an impossible position.
Governments could also intervene to
guarantee a right to trade union membership, to strike, to protest against
company policies, not to be subjected to restrictive rules during or after
employment, and to be free of excessive and harassing management, workplace
bullying, unsafe conditions, irrational requests, and excessive attempts to
surveil and control employees. Governments could seek to protect employees via
the law from discrimination.
All of these potential or actual
government interventions in the employment market have the effect of adding
costs in terms of time and human resources capacity to firms. They might do so
without any link to the output size of firms—small employers with relatively
low outputs might not be exempt—and would therefore be fixed costs. Fixed costs
decline on average as a firm gets bigger by output, and so the restrictions on
employers would create an advantage for larger employers for which the cost of
compliance would be lower.
If the protections only applied to
employees, those who were independent contractors might be forced into higher
insurance or left without protection, and firms might be encouraged to hire
people on a casual basis.
The way in which the government
formulated and applied the protections could create asymmetries and
inconsistencies in other ways and could give rise to a legal bureaucracy which
stifled innovation or productivity and encouraged employers to move elsewhere.
Employers could also pass on higher costs to customers, with a resultant
inflation, and further pressures on wages.
The way in which a government acted
could also have other, unintended effects. For example, in many economies, the
protections listed above were not gained because of government intervention.
Governments instead ratified or displaced trades unions, who secured the rights
and protections by striking against those companies or monopsonists who were
attempting to maximise profits at the expense of their workers.
A monopsonist ‘underpays’ workers,
for instance, by paying a wage at the average cost of labour but asking workers
to produce at the point where their marginal cost would otherwise meet the
marginal revenue product of their labour. In essence, workers are asked by such
employers to work harder for less than they deserve in terms of labour value.
Almost all employers divert some
labour value, since labour value is the only value added in production apart
from the return to an entrepreneur or business for bringing factors together
(ultimately a separate form of labour value.) Monopsonist attempt to
divert all but the bare minumum and maintain fewer workers than they would
employ at normal market prices to keep the threat of unemployment over the
workers. If government intervention simply meant that government allowed unions
to organise, and protected the right to strike, employers might be encouraged
to raise wages to the market equilibrium and employ more people on better terms
to ‘stave off’ strikes.
Such a policy could be
counter-productive because unions would then have an incentive to push their
wages and conditions to the maximum and to ‘lock out’ anyone else. In terms of
economic efficiency, legislating for protection at minimal average cost to
larger employers could be better for the economy.
Equally, if governments believed
that workers were underpaid, or that they were subject to poor life outcomes
because of their employment, they could choose to subsidise the workers or
create a set of simple minimum standards which did not add to costs. A minimum
wage would protect employers and employees from exploitative employers who
drove down costs and made jobs effectively into a form of slavery, for
instance.
Employers might find that protected
workers were more productive and more invested in the company, and that output
and revenues rose more quickly than costs. A bare minimum of protections for
holiday or sickness pay might not alter the operation of employers who offer
more than that in a competitive labour market, and could therefore raise
productivity and aggregate demand, and profits, and investment. The proposition
that employees should be protected is not therefore immediately one of higher
costs.
Even the provision via employers of
welfare benefits in addition to pay through national insurance schemes or
healthcare and unemployment insurance agreements is potentially something which
could improve productivity overall. Such schemes, which tend to work through
payments taken directly from wages, represent an efficient form of government
intervention in employment markets and are less complicated than tax credits or
complicated forms of subsidy.
On this basis, intervention in
near-employment markets, such as the provision of broadband so that employees
can work productively from home, or the subsidy and regulation of childcare so
that the supply of labour expands, are capable of being seen as both protecting
employees, boosting productivity, and benefitting employers more than the taxes
or minor inflationary pressures involved might increase costs. As in all
things, a balanced approach by government in consideration of employers and
employees could deliver the conditions for a thriving and more than functional
economy.
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