Imperfect markets and worker exploitation

Being happy at work or even taking pride in your work is such an old fashioned idea. These days, we regard work as exploitation. You certainly won't catch anyone smiling as they do their tasks. They're too afraid that the employer will just cream off all the profit and pay himself CEO wages that are 350 times what the real workers are earning. Perfectly competitive markets, if they existed, would fix this problem. Workers would not be exploited because they could simply move on to another employer who's willing to pay them what they think they're worth, in their own estimation of their true value.

On several grounds the employed person has reason to fear that [his relationships with the rest of society and with the employer] will be relationships of inferiority for himself.

One ground is that in the fixing of his pay he is liable to be exploited. If he has access to a number of employers, and they compete with one another, then he is unlikely to have to sell his labor below the value that the market puts upon it: if his day’s work is worth $20 to employers, in the sense that they would reckon it just worth having even though they paid $20 to get it, then if one of them will not pay $20 for it, another will. But if he has access only to one or two employers, or if the potential employers, however numerous, maintain an understanding that they will not pay more than so much, and not poach labor from one another, then his case is very different.

E. H. Phelps Brown, The Economics of Labor (1962) 32,33.

​If one employer declined to pay market wages, the worker would just go and work for the competition. But we know that markets are not perfectly competitive and that naughty employers connive to keep wages down if they can. We know this because it's pretty obvious, and also because Adam Smith wrote about it long ago in The Wealth of Nations:

​We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform, combination, not to raise the wages of labour above their actual rate. To violate this combination is everywhere a most unpopular action, and a sort of reproach to a master among his neighbours and equals.

So it's obvious that markets are not perfectly competitive. If employers can get away with it they will tacitly collude to keep wages down. They won't be hiring workers and trying to pay them as much as possible, doing everything they can to drive wages up.

​This reality is very disappointing. It causes many people to say that since imperfect markets yield conditions ripe for workers to be exploited, we ought to replace markets with some form of regulatory control. Hang on. Let’s go back for a moment and see what life was like before markets sprang into being fully formed but woefully imperfect – let’s see if the alternative to imperfect markets is a nice and rosy system of command and control where every worker gets the wage they deserve.

​I’m afraid it’s not good news. Before there were imperfect markets, pretty much everyone was a slave. The only way to not be a slave was to own a ginormous landed estate and be a chief or a duke or something like that with slaves of your own. Without land, and in the absence of a market in which you could exchange your labour for money, you pretty much had to be a slave. There were literally no other options available. Hopefully you had some skills, but if not, too bad because nobody would train you – you had no money to pay them and they weren’t going to train you for free out of the goodness of their heart. If you were their slave they might train you because then you could do some skilled work for them and you wouldn’t leave them to go work for someone else (because, obviously, you were a slave so leaving was out of the question). Life really sucked. I don’t think people who rail against imperfect markets realize how much better markets are than the alternative, which is no markets. That’s how it was in the age of pre-history.

​The chief form [of work] was slavery. This comprised a great variety of arrangements whose common base was property in manpower: one man owned the skill and energies of another who could not end or vary that relation of his own volition. The slave’s lack of freedom exposed him at the worst to ruthless exploitation and death itself, but it was also compatible with a relation of reciprocal obligation between master and man, and, until about a thousand years ago, it provided the working arrangements under which a great part of the labor force – including some of the most skilled – was organized and motivated. These arrangements ran through every field of employment.

E H Phelps Brown, p. 12.

Of course we have a few more options available today; instead of going back to slavery (worst option) or staying with our imperfect markets (better option but still not quite utopia) we could introduce a bureaucratic system of fair wage regulation and wealth redistribution. This would be utopia, at long last. God knows we've all waited long enough. It's about time. It would be expensive, but that's fine because there are rich people who can be made to volunteer to pay for it. Oxfam reports that the world's richest people are hiding $7.6 trillion in a global network of tax havens. $7.6 trillion! Think of how much equality and fair pay we could achieve if we retrieved that slice of the economic pie and made it available for redistribution. Then nobody would have to fling themselves head first into the market to work for a living at the best wage they are able to secure.