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I really think trying to reason about labour markets using pure theory in a Hayek-Friedman-esque way is a dead end. It's the 2nd time in two days I made the re

I really think trying to reason about labour markets using pure theory in a Hayek-Friedman-esque way is a dead end. It's the 2nd time in two days I made the recommendation, but throwing Ronald Coase into the Neoliberal canon would help a lot. He was a "chicago school" academic from the same intellectual family, so it shouldn't be too much of a culture shock. He wan't like "progressives" in the "evidence based" sense but he also objected to first principles theory like Friedman. Instead, he tried to find persistent phenomenon and theorized about why they exist.There was always a link to the real world. Anyway, the pure theory approach leads to a general conclusion/assumption that markets are the same. The market for labour, barbie dolls, whatever. IRL, labour markets are obviously very different than most other markets. It's inflexible. People stay in jobs a long time and most employers actively try to lower their average turnover. Why? If flexibility is so wonderfully efficient, why do almost all companies have such a big inflexible workforce? Why is the market for labour so different in practice than the market for oral hygiene products and services. Why isn't Wall street staffed by day labourers or SV products built by quarterly contractors? You have to look past pure theory to answer these questions. I think you probably have to look beyond economics, or at least to its fringes (like behavioral economics).

ttoinou 9y ago
Anyway, the pure theory approach leads to a general conclusion/assumption that markets are the same. The market for labour, barbie dolls, whatever. Proof needed. Have you ever read Hayek or Friedman you're talking about ?
- DonbunEf7 9y ago
  Go to your whiteboard and draw supply-and-demand curves for a couple derpy markets of widgets and other goods. Then, draw one for labor. Note how the curves are reversed; if you draw it "backwards", then it goes back to behaving like a normal market. Now, try adding employment policies, like minimum wages, to the market; what happens to the curves?
  - CWuestefeld 9y ago
    To be fair, the labor market does have some gotchas. In particular, there's the phenomenon of "price stickiness", which is a big deal in labor (i.e., wage stickiness), but doesn't have nearly so much effect with other goods.
    - dalbasal 9y ago
      Don't bring Keynes into this! We're way to far in the weeds already.
  - ttoinou 9y ago
    "Pure theory" or Hayek / neoliberal theories don't seem to be just about perfect S/D curves and reasoning with S/D curves doesn't prove anything, it's just a visualization tool. I didn't understand why the curves are reversed ?
didgeoridoo 9y ago
Transaction costs. Both the employee (search costs, hours in the day) and employer (job training, search costs, process knowledge) incur far greater transaction costs than you see in commodity markets. Business models that lower transaction costs (e.g. "gig economy" middlemen) tend to lead to the emergence of highly flexible labor markets. This currently only applies to jobs that don't require a high level of nontransferrable knowledge, because nobody has yet invented an "I know Kung-Fu" machine that can transplant a company's 5 year marketing strategy into the head of a day-laborer CMO. None of this requires going outside pretty basic economic theory. Edit: I just realized this sounds like I'm explaining Coase theorem to the person who cited Coase. It's not for you, it's for others reading your comment. I'm disagreeing with your conclusion, not your premises.
- WorldMaker 9y ago
  There are labor market overhead costs that are often easily overlooked/under-appreciated too: tying one's health care, as one obvious example, to one's current employer necessarily undermines liquidity in the labor market. But more importantly: the overall inability in current culture to have "not working" as a legitimate and survivable labor position (for the majority of the labor force, at least) also threatens the liquidity of the labor market. Employers may fire at will, certainly, but as a laborer you can much more rarely quit at will without threatening your establishment in the labor market (Americans often question holes in resumes and may see them as moral failings), and your possible (even short-term) survival (health care, shelter, food).
  - jaggederest 9y ago
    Yes, the labor market is distorted precisely because it's not a negotiation between equals. Costs and benefits are disproportionately pushed onto the party with less leverage.
- CWuestefeld 9y ago
  Transaction costs. Of course. And I'm surprised that the post you're replying to didn't come out and say that, since he brought Ron Coase into the conversation. I mean, for Coase, the effect on markets of non-trivial transaction costs was really the core of his work, at least as I understand it.
tpeo 9y ago
Would you mind if I told you that you're not even wrong? First, neither Hayek nor Friedman were well known for contributions to labor market research. Hayek was well known for his critiques of central planning while Friedman was famous for his contributions to monetary theory. But my point is that these guys aren't "labor market economists", so taking an issue with them over labor market issues would be barking up the wrong tree. Plus, I don't see why "pure theory" should push anyone anywhere: constraints on model-building are actually quite weak. On the other hand, labor market models haven't become more like consumer goods market models over the years. If anything, the opposite has happened: labor markets are unique among other markets because of stuff like human capital, efficiency wages, signalling, gift exchange, searching costs, internal labor markets, non-cognitive abilities, poaching externalities, hedonic benefits of work, etc. This list isn't exhaustive. There are very fair and well-documented economic reasons why present day firms might want to put more money into their employees than a 19th century landowner hiring day-laborers during harvest would. Firms benefit from having (and keeping!) a skilled and well-motivated labor force, and so they act accordingly. Trying to look "beyond" economics if you haven't heard of any of those is just looking past it.
- dalbasal 9y ago
  They were both pretty wide, but I disagree. I think both touched on labour markets quite a bit. For example, "Friedman's" best known policy is negative income tax (earned income tax whatnots). Have a look at https://en.wikipedia.org/wiki/Natural_rate_of_unemployment https://en.wikipedia.org/wiki/Natural_rate_of_unemployment http://journal.apee.org/index.php?title=Spring2008_2 http://journal.apee.org/index.php?title=Spring2008_2
  - tpeo 9y ago
    Frankly, I think that in order for something to "touch on labor markets quite a bit", they'd have to at least dedicate a book to it. In the current day, David Card and Orley Ashenfelter might be said to have touched on labor markets quite a bit. Hayek and Friedman? Not so much.

ttoinou 9y ago

Anyway, the pure theory approach leads to a general conclusion/assumption that markets are the same. The market for labour, barbie dolls, whatever. Proof needed. Have you ever read Hayek or Friedman you're talking about ?

DonbunEf7 9y ago
Go to your whiteboard and draw supply-and-demand curves for a couple derpy markets of widgets and other goods. Then, draw one for labor. Note how the curves are reversed; if you draw it "backwards", then it goes back to behaving like a normal market. Now, try adding employment policies, like minimum wages, to the market; what happens to the curves?
- CWuestefeld 9y ago
  To be fair, the labor market does have some gotchas. In particular, there's the phenomenon of "price stickiness", which is a big deal in labor (i.e., wage stickiness), but doesn't have nearly so much effect with other goods.
  - dalbasal 9y ago
    Don't bring Keynes into this! We're way to far in the weeds already.
- ttoinou 9y ago
  "Pure theory" or Hayek / neoliberal theories don't seem to be just about perfect S/D curves and reasoning with S/D curves doesn't prove anything, it's just a visualization tool. I didn't understand why the curves are reversed ?

didgeoridoo 9y ago

Transaction costs. Both the employee (search costs, hours in the day) and employer (job training, search costs, process knowledge) incur far greater transaction costs than you see in commodity markets. Business models that lower transaction costs (e.g. "gig economy" middlemen) tend to lead to the emergence of highly flexible labor markets. This currently only applies to jobs that don't require a high level of nontransferrable knowledge, because nobody has yet invented an "I know Kung-Fu" machine that can transplant a company's 5 year marketing strategy into the head of a day-laborer CMO. None of this requires going outside pretty basic economic theory. Edit: I just realized this sounds like I'm explaining Coase theorem to the person who cited Coase. It's not for you, it's for others reading your comment. I'm disagreeing with your conclusion, not your premises.

WorldMaker 9y ago
There are labor market overhead costs that are often easily overlooked/under-appreciated too: tying one's health care, as one obvious example, to one's current employer necessarily undermines liquidity in the labor market. But more importantly: the overall inability in current culture to have "not working" as a legitimate and survivable labor position (for the majority of the labor force, at least) also threatens the liquidity of the labor market. Employers may fire at will, certainly, but as a laborer you can much more rarely quit at will without threatening your establishment in the labor market (Americans often question holes in resumes and may see them as moral failings), and your possible (even short-term) survival (health care, shelter, food).
- jaggederest 9y ago
  Yes, the labor market is distorted precisely because it's not a negotiation between equals. Costs and benefits are disproportionately pushed onto the party with less leverage.
CWuestefeld 9y ago
Transaction costs. Of course. And I'm surprised that the post you're replying to didn't come out and say that, since he brought Ron Coase into the conversation. I mean, for Coase, the effect on markets of non-trivial transaction costs was really the core of his work, at least as I understand it.

tpeo 9y ago

Would you mind if I told you that you're not even wrong? First, neither Hayek nor Friedman were well known for contributions to labor market research. Hayek was well known for his critiques of central planning while Friedman was famous for his contributions to monetary theory. But my point is that these guys aren't "labor market economists", so taking an issue with them over labor market issues would be barking up the wrong tree. Plus, I don't see why "pure theory" should push anyone anywhere: constraints on model-building are actually quite weak. On the other hand, labor market models haven't become more like consumer goods market models over the years. If anything, the opposite has happened: labor markets are unique among other markets because of stuff like human capital, efficiency wages, signalling, gift exchange, searching costs, internal labor markets, non-cognitive abilities, poaching externalities, hedonic benefits of work, etc. This list isn't exhaustive. There are very fair and well-documented economic reasons why present day firms might want to put more money into their employees than a 19th century landowner hiring day-laborers during harvest would. Firms benefit from having (and keeping!) a skilled and well-motivated labor force, and so they act accordingly. Trying to look "beyond" economics if you haven't heard of any of those is just looking past it.

dalbasal 9y ago
They were both pretty wide, but I disagree. I think both touched on labour markets quite a bit. For example, "Friedman's" best known policy is negative income tax (earned income tax whatnots). Have a look at https://en.wikipedia.org/wiki/Natural_rate_of_unemployment https://en.wikipedia.org/wiki/Natural_rate_of_unemployment http://journal.apee.org/index.php?title=Spring2008_2 http://journal.apee.org/index.php?title=Spring2008_2
- tpeo 9y ago
  Frankly, I think that in order for something to "touch on labor markets quite a bit", they'd have to at least dedicate a book to it. In the current day, David Card and Orley Ashenfelter might be said to have touched on labor markets quite a bit. Hayek and Friedman? Not so much.