4 ms·

Transaction costs. Both the employee (search costs, hours in the day) and employer (job training, search costs, process knowledge) incur far greater transactio

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.
dalbasal 9y ago
:) That's definitely a very Ronald Coasian answer! We should start that lobby to get Ronald Coase accepted into neoliberalism or novoliberalism or whatever comes next. I purposely didn't give the answer because I think there are possibly other explanations besides transaction costs and regulation (probably the more friedman-esque go-to). The reason I like his papers a lot is because of his questions. He has a Darwinian sort of approach. Why does the moth have such a strange beak. Lets look for the matching orchid. I think (don't know, speculation) labour markets are special in other ways, not just high transaction costs. A company is a society. People have loyalties and identity tied into it. We are a social animal in very fundamental ways. Our psyche handles the intricate nuances of human cooperation by default. Things happen in a team of people that know each-other, like each other or just think of themselves as part of a group that I think are fundamental to this question. I don't think transaction costs sums it up. I suspect group-oriented work plays a bigger role. Also employer-specific skillsets, though that probably can be lumped into transaction costs. Incidentally, I feel that "basic economic theory" tends to acknowledge transaction costs mostly as a caveat to basic models: "assuming no/low transaction costs," more often that actually accounting for it. I think this is also true for "economist hat" thinking. Coase complained about this a lot. Coase theorem is (at least to me) taught as a theory about bargaining and contracts solving problems like externalities. For Coase, the caveat was the "theorem." In the absence of transactions costs blah blah pareto optimals. externalities... He thought it was obvious that the pareto efficiency doesn't actually happen in reality, externalities continue. Therefore transaction costs must be high. To me, this is the big difference between Friedman and Coase. Friedman's a pure theory guy. The main opposition to this view today is a theory-less econometrics/evidence based "wonkish" analysis. Coase is a middle ground. Theories make predictions. In some cases they are good. In cases where they're not, we need theoretical expansion. Neoliberals tend to reach for "distortion" as an explanation far too often, and selectively IMO. (we're really in the weeds here, sorry)
- didgeoridoo 9y ago
  Huh. I think this highlights the fact (that I didn't realize until now, really) that I never really considered Friedman an "economist" in the strictest sense — in my view he's more of a normative political theorist, who uses economic models combined with empirical evidence from history to draw conclusions about policy. Though I'm politically & philosophically simpatico, I've never really looked to Friedman (or Hayek, for that matter) for practical economics.

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.

dalbasal 9y ago

:) That's definitely a very Ronald Coasian answer! We should start that lobby to get Ronald Coase accepted into neoliberalism or novoliberalism or whatever comes next. I purposely didn't give the answer because I think there are possibly other explanations besides transaction costs and regulation (probably the more friedman-esque go-to). The reason I like his papers a lot is because of his questions. He has a Darwinian sort of approach. Why does the moth have such a strange beak. Lets look for the matching orchid. I think (don't know, speculation) labour markets are special in other ways, not just high transaction costs. A company is a society. People have loyalties and identity tied into it. We are a social animal in very fundamental ways. Our psyche handles the intricate nuances of human cooperation by default. Things happen in a team of people that know each-other, like each other or just think of themselves as part of a group that I think are fundamental to this question. I don't think transaction costs sums it up. I suspect group-oriented work plays a bigger role. Also employer-specific skillsets, though that probably can be lumped into transaction costs. Incidentally, I feel that "basic economic theory" tends to acknowledge transaction costs mostly as a caveat to basic models: "assuming no/low transaction costs," more often that actually accounting for it. I think this is also true for "economist hat" thinking. Coase complained about this a lot. Coase theorem is (at least to me) taught as a theory about bargaining and contracts solving problems like externalities. For Coase, the caveat was the "theorem." In the absence of transactions costs blah blah pareto optimals. externalities... He thought it was obvious that the pareto efficiency doesn't actually happen in reality, externalities continue. Therefore transaction costs must be high. To me, this is the big difference between Friedman and Coase. Friedman's a pure theory guy. The main opposition to this view today is a theory-less econometrics/evidence based "wonkish" analysis. Coase is a middle ground. Theories make predictions. In some cases they are good. In cases where they're not, we need theoretical expansion. Neoliberals tend to reach for "distortion" as an explanation far too often, and selectively IMO. (we're really in the weeds here, sorry)

didgeoridoo 9y ago
Huh. I think this highlights the fact (that I didn't realize until now, really) that I never really considered Friedman an "economist" in the strictest sense — in my view he's more of a normative political theorist, who uses economic models combined with empirical evidence from history to draw conclusions about policy. Though I'm politically & philosophically simpatico, I've never really looked to Friedman (or Hayek, for that matter) for practical economics.