Bryan Caplan  

If You Don't Like It

Do Economists Study Money?... You Come to Resemble Your Cust...
Suppose your boss screams all the time, has extremely bad breath, or requires all his employees to speak in a faux British accent.  Even today, the law usually offers you no recourse - except, of course, for "If you don't like it, quit."  Discrimination law has carved out a list of well-known exceptions to employment-at-will.  But "If you don't like it, quit," remains the rule. 

While researching firing aversion, I came across an interesting piece by Mark Roehling showing that few American employees realize that the law affords them almost no protection against discharge.  Empirically, his work seems sound.  But Roehling also clearly wishes that American workers had the kind of legal protection they falsely believe they already possess.  Yes, he admits, employment-at-will has some academic defenders:
Legal scholars adopting classical or neoclassical contract law perspectives argue that employment at-will is justified in that it preserves the principle of freedom of contract, promoting efficient operation of labor markets and advancing individual autonomy (e.g., Epstein, 1984).
The standard rejoinder to this argument is that employees' "consent" to at-will employment is, in many instances, neither voluntary nor informed due to inequality in bargaining power between employers and employees and asymmetric information (i.e., the lack of equal information about future risks and the effect of at-will disclaimers) that both tend to favor employers (Blades, 1967). These defects in the bargaining process, it asserted, cause at-will employment to be both inefficient and unfair.
How solid is Roehling's "standard rejoinder"?  Let's start with "inequality in bargaining power."  Sounds sinister.  But we could just as easily say, "some people have more to offer than others - and the more you have to offer, the better a deal you'll get."  Then it sounds utterly trivial. 

In any case, what would the economy look like if people could only make deals when they happened to have "equal bargaining power"?  Almost all trade would be forbidden.  Parties have equal bargaining power about as often as they have equal heights.  The beauty of the price mechanism is that it persuades unequals to trade by giving parties with more to offer a sweeter deal.

Roehling's invocation of "asymmetric information" is even more off-target.  In any standard asymmetric information model, the effect is not to "favor" parties with more information, but to scare off parties with less information, leading to fewer trades and making both sides poorer.  The upshot: If the law somehow solved the asymmetric information problem, the result would be a big increase in labor supply - presumably making Roehling's first problem - unequal bargaining power - even worse.

Still, Roehling's intuitions are clearly widely held.  My question for people who share his intuitions: Why don't the same arguments make you want to tightly regulate the dating market?  With a few exceptions, modern dating markets are based on a strong version of "If you don't like it, break up."  People's complaints about romantic partners are endless: "He's mean to me," "She nags me," "He's cheap," "She won't have sex before marriage," etc.  Yet prior to marriage, "If you don't like it, break up," is virtually your only legal recourse.

If you take Roehling's "unequal bargaining power" or "asymmetric information" rejoinders seriously, current rules of the dating market should outrage you.  Think about the inequality of bargaining power between, say, Channing Tatum and an unattractive single mom who cleans hotel rooms for a living.  He has movie star looks, magnetic personality, fabulous riches, and millions of female fans; she's ugly, poor, alone, and responsible for her child's support.  As a result, he could practically dictate the terms of any relationship.  Does this mean she should have some recourse beyond, "If you don't like how Channing treats you, break up"? 

The same goes for asymmetric information.  People keep all kinds of secrets from those they date - past relationships, current entanglements, income, philosophy, whether they'll ever commit.  And again, people's ultimate legal threat against romantic partners' concealed information and dishonesty is only, "If you don't like it, break up."

You could say we have a double standard because personal relationships, unlike work relationships, are too complicated to regulate.  Maybe so, but I doubt it.  Work relationships are incredibly complex, too.  It's almost impossible to objectively define a "bad attitude," but no one wants to employ someone who's got one.  You could argue that if we regulate one aspect of unequal bargaining power in the dating market, it will just resurface elsewhere.  But that holds for the labor market as well: If the law requires employers to provide health insurance, they'll obviously cut wages to compensate.  The simple story works best: The apparent double standard is real.  Since people resent employers, they're quick to rationalize policies that tip the scales against them - even if employees ultimately bear the cost.

"If you don't like it, quit" and "If you don't like it, break up," sound unappealing - even heartless.  But in the real world, it's hard to do better.  In any case, trying to "do better" is probably unjust.  The fact that Channing Tatum has incredibly high value in the dating market is a flimsy excuse to restrict his freedom to date.  And the fact that Peter Thiel has incredibly high value in the labor market is a flimsy excuse to restrict his freedom to hire.  Instead of complaining about the stinginess of people who have lots to offer, we should celebrate the universal human right to say, "I don't want to see you anymore."

Comments and Sharing

COMMENTS (36 to date)
Steve_0 writes:

"He's just not that into you."

Tom P writes:

I think we can give a friendlier interpretation to Roehling's terms.

"Bargaining power": you spend many years working for a firm, developing human capital that is useful only at that firm. The firm effectively has monopoly power over you.

"Asymmetric info": Yes, one effect of asymmetric info is to scare off market participants. But the more informed parties still benefit. Think about how insider trading makes some stocks illiquid.

Probably the strongest argument against "fire-at-will" is that most people (apparently!?!) don't understand that it's the law, and hence get ripped off. Maybe we could educate them better, however.

Peter H writes:

the law affords them almost no protection against discharge.

This isn't quite true. While it is indeed incredibly difficult to obtain damages for wrongful termination, an employee has substantial means to seek vengeance on the former employer through the legal system, and ex-employees often use these means to extract settlements and other monetary gain.

There are 2 means by which a terminated employee can cause harm to an employer. The most obvious is to file a wrongful termination suit. Even a wholly frivolous wrongful termination suit can be very expensive to defend, potentially costing tens of thousands in legal fees. Even if a court orders the ex-employee to pay those fees, they're generally judgment proof due to lack of income (they just lost their jobs remember) and frequent lack of assets. Additionally, a wrongful termination suit can be coupled with other claims of harm, including unsafe working conditions claims, harassment (sexual or otherwise) and many other things that are costly to defend and may be impossible to disprove. In many cases, it's much cheaper to settle and pay the ex-employee to drop the suit than to prove that they're lying.

The second means of revenge is to make an unemployment insurance claim. Each UI claim by an ex-employee raises mandatory UI premiums paid by the employer. Ex-employees terminated for cause are not eligible for unemployment insurance, however like with a wrongful termination claim, they have a strong incentive (to the tune of $400/month) to falsely claim that the termination was not for cause. Likewise, employers have an incentive to make up causes for termination as opposed to termination without cause, to keep UI premiums down.

Ybell writes:

I think the so-called double standard is justified in the case of the very poor, but you may be right that it is irrational in the labor market as a whole.

For the very poor, being fired leads to a very sharp decrease in the quality of life, one that harms you and your family. Your "exit voice" in a market with many substitutes is very weak.

For the very ugly (only in the sense of having the collection of socially undesirable traits), however, the same does not apply. Yes, being alone is terrible, but it is not as terrible as being hungry. Also, if we assume that people generally adapt their tastes to their looks (an interesting phenomenon that has not been adequately researched as far as I know), your partner is in the same general category as you are, so you are more likely to have a stronger voice.

Peter H writes:

Tom P,

Re: Bargaining power

That firm-specific knowledge cuts both ways. If I know my boss has been cooking the books, I can exact alot of damage if I'm not kept happy. In a more mundane case, to replace my work output, my employer has to train someone else to have that firm-specific knowledge.

Re: asymmetric info

I'm not sure how your example of insider trading causing illiquidity opposes Bryan's case about scaring off market participants, or supports som alternate and complimentary fact. An illiquid market is almost definitionally a market lacking sufficient participants.

Removing at-will employment would result in a labour market much like those we see in countries that have removed at-will employment. Most other western democracies have this, though not all. Additionally, the degree to which at-will employment exists varies by state a bit in the US (and likewise varies by province in Canada).

John David Galt writes:

There's a good reason for what you call the "double standard."

To put it simply, a job is a necessity; that is how employers get away with butting into your personal life habits that are none of their business.

In the dating market, even between two "unequals," any decision directly affects the personal lives of both partners. Thus, I and many others believe they have the moral right to make the kinds of arbitrary, discriminatory choices that an employer (whose personal life is NOT at stake) does not. (If the employer were hiring a confidential personal servant, that case would be an exception, and I think everyone accepts that.)

Substitute "landlord" for "employer" and I submit that the argument works the same way. The person whose personal life is not affected by the relationship should be limited to protecting his gross economic interests and nothing more.

Bryan Willman writes:

Both employment and dating suffer from the "if you make it too onerous, people just won't hire or date at all."

That's why firing limitations never actually help people as a whole. (see the troubles in Europe.)

Likewise with landlords - if you make it too painful to evict, the availability of apartments and rental houses will be suppressed.

In short, substituting "fire at will" with "can never get hired in the first place" isn't an improvement.

DK writes:

A mysterious paradox: 99% of academics that defend employment-at-will as essential also think that a system of tenure sinecures is sacrosanct.

The asymmetry is far more damning with an employer, if you ask me.

If you leave your job because it is crap, you have a limited period of time in which to seek new employment before you start suffering real and serious consequences that actively threaten the well-being of your family.

Meanwhile, your former employer probably has not suffered anything at all. Instead, they simply heaped your work on other existing employees, who were too meek to say anything about it. Later, when those employees start complaining, they may hire a replacement for you.

Similarly, if a prospective employer offers you a job with low pay and no benefits where workplace safety is a distant afterthought, the pressure is constantly rising from all sides to just take whatever you can get.

Meanwhile, I've been seeing a lot of complaint in the social networking sphere about how a lot of men have simply insane standards now, because when you can spank it to Leelee Sobieski or Milla Jovovich or Noomi Rapace - or, what the hell, all three - on Netflix every night for $8 a month... why bother with a real woman? After all, if it was a real person you couldn't just hit "stop" and go to sleep when you're done.

The real problem is that people want jobs which pay a lot of money for very little effort, require minimal education or experience, and don't carry significant risk. But since a monkey could do those jobs, you'll get paid a monkey's wages. Most of the people whinging about how they can't FIND a good job are in that boat precisely because they can't DO a good job. So they have no leverage, and they can't pressure anyone to do anything because they're basically begging to be the scratch monkey on the next test.

It's worth noting that while we have laws that say your employer can't fire you or take action against you because of your gender, race, or nationality... they're still perfectly capable of firing you or taking any other action they want for absolutely no reason at all. When you can fire someone because "I just felt like firing someone today," anti-discrimination laws are meaningless. (Besides, wouldn't you rather have the employer say out loud that he doesn't hire Jews, thereby saving every Jew who might want to work there the wasted effort of putting in an application?)

Tracy W writes:

Ybell - but for a very poor person to not have a job in the first place is also very harmful. Why should policy favour those very poor already with jobs and harm those very poor currently without them?

Caliban - but an employee has the option of starting to look for a job while already employed.

Dave Churvis writes:

Excellent arguments here, but I have one minor quibble with your analysis of asymmetric info. You claim that information asymmetry serves as a mechanism to "scare off" less-informed market participants, but I am skeptical about that. Specifically, it would seem likely that a less-informed participant would very probably not realize that they are less-informed. In order for the LIP to recognize the asymmetry, the MIP would have to broadcast the fact that they have secret information, and somehow I doubt this is a common bargaining tactic. So it would seem to me that information asymmetry serves to reinforce power imbalances more than it serves to equalize participants, as you seem to claim.

[broken url corrected. www, not wwe. --Econlib Ed.]

Slocum writes:
A mysterious paradox: 99% of academics that defend employment-at-will as essential also think that a system of tenure sinecures is sacrosanct.

Nonsense. Or do you have Bryan Caplan on record arguing that tenure is 'sacrosanct'?

david writes:

Unequal bargaining power is between buyer and seller, not between buyers and between sellers.

Michael writes:

On unequal bargaining power, Simmel gets it:

"In the last analysis, the whole vast range of commodities can only be exchanged for one value, namely money; but money can be exchanged for any one of the range of commodities. By contrast with labour, which can rarely change its application, and the less easily the more specialized it is, capital in the form of money can almost always be transferred from one use to another, at worst with a loss, but often with a gain. The worker can hardly ever extricate his art and skill from his trade and invest it somewhere else. By comparison with the owner of money he is at a disadvantage so far as free choice is concerned, just as the merchant is."

Georg Simmel, The Philosophy of Money

DrLiberty writes:

Dating is considered a "civil issue" and employment relationships an "economic issue". These days there seems to be more of a tendency towards protection and expansion of freedom in the civil arena than the economic arena. For example, look at the wonderful trends in public opinion of gay marriage.

I do not support that way of thinking, but it does seem to be prevalent.

andy writes:

I always answer to this argument: do you mean, that virtually all employment contracts - especially those signed by poor employers - are supposed actually null and void? Do you mean, that poor people are not able to sign a valid employment contract - that we should treat them like children?
If not - what't the argument then?

Tracy W writes:


Georg Simmel's argument is wrong on two points.

Firstly, as a empirical matter, workers often extricate their art and skill from their trade and invest it elsewhere. Often without going back to school. I've changed from working for the government to working for the private sector, to a job in software, to a job in the energy sector, and those are merely my professional jobs. I remember two years after graduating from engineering school going to a wedding of one of my classmates. There were 14 of us there from engineering school, counting the groom, and we worked out that only one of us was actually working as an engineer. My parents both changed careers during my childhood. One of my brothers has, the other is a chef and has no problems at all changing jobs.

Secondly, Simmel talks about capital in the form of money. But much capital is not in the form of money. A McDonalds restaurant for example is a bunch of fixed capital that is expensive to convert to another form. A car factory or a power plant or the capital embodied in the software behind Microsoft Word even more so. The owner of a car factory has far more problems changing his capital into a new format than the employee of a car factory.

And how many capitalists own large amounts of money? Money is easy to convert to one form to another, but you don't get a good return on your money. If you want a good return, you need to lend it to someone else, who will then convert it to some sort of fixed asset (or spend it on consumption). Getting the money back from the borrower can well be difficult. You might have security against the loan, but if the borrower goes bust then selling that asset is time-consuming and costly. You might be able to resell your bond, or share, if the market is liquid, but if the borrower is in difficulties then the price at which you sell is likely to be lower than the price at which you bought.

Sometimes people do hire people with low capital investments, the obvious example for me is that I hire a cleaner for my home, whose wages cost me far more than the cleaning supplies. It would indeed be easy for me to fire her and spend the money on something else. But I'm a worker, I'm paying her out of what I earn in the labour market. The split between worker and "owner of money" doesn't make sense to me in this sort of case (obviously some people who employ cleaners and the like are living off capital, not labour).

Simmmel comes across as quite ignorant of both workers and capital.

ajb writes:

The standard comment about tenure shows ignorance of what economists advocate. Most would prefer a system where schools could choose to offer tenure with lower pay or a five year contract with higher pay. In fact, high value profs like Levitt have explicitly offered to take such a contract. Unfortunately, AAUP rules and current norms forbid it. The problem is not tenure but the inability of schools to tailor contracts to the individual. As it stands the fact that tenure in research schools does not even guarantee you a salary level and does not protect you from differential pay relative to your colleagues makes the US the academic outlier compared to most nations where tenure is given from the first employment (no problem of assistants having to "make" tenure) and salary scales are fixed.

andy writes:

There's also the well-known problem, that the more 'protection' the workers have, the less competitive the market is and therefore more and more assymetry is involved. Regulation breeds new regulation.

Yancey Ward writes:

It all comes down to the concept of ownership. People who work for separate employers inappropriately believe they own the job in the case of an employment at will, though that is just basically a contract renewed day to day. This is a cultural fault, and I don't see a real solution other than better education about what a contract means. Mandating changes to give what amounts to a lifetime employment contract with the option to leave held by the employee is no solution we should want, but I guess we need to relearn the lesson from time to time.

Glen Smith writes:

Most people have to work for someone to live while almost no one has to date to live.

Tracy W writes:


Simmel gets it wrong in two ways.
Firstly, as an empirical matter, I see people switching trades all the time, even in specialised jobs. Two years after graduating from engineering school I attended the wedding of one of my classmates, there were 14 of us there from engineering school and only one was actually working as an engineer. I then went on to switch trades again about 4 times before settling in the energy sector (for now). I'm not unusual amongst my friends.

Secondly, while capital in the form of money may be transferred from one use to another, capital in other forms isn't. A McDonalds restaurant is not easily converted to another form of restaurant. The money Microsoft has put into building its Windows software is even less transferrable to another form.

I might be at an advantage when hiring a house cleaner, as the money I spent on her wages is something I could easily spend in a different way, and I'd buy cleaning supplies anyway, and the cost of them are trivial compared with her wages. BUt I note that I earn that money as a worker myself, so the "owner of money"/worker split doesn't really make sense to me.

Lorenzo from Oz writes:

There is only one answer to general legal protection from "bad" firing -- Do Not Go There!!!! This policy experiment has been tried across Europe and it is NOT in the general social interest. It protect incumbents against outsiders--those outsiders including essentially all young people.

So, if you want to turn your labour market into a rigid, exclusion nightmare for the young and otherwise marginalised, adopt employment "protection". And a particular nightmare for small business, especially starting a small business.

Otherwise, a society is much better off with employers willing to take a risk with folk because they can sack them if it does no work out.

Dan Weber writes:

"Even if a court orders the ex-employee to pay those fees, they're generally judgment proof due to lack of income"

The employer can also challenge the employee's unemployment application.

The default arrangement is that the employer tells the worker not to show up, and the worker gets UI while searching a new job. Both sides have something to lose, so both sides have reason not to engage in pointless litigation.

It's not perfect. But it works.

"The second means of revenge is to make an unemployment insurance claim"

Ugh. This isn't revenge. This is how the system is designed. Just like at-will employment is how the system is designed.

John Roccia writes:

People should be more aware of the fact that every single person owns a business. For many people, that business sells Hours of Labor.

From this standpoint, lots of things make more sense. You sell your product (Hours of Labor). Like any business, you can't force people to buy your product, nor should you be able to. You also can't force people to KEEP buying your product if they don't like it anymore; nor should you be able to. Unless, of course, someone who is buying your product agrees to a contract stating such.

You also should be able to sell your product at whatever cost you like. No one should be able to dictate to you what cost you sell your product at. Imagine, for example, that you have two restaurants next to each other. McDonalds and a Five-Star Steak place. If the government said that no restaurant was able to charge less than $50 for an entree, McDonalds would go out of business, because no one would pay that much for a Big Mac. But by deciding to lower prices, they can cater to a different market and compete with the Five-Star place. Shouldn't your business, selling Hours of Labor, have that freedom?

If a business wants to charge more for their products, they have to invest in the production of that product to make it more attractive. Same with your business - if you want to charge more for your brand of Hours of Labor, you need to make them more attractive; maybe by demonstrating past satisfied customers, or maybe by increasing their actual value through learning new skills. But no business can just charge more for their products and then force people to pay the higher price because they feel social justice entitles them to more.

Consider a fellow that opens his own Dry Cleaning business. He can charge whatever he wants, high or low - too low and he won't make enough, too high and no one will buy his service - but he gets to make the decision what to try. And if he tried to lobby government to force his customers to pay more for his services, we'd laugh, surely.

Well, a person selling labor is the same as a person selling Dry Cleaning. As soon as you realize that any time you get money for something, you are a SELLER, a BUSINESS OWNER, then all the other things we Libertarians talk about when it comes to employment law make a lot more sense.

John Fast writes:

Bryan Caplan, you know me -- I'm all about fairness and equality for everyone, in everything!

I agree that there is unequal bargaining power in most employer-employee relationships. And I agree that it's for two reasons.

The first is that it's usually easier for an employer to find a replacement worker than for a worker to find a new job.

The second is that losing one's job will usually reduce a worker's income by a large amount -- usually over 50% -- while single worker will usually reduce the income of a business by a much smaller percentage.

Here's my question for everyone who favors laws to protect workers in such situations: if a worker is very important to a business, such that they are responsible for a large percentage of the company's profit and/or it would be difficult to replace them, shouldn't there also be laws to protect employers by forbidding the worker to quit his job without good cause?

And in the case of a union which represents, say, 50% or more of the employees of a business, and/or whose employees are difficult to replace, shouldn't there be laws preventing them from quitting or going on strike?

Kitty_T writes:

This whole thing just reminds me of the half dozen or so times I had to try to explain at will employment to non-American business people expanding here. Usually they'd just blink slowly, and ask again how many months of severance they had to pay per year of work.

The most effective way I got the point across was to point at my boss across the room and say "Andy over there could fire me right now for no reason whatsoever." After the stunned silence, someone would ask whatever prevents him from doing so, to which I'd respond "every day I have to do my job well, so I make him more than I cost him, and so he'd rather I do it for him than the competition." I have no clue why that seemed to make sense to many of them when other explanations (i.e.: freedom of contract) didn't.

Mike Rulle writes:

According to the March 2012 BLS report, the average percent of the working population hired each month has been about 3.2% since 2010. This translates to 4 million a month.

Firings/quittings have always been about the same as hirings. Obviously the net number is positive or negative relative to a comparatively small difference in the the gross numbers.

This has always been true in America. Empirically, 3-3.5% turnover of the Labor Force per month seems pretty high to me and implies flexibility of labor movement. Job postings are usually very close to gross hirings as well. How much turnover must there be to demonstrate "symmetry" of information and/or power? I certainly have no idea, but neither does Roehling.

Roehling's "rejoinder" borders on being a non-sequitur. He needs to define "inequality in bargaining power" in a measurable way and then model it by connecting it to hiring and firing. That would be an extremely difficult and interesting project.

However, he seems happy instead to be a polemicist tossing about normative jargon as if it were factual by assertion alone.

Floccina writes:

I am fine with if you do like it quit but to play the devil's advocate, how about Edmund Phelp's idea that we are all overpaid because employers hate turnover costs? This means that there are always more people looking for jobs that finding them (some persistent level of unemployment 3% or so is considered full employment). If we are all overpaid then a job is like a gift and losing a job is bad and so many things are distorted.

Floccina writes:

BTW I can fire Wal-mart or Publix at will by just not going there.

HispanicPundit writes:

This is seriously one your bests posts ever! I love it when get down to fundamentals like this Professor Caplan!

John Fast writes:

I forgot to mention the biggest reason that it is easier for employers to replace a worker than for workers to find a new job: wages are above market-clearing level. *palmfaces*

Saturos writes:

[Comment removed for policy violations. Email the to request restoring your comment privileges. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Jack Davis writes:

Excellent article,Bryan. I generally believe employment should be at will is a good idea. But there's one important policy I would propose: employers should not be allowed to require employees to sign agreements that they won't work for a competitor. Freedom of contract has to work both ways.
(One exception: military or intelligence personnel with national security access shouldn't be allowed to work for another country).

Jack Davis writes:

Unrelated to my previous comment: There's less of a problem with asymmetric information on dating nowadays; many women I know do online background checks on their potential dates before meeting them. Sometimes just checking their facebook page can tell u a lot about a potential date.

John Humphreys writes:

The dating market is unequal, therefore we should tax the beautiful people and subsidise the ugly ones.

But seeing people creates externalitites, therefore we should tax the ugly people and subsidise the beautiful ones.

Oops. :)

But seriously... you *always* have asymmetric and imperfect information in life, and people *always* come from unequal positions. These can't be used to justify government, or else they justify complete government control over all human interaction.

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