Bryan Caplan  

Funny Bargains

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The worker-employer bargain has many funny features.  Scott Alexander points out a few:

1. Employers sometimes yell at workers for small mistakes; workers aren't supposed to yell at employers no matter how big the employers' mistakes.

2. Employers sometimes demand job applicants' bodily fluids; applicants fear to ask prospective employers for a cup of coffee.

3. Employers sometimes demand that workers stay late; workers rarely demand to leave early.

Scott takes these as strong symptoms that the supply-and-demand model of labor markets is deeply wrong.  The asymmetries exist because each worker needs his employer a lot more than his employer needs him.

Now let's consider two other bargains with similarly funny features.  First, the patron-waiter relationship.

1. Patrons sometimes yell at waiters for small mistakes; waiters aren't supposed to yell at customers no matter what.

2. Patrons sometimes ask waiters for elaborate special treatment (e.g. no nuts, extra nuts, sauce on the side, gluten-free sauce...); waiters aren't supposed to ask patrons for the smallest favor (e.g. a tiny bite of their dessert, or "Kindly eat over your plate").

3. No matter how diligent waiters are, customers are still allowed to tip them zero.

Second, consider the customer-Big Box Store relationship.

1. Customers can buy an item, try it, decide they don't like it, then get a full refund.

2. Customers can ask store employees to help them find a product, but store employees would never ask customers to help them stock the shelves - even for a minute.

3. Customers can be rude to the store manager, but the store manager still has to be polite to customers.

In all three cases, of course, economists have a standard mantra: it's all reflected in the price.  If being an employer is pleasant and being a worker is unpleasant, labor demand goes up, labor supply goes down, and the wage goes up.  If being a patron is pleasant and being a waiter is unpleasant, demand goes up, supply goes down, and the price of restaurant meals goes up.  If store customers and stores know they can return anything they don't like, demand goes up, supply goes down, and the price of store products goes up.  Why exactly is it so important to restaurant patrons that waiters never ask them for a bite of their dessert?  Norms, psychology, and status all play a role.  But as long as asymmetric conditions are reflected in the price, who cares about their source?




COMMENTS (33 to date)
Richard writes:

Looks like you both agree that workers are getting the short end of the stick, which may argue for government intervention on the side of workers. However, it's pretty impractical to regulate the behavior of customers and restaurant patrons, so the government helps the worker by giving him special privileges in the relation to the boss.

Robert writes:

Employers can yell at employees!?
Patrons can yell at waiters!?
Customers can be rude to the store manager!?

All of those three forms of behaviour are wrong. It might happen, but it is wrong.

john hare writes:

As an employer myself, yelling at employees results in a lower average quality of employees=expensive.

As a frequent restaurant patron myself, rudeness results in lower quality average service= less pleasant dining experience on average.

There's little to win at best by yelling at managers as well.

All three of these behaviors come with a price, though there may be justification in many cases. People will often go the extra mile with people they like dealing with, and won't with those they don't.

Anonymous writes:

@Richard

It doesn't seem to me that that's what Bryan is arguing. More that both sides get an equal-sized end of the stick, but in different forms - workers get more financial payoff but a worse working environment, while bosses get a worse financial payoff (per worker) but a better working environment. Same for the other situations mentioned.

Grant Gould writes:

So you're saying that workers are paid more at places with bad working conditions? Because from where I'm sitting the opposite appears to be true.

Nathan W writes:

" But as long as asymmetric conditions are reflected in the price, who cares about their source?"

Interesting argument. I find it intuitively appealing.

However, since markets are often established by hidden hand equilibria, there may be quite a lot of people who are highly dissatisfied at the equilibrium point. Of course, with the reservation that benefits must exceed costs for all parties (assuming zero coercion) or there is no trade.

Well, you could argue that there is no single equilibria for in the maltreatment vs pay tradeoff/asymmetry, because there is a large number of employers.

A lot of people working in farms, for example, might be willing to work for a little less money for a nicer farmer (or meatpacking plant, or maid-hosting household). But due to asymmetry, lack of information, transaction costs and simply the inability to afford to stop working for a few days to search for a better deal, will never be able to find that more pleasant position.

Let me give the counterexample of an employer I had in my early days. There was a big poster which used large print and graphics to explain about 100 details of all the labour rights I had while working at that company. No surprise, this was a good employer. This should be the golden standard, and I highly support laws which mandate that employers MUST make employees aware of their rights.

Many employers, however, try to mislead or even outright lie to employees about their legal rights, and try to abuse them in a great diversity of monetary and behavioural manners.

IF, and BIG IF, all employees were aware of their legal rights and had (and moreover were aware of) easy access to legal representation, then perhaps I would buy the argument that these asymmetries in treatment can be priced into the labour market.

It remains the case that a minimum wage worker can almost never afford legal representation, and moreover, that many "bad" employers will justify their mis-treatments in many ways, all the while trying to mislead the worker into thinking that unpaid overtime is NOT illegal, or that that sexual harassment should be understood as normal in the working environment.

Because the workers NEED to pay rent RIGHT NOW, and feed their children RIGHT NOW, they will in many cases put up with great humiliation and mistreatments which are never priced into their wages. All that can be concluded from the strictly theoretical perspective is that the total benefits must exceed the total costs, but this does not mean that the maltreatment has been fully priced into the model. (The big box stores and return policies, however, presumably reflect very careful accounting of costs and benefits of these policies.)

Also, while I initially stated that I do find some intuitive appeal to the notion that "as long as asymmetric conditions are reflected in the price, who cares about their source?", I also find it offensive to think that some employees should have to internalize the cost of being treated like garbage when trying to figure out whether their wage justifies the treatment. Yes, waiters/waitresses may deal with difficult customers, but there comes a point where any decent employer will, full of outrage, stand up for the lowly worker and tell the customer to leave and never come back again (I had one experience of this with my very first employer).

I imagine that millions of Americans would leave their jobs for another in a second, to avoid mistreatment by managers (more so than owner-employers) if it weren't for the fact that they don't want to have to move their children to another school, the fact that their visa (for temporary workers) ties them to a specific employer, or other reasons largely related to poverty and risk aversion.

In short, the POSSIBILITY that SOME asymmetries will be fully priced into the wage, does not NECESSARILY mean that other asymmetries will not intervene with the result that "too many" employers (especially in the lower end of the skills spectrum) get away with behaviours/practices which border on "intolerable" because of the simple fact that rent has to be paid, children have to be fed, and the fact that most people living from paycheck to paycheck are necessarily risk averse (not to end up unemployed and homeless).

Nathan W writes:

Sorry about the multiple posts. Please delete them if possible. There were some connection issues with my vpn from China.

Hazel Meade writes:

In my experience, getting yelled at for small mistakes is kind of rare, especially once you move into professional fields. It is considered unprofessional, poor behavior of a manager to yell at employees.
It's also quite common where I work to take off a little early or come in a bit late, as long as you make up your 40 hours a week.

I suppose in lower skilled occupations, people are a bit stricter, but that might be because punctuality is necessary to do the job properly. For instance, with shift work, showing up late or leaving early imposes a burden on other employees.

Michael Byrnes writes:

I think there are relevant differences between the employer/employee relationship and the patron/waiter and customer/store employee relationship.

In the latter two cases, restaurants and stores have prices and policies. If I am willing to pay their prices and abide by their policies (eg, no shirt no shoes no service) then I am free to go in there and buy whatever I want.

Employers have prices (wages) and policies, too, but if I am willing to accept their going wage and abide/meet their policies/qualifications, that doesn't mean I can just show up and work there.

That's an asymmetry that doesn't exist in shopping scenarios.

Cory Waters writes:

"workers aren't supposed to yell at employers no matter how big the employers' mistakes."
"...workers rarely demand to leave early."

This is so out of touch with reality I question whether he's ever worked at a job outside his small speciality (I would guess with nonsense like that he's only ever worked in academia, or some area where most people have graduate degrees or better).

adam writes:

1. Employers sometimes yell at workers for small mistakes; workers aren't supposed to yell at employers no matter how big the employers' mistakes.

I've never had an employer yell at me for any mistake, and never witnessed. What's this guy talking about?

2. Employers sometimes demand job applicants' bodily fluids; applicants fear to ask prospective employers for a cup of coffee.

This is (perhaps entirely) because of government regulatory requirements for drug-free workplaces, etc. that span entire industries. Not sure what this has to do with worker-employer power.

3. Employers sometimes demand that workers stay late; workers rarely demand to leave early.

I see employees demand to leave early all the time. I've done it myself. I also take off for doctor's appointments, parental responsibilities, etc. In fact, it's pretty common for employees to demand that they get paid for time-off!!

David R. Henderson writes:

@Nathan W,
Sorry about the multiple posts. Please delete them if possible.
Done. Thanks.

jj writes:

To state Bryan's point perhaps more simply, the other side of the asymmetry is:

1. Employers pay employees to be there, never the other way around.
2. Patrons pay restaurants to eat there; restaurants never pay patrons to come.

etc.

Michael Byrnes writes:

I've been yelled at by an employer for small mistakes and witnessed that employer yelling at (or belittling without yelling) other employees. It's rare - I can only think of a couple of employers out of many who did this routinely - but it isn't unheard of.

I don't buy the assertion that drug testing only happens because of federal requirements. Show your work if you are going to assert that.

One more important asymmetry. Most employers don't have to disclose how high they are willing to go in terms of salary, their salary range for similarly situated employees, etc, and they may even lie about this during negotiations. But they ask prospective employees for their current salary - and they can conduct background checks that include requiring the employee to provide recent W-2s to verify work and salary history. This asymmetry undercuts a prospective
Employee's bargaining position in salary negotiations.

Hazel Meade writes:

That last point by Michael Byrnes is pretty good, actually. The disclosure of past salary information in negotiations is a pretty obvious information asymmetry that favors employers.
I don't believe it works as a justification for government-promoted collective bargaining though. If you wanted to address this information asymmetry, the correct thing to do would be to require companies to disclose information about mean salaries and salary ranges for similar positions at the company. Or you could bar employers from asking about past salary levels, or demanding W-2s.
(IOW, if you want to address the information asymmetry, address the information asymmetry.)

bill writes:

I wonder if Scott would think that Walmart has no power because it doesn't yell at its customers?
;-)

Glen W Smith writes:

I've never seen organization where the employer did not yell at the employees for small mistakes at least some of the time, part of why I like programming. Worked for several different big-box stores and as a management consultant for almost all the fortune-500 companies. I'd like to know that companies exist that don't yell at their employees for small mistakes at least some of the time. I'd also like to know which companies never lie to their employees.

Michael Byrnes writes:

@Hazal Meade

I think I view Scott's arguments more favorable than most who post here, but for the most part I don't agree with his suggestion that this justifies collective bargaining.

On the wage negotiation asymmetry, preferred solution would be to prohibit employers' access to this information. In the recent recession there has been a lot of talk that employees should have been more willing to accept lower wages. One reason why an employee might have a higher reservation wage is the unwillingness to undercut future salary negotiations.

Nathan W writes:

@Hazel

"It is considered unprofessional, poor behavior of a manager to yell at employees."

In kitchens, farms, and trades, it is standard daily fare to be yelled at for even the most minor of transgressions, imagined or not.

I could hardly argue with an employer who gets angry for repeated lateness or leaving early. For legitimate complains, I can understand. But it is absolutely a fact that a great number of employers in low skilled positions treat their employees like utter trash, issuing unnecessarily vitriol and insults at the tiniest imaginable mistake, even in the first or second day on the job. Given that these people already work for very little money, it is hard to imagine that the poor treatment is monetarily priced into the wages.

I have personally experienced precisely these types of employers in kitchens, farms and trades. However, I don't have children to feed and have always been lucky enough to have enough extra money in the bank, affording me the ability to give the finger to these types, and be unemployed for a short time while looking for better work.

@Adam - if you haven't experienced this sort of thing, then either you're extremely lucky or you have never worked in the segments of the labour market where this is common.

Jay writes:

@Nathan

Nobody is saying it doesn't exist, but Scott is over generalizing when he says that it is "common" for bosses to yell at employees. It may have been common in the 50's or on TV shows, but it is certainly less common today and more so as you move up the skill tree.

Grant Gould writes:

Adam writes, in re: drug tests,

This is (perhaps entirely) because of government regulatory requirements for drug-free workplaces, etc. that span entire industries. Not sure what this has to do with worker-employer power."
If you are "not sure what [government regulatory requirements] have to do with worker-employee power" then you are missing the point.

The purpose of regulatory requirements (whether related to employment issues or not) is to change bargaining power relationships, almost always in favor of large, concentrated business and so (whether directly or indirectly) almost always to the detriment of workers.

The asymmetries in the market that favor employers over workers are not the product of that market but of other forces. Drug testing regulations are one such example. To admit that (sometimes small, often very large) bargaining asymmetries exist does not require that we attribute them to the market: Companies and governments create them in many, many nonmarket ways.

Hazel Meade writes:

@Michael Byrnes:

Good point, the employee might also want to hide past salary data for reasons related to (say) ageism in hiring or over-qualification. We hear a lot about older workers getting laid off because they are too expensive and/or considered over-qualified. The older worker might be willing to accept a lower salary, but prospective employers look at past salary and assume they won't, or that they will be dissatisfied and leave quickly. If they could keep past salary information private that would allow them to negotiate a *lower* wage.

Floccina writes:

When people do volunteer work they show up late do what they want and leave early. They are very tough to manage.

Brian writes:

@Michael Byrnes & Hazel Meade:

Past and current salary is definitely a large information asymmetry that puts the prospective employee at a disadvantage in the negotiations. The solution to this asymmetry is...don't give the prospective employer your current salary information.

When I was interviewing with another company (in a professional field--data science), the potential employer asked me for my current salary. I politely refused with a "My current salary is treated as confidential information by my current employer." It didn't hurt my chances--I eventually received an offer that happened to be nearly exactly what I was already making.

There is no need for the government to prohibit disclosure. What if you make above market rate and want to convey that it will take a lot to get you to jump?

Someone from the other side writes:

I find this more than a little bizarre.

As for the fluid parts, I never once had an interview where I wasn't offered coffee or water (I don't drink soda so I don't track that). I was never asked for drug tests and frankly, while I would pass, I would tell them to take a hike. What I do outside of work is none of their business (unless it directly impacts my work performance).

Yelled at? Not entirely sure it never happened but most definitely it was exceedingly rare. Spirited arguments or blame flying my way? Definitely. Yelling? Not so much. I much more vividly remember a manager piling on a client for calling me denigrating things than being yelled at. I've only very rarely seen people being yelled at (unilaterally, shouting matches occasionally do happen).

Asking to go home early? In my current job, I mostly I just do it (neither my boss nor I believe in face time, in fact his way of keeping track of time is explicitly "if you can square it with your conscience, it's more than likely fine" [1]). Prior that it was more difficult but even then, they didn't much care WHEN or WHERE I did my work.

In sum, I don't think this reflects reality for professional employees. I have no real data on unskilled jobs, though.


[1] Never mind that I work in bursts which can sometimes not happen for days and then I get a lot of stuff done in a couple of hours, I can do low value added stuff all day long (and will if I have to) but the stuff I actually do get paid for is more intermittent.

Michael Byrnes writes:

@Brian

That's a nice idea, in theory. But it won't stand up to a background check that includes submission of W-2s, which has happened to me before. Sure, refusing to provide them is an option -but that may mean walking away from the opportunity.

john hare writes:

One thing I haven't seen in comments here is the employee type that gets yelled at. Low self perceived value or they would get another job pronto. The way it shows up monetarily is that a yelling environment retains either workers without much to offer, or workers getting more money for putting up with it. If there's a better job down the street, the best workers will get it, leaving a company with the dregs over a period of time.

All employees are not equal.
Anyone that has ever been in the position of trying to get quality work in critical fields done with low quality help can fully relate to the old British navy practice of flogging. It is unbelievable how many nearly useless people claim to want a job. The kind of people that will get other people hurt, or fake injuries, or do a lousy job that has to be redone under time pressure at the last minute. Or even cause a redo after it is found out that they couldn't be bothered to read instructions and assured you that it was done right.

If you want a good company, don't yell, fire. Retaining bad people is an insult to every quality worker you have. Poor help is not better than none.

Brian writes:

@Michael Byrnes

Wow I didn't know a background check can give access to W2s! That puts the prospective employee at a distinct disadvantage to start the negotiation. We can agree that there should be protections that treat tax information as private information between the taxpayer, current employer, and the IRS.

As far as losing opportunities--yes, that is a risk one runs when he chooses not to divulge current salary information. I'll continue to politely refuse, because I (almost literally) bet that if I can convince the employer I can make them money, then he will make me an offer 9 times out of 10. Why would he pass up the chance to successfully end his employee search in response to a shrewd approach to negotiations? It could even signal that the employee "gets it" and will be a good negotiator for the company. Then again, it could signal that he is "not a team player" and a "me first" guy, but if there is anyone that will recognize the game when he sees it, its the greedy capitalist 1% owner that exploits the everyday proletariat for a diamond encrusted shift knob in his Bentley.

Eliezer Yudkowsky writes:

Usually, the person who pays the monetary side of the exchange is the one who has the power. This is true of employers and patrons.

Usually, the person who supplies the nonmonetary good sets the price. This is true of restauranteurs. It's true of consultants, who are reputed for getting something of a good deal in the non-miserable employment department. It's not true of normal employees or Uber drivers.

This says to me that employees might really have a lot less power than in many other voluntary transactions.

Brian writes:

Elizier said:

Usually, the person who supplies the non-monetary good sets the price.

This is true *when the price of the transaction is relatively low*. It is customary to ask for a price and then negotiate (or auction--but that is another story) when the price is high. We see this with big ticket purchases such as cars, real estate, consulting gigs (b2b), manufacturing orders, and yes, jobs.

There is a solid economic explanation for this phenomenon--the stakes of missing out on the transaction because of a mis-pricing are higher for everyone involved. If there is any overlap between how much a seller is willing to accept on a car and how much a consumer is willing to pay, then it pays off to incur the costs of negotiation to find the middle ground and capture even 1% surplus on a $20,000 car. But when we are talking about a $2.00 tube of toothpaste, it makes more sense to set a firm price at $2.00, take it or leave it--what the seller and buyer lose in sales that don't happen at higher prices (or lower prices) is more than made up for with the savings on negotiation costs.

Michael Byrnes writes:

@ Brian

Wow I didn't know a background check can give access to W2s! That puts the prospective employee at a distinct disadvantage to start the negotiation. We can agree that there should be protections that treat tax information as private information between the taxpayer, current employer, and the IRS.

It's been a while and this was a former employer for me. What I think happened was that I was asked to provide employment/salary history for the previous 5 years. One of my previous employers was a startup that no longer existed, and the background checkers could not verify my info so I had to cough up W-2s to prove that the company had, in fact, existed and that I had, in fact, worked there. (And no, this was not a senior management position or anything even remotely close to that level - I can see where a background check could be justified for that).

Mark Bahner writes:

1. Patrons sometimes yell at waiters for small mistakes; waiters aren't supposed to yell at customers no matter what.

But cooks can yell at customers. (However, they're not supposed to kill them.)

The dirty fork sketch...Mondo the cook appears at 3:30

George Berger writes:

Bryan,

I should have posted this on your earlier comments for Scott Alexander's take on Labor Markets but it also seems appropriate here. Richard Epstein has written a long article in the University of Chicago Law Review "In Defense of Contract-At-Will" (Vol. 51:4, Autumn 1984, pp. 947-82) which addresses almost all of Scott's objections. His argument has been neglected by Labor economists, unjustly so. Essentially, if we regulate termination we raise its costs and thereby raise the costs of hiring, which knocks the marginal worker out of the labor market. Walter Olson provides some evidence for Epstein's thesis in his book The Excuse Factory, Chapter 16: Secure in What? Epstein's argument is longer and more nuanced than my one sentence summary but readers of this post should check those two references out. Epstein has shorter versions of his 1984 argument in his book Simple Rules for a Complex World and in Principals and Agents, edited by Pratt and Zeckhauser.

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