Looking for info: Relationship between Labour Law and Economic Performance

gaf1983

Can anyone point me in the direction of useful articles/books that analyse the relationship between expanding labour rights and economic performance?

Time Magazine

There is a book on the study of the implementation of the minimum wage in New Jersey called Myth and Measurement. (Basically they found it raised employment because it fitted within the framework of the monopsony model).

I don't know if it's law essay or economics or social studies essay but the general economic theory is that as workers' rights increase there are two effects:

1. Wages rise
2. Unemployment rises

The logic for this is that as their rights increase (say there's good social welfare) they're in a stronger bargaining position. Using the example of a good social welfare system, if they lose their job they're not going to die of hunger so they have a slightly higher "upper-hand" than if it was a pure market system. This upper-hand allows them to demand higher wages. Also, if it's nearly impossible to sack someone, there'll be less hiring. See Germany and France for proof of this.

However, and it should sound reasonable enough even to non-economists, that as wages increase there's less money to go around to everyone. Say the employer has €100 to give out in wages. If the wage rate is €20 he hires five people, if the wage is €10 he hires ten.

There is an argument, quite strong too within certain limits, that increased wages boosts the economy. But the problem lies, at least in the medium- to long-run that if they're not actually producing more the wage rate does not matter - inflation will takes it course and their real wage returns to what is was.

Another interesting area for you to investigate is the sclerosis of a labour market. The best way to see this is through the example of an airport. Let's say an airport is busy (there's high unemployment). The airport can be busy for one of two reasons. Firstly, there could a lot of people stuck there waiting for a flight. Alternatively, there could be lots of planes coming in the next ten minutes and they've just arrived to catch their plane.

Generally speaking, assuming that there's basic workers' rights, the freer the market the lower the unemployment rate and the "healthier" the economy. The main argument for strong workers' rights is on an individualistic/equity basis.

I'd hate to see a market where you could be fired without reason and without compensation. But I'd also the "civil service effect" where you can't be fired for anything short of genocide. One must find a balance. Where you draw the balance tends to define where in the political spectrum you lie.

Hope this gives you some pointers!

gaf1983

Thanks angry banana, I appreciate your comments. Just wondering have you got any academic journal citations that some of your arguments are reflected in? It's a labour law essay I'm working on by the way.