Sunday, March 14, 2010

The textbooks on labour markets

The fine pieces (found here and here) by Felicity Lawrence in yesterday's Guardian on the horrors of work in British food factories reminded me of another scandal: the failure of the mainstream economics textbooks to offer a theoretical framework to explain what Ms Lawrence terms "a race to the bottom in terms of labour standards". The articles describe "physical and verbal abuse and degrading working conditions", endured "under threat of the sack", of people "being denied toilet breaks and forced to endure the humiliation of bleeding and urinating on themselves".
  In the fantasy world presented in the textbooks, perfect competition reigns supreme in labour markets. Employers are powerless, unable even to choose the wage they will offer workers; there is a 'market wage' that everyone must accept. Among other things, the theory also implies that workers can quit and immediately get a new job if a manager kicks them or throws things at them. The "threat of the sack" is no threat at all. "Exploitation" is a meaningless word.
  As we point out in The Economics Anti-Textbook, it's easy to come up with a simple theoretical model in which employers have 'market power' and in which the "threat of the sack" is a real threat. It requires a diagram with two lines crossing. Instead, every single mainstream textbook -- if it even considers a model where employers have some power over the wage -- paints it as a rarity, like an isolated mining town, where there's only one employer.
  This is no isolated failure to acknowledge power and injustice. That failure is systematic. However, one thing that we did not do in The Economics Anti-Textbook was to try to explain why most of the textbooks are like this. Perhaps that's something we should tackle here in this blog.