Ship in a Squall


On contracts and ‘intermediate’ labor market institutions

The recent boom in identifying and measuring monopsony in labor markets has brought the question of employers’ wage-setting power to the fore of various academic and policy debates. (For an overview, see our blog post by Owen Davis from earlier this year.) Along with its more direct theoretical antecedents, this body of work joins a broader interdisciplinary tradition in examining the relationship between various forms of coercion and the labor contract.

In a 2011 paper, using historical data on contract breaches and game theoretical models, Suresh Naidu and Noam Yuchtman examine how Master and Servant law affected contracting and wages in 19th century Britain. The dynamics examined in the paper provide robust evidence of what the authors call “intermediate” labor market institutions—between the poles of free and forced labor.

“We document that criminal prosecutions were widely applied by employers in response to labor demand shocks: a high marginal revenue product of labor led to greater numbers of prosecutions. We address concerns about endogeneity by using exogenous industry-specific output price shocks for independent variation in labor demand, and examining the resulting prosecutions specifically in areas where affected industries were concentrated. We find that positive labor demand shocks in the coal mining, iron, and textile industries all produced increased prosecutions, precisely in counties where those industries were located. We find further evidence suggesting that employers used penal sanctions as a substitute for paying higher wages in response to positive labor demand shocks, which supported long-term contracting: average wages in high prosecution counties, and the responsiveness of wages to labor demand shocks, increased after the 1875 elimination of criminal prosecutions under Master and Servant law.

Historical labor markets have rarely looked like textbook, perfectly competitive markets. Attempts to manage labor mobility have generated a wide variety of legal institutions, ranging from slavery to employment at will. We believe that the study of intermediate cases, such as 19th century Britain, the American South after the Civil War, and the post-emancipation British Caribbean, illuminates the role of legal institutions in securing the supply of effective labor, and represents a rich area for future work.”

Link to the full paper.

  • From 2005, Chiaki Moriguchi compares the development of labor law in the United States and Japan during the aftermath of the Great Depression. Link. In the International Review of Social History, Sidney Chalhoub examines the “legal and social ambiguities between slavery and freedom that prevailed in nineteenth-century Brazilian society.” Link.
  • “Negotiated labor contracts make only minor modifications to a relationship whose normatively critical features have already been set by law independently of the will of both parties.” A 2015 paper by Elizabeth Anderson on the role of government in ensuring free labor contracts. Link. See also: Anderson’s 2017 book Private Government, which drew from her 2015 Tanner Lectures at Princeton. Link to the lecture manuscript.
  • Daron Acemoglu and Alexander Wolitzky on the “economics of labor coercion.” Link.
  • “Suppose a worker were to refuse to yield to the coercion of any employer, but were to choose instead to remain under the legal duty to abstain from the use of any of the money which anyone owns. He must eat. While there is no law against eating in the abstract, there is a law which forbids him to eat any of the food which actually exists in the community—and that law is the law of property.” From legal realist Robert Hale’s classic 1923 paper ‘Coercion and Distribution in a Supposedly Non-Coercive State.’ Link.

New Researchers

The effects of health care shocks on families

Stanford Postdoctoral Researcher MARION AOUAD’s job market paper examines a large medical claims dataset to identify the fallout of sudden medical emergencies onto the families of insured individuals.

From the paper:

“Studies that examine the effects of health shocks have typically focused on the labor supply and earnings of working-age adults or their spouses, but relatively little is known about the impact of adverse shocks on the entire family—with even less known about how their health care consumption is affected. This is especially relevant in the US, where the prevalence of bundled family health insurance and employer-sponsored health insurance may result in non-trivial consequences. This study uses a large US medical claims dataset consisting of over 1 million families to examine how the health shocks of one family member, as proxied by emergency admissions, affect other family members.

“Among those that remain insured for at least one additional year after an emergency, there are mild effects on the medical consumption of family members. However, for those family members who are ongoing users of prescription drugs used to treat certain chronic conditions, there are sizable declines of 12% to 22% in prescription drug spending. These findings suggests that families may trade off the health status of certain family members for the immediate expenses associated with a medical emergency.”

Link to the paper, link to Aouad’s website.

Each week we highlight great work from a graduate student, postdoc, or early-career professor. Have you read any excellent research recently that you’d like to see shared here? Send it our way:

+ + +

  • In a new INET lecture series, Hajoon Chang explicates the basics of economic thought, and applies them to questions of governance, equality, and environmental policy. Link.
  • At VoxEU, António Henriques and Nuno Palma “compare Iberian and English institutional quality between 1385–1800, considering the frequency and nature of parliamentary meetings, the frequency and intensity of extraordinary taxation and coin debasement, and real interest spreads for public debt.” Link.
  • From the archives: a 1980 LRB article by Raymond Williams: “Isn’t the news terrible?” Link.
  • A look at labor relations in South Korea’s informal construction industry. Link.
  • “Macro statistics on foreign direct investment (FDI) are blurred by offshore centers with enormous inward and outward investment positions. This paper uses several new data sources, both macro and micro, to estimate the global FDI network and finds that phantom investment into corporate shells with no substance and no real links to the local economy may account for almost 40 percent of global FDI.” A new IMF working paper by Jannick Damgaard et al. Link.
  • In the Times: “How the Fed Lost Its Faith in ‘Full Employment.” Link.
  • In the LARB, Samantha Rose Hill reflects on Benjamin’s “Theses on the Philosophy of History.” Link.
  • A new paper by Jeremy Singer looks at school choice and social stratification in Detroit: “Even among Detroit’s racially and socioeconomically homogeneous student population, the results show evidence of a stratified educational landscape.” Link. At the Century Foundation, Halley Potter and Michelle Burris examine the impact of NYC’s Gifted and Talented programs on school segregation. Link.
  • A 2018 paper by Amia Srinivasan in the Journal of Political Philosophy: The Aptness of Anger. Link.
  • In Annual Reviews, Yair Listokin and Daniel Murphy consider “the role of law in determining economic aggregates like GDP, unemployment, inflation, and productivity growth.” Link.
  • From February, a World Resource Institute report on the potential for urban electrification in the Global South. Link. See also: Patrick Robbin’s Phenomenal World post on the history of rural electrification in the United States.
  • An article by Glenn Diesen in Asian Politics & Policy looks at the “geoeconomics” of Russia’s Greater Eurasia Initiative. Link.
  • “The value of Peruvian guano exports to Britain, which was the destination for between one-half and two-thirds of all Peruvian guano exports, rose dramatically between 1847 and 1860, and it routinely exceeded two million pounds sterling per year. I examine how Peru was able to take advantage of the guano boom to transform itself in the eyes of creditors. I argue that the spectacular magnitude of the revenues that guano generated was not a sufficient condition for this transformation. Guano revenues were earned from exports, mostly to the United Kingdom, and the Peruvian government contracted with a British merchant house to manage the country’s guano exports and simultaneously service its foreign debt with the proceeds. The key factor was that Peru pledged guano revenues to service its foreign debt, and this pledge was credible to bondholders.” By Catalina Vizcarra. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations:

Subscribe to PW Sources