Very interesting front page article in the Globe and Mail on Saturday by Ira Basen discussing the rise of neoliberal economic theory and its ongoing fall from grace. This post quickly discusses that article about neoliberalism in order to make another real-life point about employers who forbid their employees from discussing their wage rates!
Information and Neoliberalism
Read Basen’s article in its entirety. It’s excellent. My summary is very brief in order to make my point at the end. As we discuss in my courses, Neoliberals believe that the best way to organize the economy and society is by allowing markets to function freely, with little government role. In order to make their mathematical models work, they make a whole bunch of assumptions about how the world works and how people behave. Most importantly, they believe that people will always choose the option that makes them better off, which is known as the “rational expectations” model. Moreover, they always make rational “utility” maximizing decisions because they are blessed with full information about the choices and various outcomes that will flow from those choices. In this enlightened and rationale world, governments should get out the way and allow “markets” to organize not only the economy, but society as well.
For example, the neoliberals believe employment standards laws are unnecessary and harmful. If we eliminate them, wages and working conditions will move naturally towards the perfect place where supply and demand are equal. An employer who treats employees poorly will not be able to attract good workers and will either perish or learn to improve those conditions. Why does this happen? Because workers have full information of all other better job opportunities, and they are mobile and able to quit the bad job and go to the good job.
We also don’t need human rights laws. Why? If an employer is paying a black worker less than a white worker, the black worker will quit and go to an employer that does not discriminate in this way. An employer that discriminates in this way will be less efficient, and “in the long run” will be unable to compete with the non-discriminating employer. Thus, the market will ensure an end to discrimination and poor working conditions by disciplining poor and discriminating employers.
Basen writes: The rational-expectations model, for example, assumes that consumers and producers [AND YOU CAN ADD “EMPLOYEES”] all inform themselves with all available data, understand how the world around them operates and will therefore respond to the same stimulus in essentially the same way. That allows economists to mathematically forecast how these “representative” consumers and producers would behave.
Note that all of this assumes that employees have information about the conditions of work of their colleagues and at other workplaces, and that employees just up and quit whenever their is a better opportunity. Neither is nearly close to being true in the real world.
Firstly, employees don’t just quit bad jobs and move to better jobs whenever the opportunity exists. People remain in bad situations all the time because they resist change, or because they value other things (like proximity to family) more than better working conditions. So people will stay in a crappy job forever even if they could possibly move to a better job, which means the crappy employer is not being disciplined by the market. Only in classroom theory do people move form job to job to job as neoliberal theory teaches us.
Secondly, workers do not have full information about other job opportunities. Hell, commonly, workers don’t even know what the person next to them earns. Employment is rife with “information asymmetries”, to use an economics term. In theory, neoliberal economics might support information disclosure regulation to address this problem: require employers to make public the wages and benefit levels of their employees. Yet, no liberal economist or politician I have seen argues for this market correcting law, since that would require government intervention that would impose new costs on employers. Many Canadian employees’ wages are required to be disclosed, but not because neoliberals want to address information asymmetries. Rather, neoliberals support mandatory disclosure of collective agreements applying to unionized employees (because they believe unions need to regulated, since they are untrustworthy), of public sector workers (to inform ‘the taxpayer’), and of senior executive salaries (to empower shareholders). But not a single politician I have ever heard has suggested that laws should address information asymmetries in labour markets by requiring public disclosure of pay and benefits levels of all employees. Why not? It would be pretty easy now that we have the Internet.
Should Employers be able to Forbid Employees from Discussing their Pay and Benefit Levels?
Which leads me to my final point. I have received a few emails over the years from readers who have told me that their employer “forbids” employees from discussing their wage and benefit levels with co-workers. Presumably, if the workers do, they might be fired for breaking the rule. This is outrageous and sleazy in my opinion, but sadly, not unlawful. I know why an employer wants to keep this secret. They fear employees will think there is unfairness in the system if they learn how employees are all treated differently. The perception of bias and unfairness by employers is a leading reason why workers look to unionization to introduce some measure of transparency and objectivity. The first thing a union does once certified is collect the existing terms and conditions of all employees and share that information with the workers.
Questions for Discussion
Do you think that an employer should be permitted to ban discussion by employees of their terms of employment?
If the market model assumes employees have full information about better jobs, then doesn’t an information-sharing ban like this interfere with the proper functioning of labour markets?
Should governments prohibit employers from imposing gags like this, or pass a law requiring employers to make available the range of wages and benefits paid to their employees?