Do economists ignore workers?
Posted August 11, 2008on:
Over at Econospeak
There appears to be a fair amount of disdain in his post about the mathematical nature of economics. However, I will forgive him for this – he is a heterodox economist after all, so his very discipline is focused on critiquing areas where mainstream economic thought makes a wrong turn. Although I do not share the mis-trust of mathematical theory (infact I believe it is a very useful way to organise ideas (sort of like writing them down), I do agree with the concept that an over reliance on technical models, without an understanding of the underlying assumptions, can lead to spurious conclusions in economics (however, as we have said before, this is a problem with the subjective application of a model – it is not invalidate the model in of itself).
Anyway, the authour appears to believe that economists ignore the idea of a worker. Fundamentally, I get the impression that he is believes economics discusses the rights of capital owners in far more detail than we talk about the rights of workers. However, I’m not certain that I agree – let me try to explain:
The worker in economics
Now I feel that the authours belief that economists ignore the worker stems from the fact that economists historically treat workers like a input to the productive process, in the same way as land, capital, oil etc. The capital owner purchases a bunch of labour etc and it creates a product, it then goes off to market, sells the product, and retains the surplus.
However, we can broaden the way we view this productive process. Contract theory gives us a way to view this relationship.
Fundamentally, the worker is willing to work for a certain amount of money. This “reservation level” depends on the possibility of other work, the price they put on leisure etc. The capital owner, knowing the cost of other inputs, and knowing how much they can sell the product for has a maximum price they are willing to pay to hire the worker. If they reach an agreement, the capital owner pays a certain wage to the worker in order to get the work done – which depends on their relative bargaining power.
Now economists, specifically labour economists, have studied the determinants of the workers bargaining power and the reservation wage in great detail – as a result, any belief that economists “ignore the worker” seems misplaced, they own a very special place in the productive process.
Excuse me – his fundamental concern is about working conditions, you appear to have missed that!
It is true that I have not mentioned working conditions. However, this comes from the fact that I believe these factors are implicit in the discussion I placed earlier.
Fundamentally, if workers have sufficient bargaining power (or a higher reservation wage), employees will improve working conditions, lift wages etc.
Now, I have no doubt that there is a substantial debate to be had about what level of bargaining power is fair, and what is the best mechanism to create the “best” outcome. However, these normative debates are outside of the scope of strict economics. It is the economists job to describe what is going on in reality, and describe how A affects B – in the strictest sense economists are not there to tell us what outcome we SHOULD have, but instead to tell us what outcome we WILL have given a certain set of policies.
As a result, if economists decide to add a bit of the “we should” to their policy discussions we should realise that this is the opinion of the economist – not of the economics profession. The dislike that the authour of the linked piece seemed to have for Martin Feldstein should be seen as a critique of Dr Feldstein’s value judgments – rather than a criticism of the way economists discuss the make up of the economy.
I felt that the idea that “economics ignores workers” is mis-placed. Potentially, many economists may undervalue the worker – however, this is a critique of those individuals, not the economic method. In fact, the economic method does provide a clear and transparent method for evaluating the process whereby wages and working conditions are determined.