Employer-Subsidized Lunches Are Not Free

January 19, 2011

One of the great disincentives to respond to my blog posts (and this must be the main reason I never get any comments. That and not having any readers…) is that if you make good points, I’m almost certain to post a follow-up in which I claim that the last post didn’t really mean what you thought it meant.

Yesterday I posted something, and Robert responded, but now I’m going to say that my original post wasn’t clear enough.

My thesis, or anyway the assumption that makes my argument hang together, is that all the costs of employing a worker come out of that worker’s pay. Politicians and your man on the street see compensation divided up into wages, health insurance costs, costs of safety and work environment, taxes for Social Security and Medicare (employer’s portion and employee’s portion), and others. But if you think about it, all those costs are, for the employer, just money leaving his pocket. Hiring an employee at $1000 and no benefits is the same, for him, as paying the employee $800 directly and buying $200 in health insurance.

Robert presents as his non-“economic” reason for wanting regulations that “we think [worker safety] ought to be a cost of the service, rather than the cost of being an employee.” That reason is certainly “non-economic” in the sense that economic thinking makes clear that that kind of reasoning won’t work. Employees pay the costs of employing them. It doesn’t matter what little tags you attach to the different expenditures employers have to make.

Because employers always have the choice to provide a cleaner, safer work environment while paying less in wages and salaries, you have to recognize that when you advocate for more safety regulations, you are saying that workers are screwing up when they decide who to work for. They are choosing to work for the Triangle Shirtwaist Company at $2/hour rather than at the factory where you get bathroom breaks and they don’t chain the doors shut for, say, $1.50 an hour. They prefer extra money rather than extra safety.

Why are they making these dangerous decisions? Because, as I tried to emphasize before, they are really, really poor. They don’t want to die in a factory fire, just as we don’t, but an extra dollar in income means more to them than it does to us. So they take a job at the more dangerous factory for higher pay. It’s not a great choice to face, but the reason they face the choice is, once again, because they are poor.

Robert is as enamored of Behavioral Economics as I am of just regular Economics, so he argues that poor people are even screwing up according to their own true preferences. Regulations help them make the trade-offs that they would have made anyway if they were the utility-maximizing rationalists we neoclassical economic theorists think they are. Sure I disagree, but this is at least the disagreement I want to be having. The disagreement that I don’t want to be having is the one where you say that safety regulations are great for workers, because those costs just get put on the employer, and then I get frustrated because that isn’t how labor markets work.

[Bonus Update: The other disincentive to commenting on my blog is that if you do, I will probably mention your name a lot in my next post.]

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One Response to “Employer-Subsidized Lunches Are Not Free”

  1. Rrrobert! Says:

    But so having the debate you want to be having:

    I know you hate “studies show” without actual citations, but since I don’t read any of the literature firsthand it’ll have to suffice.

    I mean, don’t we have empirical evidence that consumers (and workers) express inconsistent preferences? Don’t we have further evidence that they’re not very good risk estimators, particularly when it comes to self-insurance? So is it irrational to think that workers are screwing up their risk calculus? Not because we arrogantly think they ought to choose differently, but because when you present them with one risk in one context, they take it, and an equivalent risk in another context, they don’t.

    And if you think workers are, on a broad scale, systematically underestimating their risks, mightn’t it be more efficient to adjust the whole scale via a centralized decisionmaker? Presumably, yes, given a sufficiently large problem, a sufficiently small set of correct risk-estimators, and a sufficiently accurate and efficient decisionmaker. Which leads us to an empirical argument, no?

    Taking it back from there, though, isn’t it possible-to-likely that regulations today express (albeit generally and inexactly) societal responses to the exactly this kind of situation? If so, isn’t the more appropriate response to try to get at the object of regulations, rationalize and precisify them, making them more efficient, rather than tearing down the whole thing? At least, insomuch as you’re selling policies as good for everyone rather than as an expression of your personal set of preferences…?

    I am not happy with the quality of my response. There are too many questions, and they’re too leading. But meh. Maybe you can get another blog posting out of it.


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