Debating Judith Sloan on labor markets

Yesterday I took part in a debate with Judith Sloan, organised by the Economic Society of Australia, on the topic of labor market regulation. Before commencing, Judith paid me the backhanded compliment of saying that debating me was “like wrestling an eel”. I’ll take the complimentary part of the implication as “very difficult to beat”, while rejecting the suggestion that I’m prone to slipping from one position from another. I admit that I haven’t maintained the exact consistency of those market liberals (like Sloan) whose views appear to have remained unchanged since abotu 1980, but there has been a lot of data since then, some of it supporting the case for market liberalism but a lot going the other way.

My slides for the debate are online in PDF format and also Keynote for Mac.

70 thoughts on “Debating Judith Sloan on labor markets

  1. Newtonian, “A perhaps more comparable beast I have watched a little who is perhaps closer to Judith Sloan might be Janet Albrechtson.”

    lol I think you are onto something. But Janet, or Dame Slap as Dorothy Parker from the loon pond calls her, doesn’t get on The Drum as much as Judith does so I don’t really have much data on her to work with ;). I don’t read Sydney newspapers but from what I have read or heard about her, she seems to be quite happy to walk on stupid side of the road.

    There is some interesting work on ‘motivated reasoning’ which attempts to explain how intelligent people can choose to ignore facts and evidence and maintain their discredited beliefs. The main idea is that they are willing to do this to maintain their valued identity as a member of a group. This works for both left and right wingnuts of course but it is only the right who can afford to pay people to ignore their good sense.

    You might find this site interesting; check out the blogs; it’s a US site but they recently measured Australian attitudes toward climate change.

    And this link is to the Loon pond piece in which Dorothy has a say about Janet and assorted other suspects.

  2. Judy Sloan who thought the NBN was off the balance sheet.

    The only problem was it was the fourth item in the Budget paper statement no .7 .

    That is the part talking about assets.

    Typical Catallaxy research effort.

  3. Given what she manages to get for what she does, no one could afford the cost if she were to engage in serious research! For starters someone would have to finance her obtaining a basic sound education first. A sound education being a prerequisite for anything more.

  4. John, Ed Lazear proposed a baseline that employment protection laws have no effect on employment, welfare of workers, and profits if they can be undone by Coasian bargaining:
    • A law mandating redundancy payments is undone if the wages paid earlier in the job can be reduced.
    • The same for superannuation: many pension funds originated as a back-end loading of career pay to encourage high performance and reduce shirking. Net lifetime pay was higher because of higher productivity, less shirking, and lower monitoring costs.

    Lazear’s neutrality result is varied by changes in his assumptions but the most interesting of these is red-tape and procedural costs and where payments are made to third parties.

    Red tape and procedural costs that cannot be undone by contractual arrangements reduce job creation because the net discounted value of posting a new job vacancy is lower. Job destruction is also lower because it is more costly for firms to lay off workers.

    A robust finding is countries with the stricter employment laws have more stagnant unemployment pools. Higher youth unemployment rates and lower unemployment for the central age groups who are typically insiders (they have a long-term job sheltered by employment laws). Young people and females with intermittent labour force participation are the outsiders looking in.

    Such is the lot of social democrats – enforcing Directors’ law for regulation as well as for spending.

    For more information, see The Economics of Imperfect Labor Markets by Tito Boeri & Jan van Ours

  5. Alot of ex post long bow interpretation of Saint Ronald McDonald Coase has breathed in deep meaning where none existed. But so it has always been with all religions.

    “Coasting Bargaining”? Ain’t no such beast.

    Any other venerated great ones, whose theology you would like us to worship?

  6. A further interesting thing to note. There are no “results” or theorems in a proper science. (Except,of course, mathematics, if one counts it in as a ‘science’.)

  7. But religion abounds in ‘results’ and quasi theorems, often built for thousand’s of year on some sheppard boy’s addled prattlings.

  8. @Newtownian

    I am not sure if Nature publishes economics articles but it does publish Science Fiction (Robert J. Sawyer Nature: International Weekly Journal of Science (“The Abdication of Pope Mary III,” 6-12 July 2000). It was an invited article.

  9. If the Mary herself, the one impregnated by Zeus while he was a swwan, or am I getting my myths mixed, up (?), well if the Mary, how ever impregnated by the god of gods, if that one, were to descend from heaven and slap down her application for that job, she’d miss out. Simply missing the basic requirements: old white male virgin, preferably with a special love of young boys.

    So, indeed, truly a work of science fiction.

  10. John, I wonder if you under-sold the efficiency enhancing role of unions as set-out in Alchian and Demsetz (1972) – their modern classic on the theory of the firm.

    Employee unions, whatever else they do, act as monitors for employees.
    • Employers monitor employees and employees monitor employers.
    • Are correct wages paid on time? Usually this is easy to check.
    • But some forms of employer performance are less easy to meter and are at risk to employer shirking.

    Fringe benefits often are in non-pecuniary, contingent form: medical, hospital, and accident insurance and retirement pensions are contingent payments or contractual performances partly in kind by employers to employees. Each employee cannot judge the character of such payments as easily as with money wages.

    A specialist monitor – a union hired by employees- monitors those aspects of employer payments to employee that are most difficult for the employees to monitor.

    Because of economies of scale in monitoring and enforcing such contracts, unions may arise as a contracting cost-reducing institution for employees with investments in specific human capital and back-loaded pay including pension plans.

    In addition to narrow contract-monitoring economies of scale, a union creates a continuing long-term employment relationship that eliminates the last-period (or transient employee) contract-enforcement problem and creates bargaining power (a credible strike threat) to more cheaply punish a firm that violates the contract.
    • As a union makes it more costly for a firm to cheat an individual worker in his last period of work, workers are more likely to invest in specific human capital and accept back-loaded pay schemes, both of which raises their career wages.
    • A strike is a cheaper way to enforce a contract than litigation. Many firms stop dealing with a bad customer/unreliable supplier until a bill or problem is fixed.

    Unions are more likely to exist when the opportunistic cheating problem is greater, namely, when there is more firm-specific human capital present.

    Unions perform many of the functions carried out by professional agents in the sports and entertainment industries. These specialists know the going rate for your specific talents; act as a credible and informed negotiating agent; warn you off bad employers; and punish bad employers by not referring future clients to them.
    • The traditional literature on unions argues that unions act as a productivity shock and give employee voice in workplace affairs, which lower job turnover.
    • Unions as an institution to reduce contract negotiation and enforcement costs is better nested in the modern theory of the firm.

  11. @Jim Rose #14: Makes one cry to absorb your comment, comparing the entity you write about to the unacountable corrupt farce that unions have become in this country.
    Proved by their natural constituency, the worker, mostly declining to join one.

  12. Thanks. Now we can all engage in A & D worship. Yes, that paper, as are so many others, worth a read, but the reverential attitude is not something they, that paper, anyone, or anything deserves. Great reverence is an anathema to critical reasoning.

  13. As for the dissolution of unions. Unions no longer see doing the unions traditional job as part of their job, and unpunished free-ridering opportunities started to explode.

  14. @rog
    To be fair, I would be surprised if jimbo has not read the A&D paper. To be fair, unlike some on the net I don’t think, for the most part at least, Jim is attempting to pass himself of as having knowledge or education he does not possess.

  15. John, Adriana Kugler writes often on the impact of dismissal costs – also called firing costs or employment protection – on the operation of labour markets:

    • David Autor, William Kerr and Adriana Kugler. “Do Employment Protections Reduce Productivity? Evidence from U.S. States.” Economic Journal (2007).

    • Adriana Kugler and Giovanni Pica. “Effects of Employment Protection on Job and Worker Flows: Evidence from the 1990 Italian Reform.” Labour Economics (2008).

    Her evidence, which is suggestive rather than decisive, is that wrongful-discharge protection reduces employment flows and firm entry rates. Plants engage in capital deepening and experience a decline in total factor productivity, indicative of altered production techniques, there is alos reduced new entry by firms.

    Kugler is Chief Economist at the U.S. Department of Labor so that rules her out as a republican party hack.

    Perhaps you should amend to slide to note that many economists favour reforms to employment laws because many of these laws, as they stand, are widely believed to reduce dismissals, hirings and productivity. The same economists consider that labour market deregulation to be effective in generating new jobs and reducing administrative barriers to entrepreneurship

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