Chris Bertram, Corey Robin and Alex Gourevitch have given us a lot to think about in their recent essay at Crooked Timber. There’s a lot I want to say about it. Rather than saving it all up for one large post though, I thought I’d take things one point at a time. And I want to start with the issue of employer cruelty.
One of the most striking aspects of BRG’s essay is the lengthy survey of the various ways in which workers’ freedom is curtailed, both inside and outside of the workplace. Bosses demand workers’ Facebook passwords, force them to pee in a cup, prevent them from peeing too often, prevent them from drinking or cross-dressing at home, and so on. It’s a long and motley list, but the overall effect is powerful. Employers come off looking like petty, power-mad little tyrants.
But looks can be deceiving. Consider the case of payday loans as an example. Payday lenders often charge fees that translate into an APR of over 400%. That looks mean. It looks like they’re taking advantage of desperate people in order to line their own pockets. But if you actually take a look inside those pockets – if you look at what kind of profits payday lenders actually earn – you find something surprising. It turns out that the typical payday lending operation isn’t very profitable at all – less profitable, in fact, than a typical Starbucks. Where does all the interest from those 400% APR loans go? Well, for starters, payday loans are usually short-term loans for small amounts of money, so the revenue isn’t as high as you would expect. And what revenue does come in is largely eaten up by high operating costs and high default rates on the risky loans that payday lenders make.
What this means is that, given the economic constraints they face, payday lenders have to charge high fees in order to make a normal rate of profit. If payday lenders don’t charge high fees, they can’t cover the costs of doing business. And if they can’t cover the costs of doing business business, their customers don’t get any loans at all. And this makes it very hard to interpret charging high fees as mean. Not only are the fees necessary for the payday lender to make a normal profit – surely not an unreasonable expectation for a businessperson to have – they are necessary for payday lending customers to get the loans that they so desperately want.
I wonder if a similar story could be told about many of the purportedly mean behaviors in BRG’s list. After all, if, say, limiting workers’ bathroom breaks hurts workers more than it benefits employers, then one would expect competitive pressures to provide some kind of check against this behavior. So what’s going on? Is it a failure of competition – some kind of market failure that allows bosses to get away with being inefficiently mean? Or is it a necessary check against employee slacking?
This, I take it, is the point of many of the questions Tyler Cowen asks. And they’re worth taking seriously, not just dismissing as the rantings of a libertarian ideologue. Maybe some of the things that employers do to their employees ought to be legally impermissible, even if they are rational responses to economic incentives. But this is something that critics like BRG need to face up to more squarely. If searching employees is as necessary for some firms to make a normal profit as charging high fees is to for payday lenders to do so, then what sorts of regulations can we impose that will end the indignity of searches without ending the benefit that workers derive from their employment?
Employer practices like those catalogued by BRG might really be wrongfully exploitative. But if it’s exploitation, it’s exploitation that occurs within the context of a mutually beneficial employment relationship. And designing policies that end the exploitation without undermining the mutual benefit is tricky business indeed.