Turnover, prices, and reallocation: Why minimum wages raise the incomes of low-wage workers

Ben Zipperer, Economic Policy Institute

The research on the minimum wage contributes insights into claims raised in legal arguments that employers and workers have equal power and that an employer’s management power must be unrestricted lest the firm or the economy suffer. Mandated minimum wages, the conventional argument goes, will force firms to pay a wage higher than the market rate, resulting in job losses and, potentially, bankruptcy. But evidence from minimum wage increases and expansions finds that the policy can improve labor market conditions without causing harmful side effects because of such “channels of adjustment” as reduced worker turnover, consumer price increases, and the reallocation of low-wage workers to higher-paying establishments. In general, employer mandates can increase the prevalence of good jobs. By altering the mix of firms and reallocating workers across them, the minimum wage creates or at least shifts the composition of jobs toward those that are more productive and pay higher wages. 


If you don’t like your job, can you always quit?: Pervasive monopsony power and freedom in the labor market

Suresh Naidu, Columbia University, and Michael Carr, University of Massachusetts Boston

One common metric of monopsony power is the quit elasticity, measuring how much more likely a worker is to quit a job in response to a wage change. Experimental and quasi-experimental variation in wages across workers within a given job results in quit elasticities in the 2–3 range, implying that a 10% reduction in wages increases the probability of quitting by 20–30%. In a model with monopsonistic employers, a quit elasticity of 2–3 also implies that workers are paid about 80–85% of the value they produce. These results indicate that employer power is pervasive. We present observational evidence that historically disadvantaged groups have systematically lower quit elasticities, indicating they face even greater employer power. Because monopsony power comes from an inability of workers to voluntarily switch jobs, the quit rate and especially the quit elasticity can be a useful metric for judging the health of the labor market. Pervasive employer power alters the analysis of labor market policy in a number of important ways.


Worker mobility in practice: Is quitting a right, or a luxury?

Kathryn Edwards, Rand

Worker mobility—the ability to find and take another job—is at the core of worker power, and, conversely, worker immobility is at the core of employer power. But how easy is it for a worker to leave a job and look for another? 

In this paper, we present evidence of barriers to worker mobility along two dimensions: labor market considerations (can a worker find another job?) and financial considerations (can a worker afford to transition to another job?).  


Understanding black-white disparities in labor market outcomes requires models that account for persistent discrimination and unequal bargaining power

Valerie Wilson, Economic Policy Institute, and William Darity Jr., Duke University

The assumption of a perfectly competitive labor market is central to some of the most widely accepted theories in the field of labor economics. But the persistent threat of unemployment means that workers often cannot change jobs or employers easily and without cost. This imbalance of power disproportionately disadvantages black workers: One of the most durable and defining features of the U.S. labor market is the 2-to-1 disparity in unemployment that exists between black and white workers. The economic theories most often invoked to explain racial differentials in labor market outcomes—human capital theory, taste-based models of discrimination, and statistical models of discrimination—fall short in their attempts to explain long-standing racial disparities in unemployment and pay while blatantly denying the persistence of discrimination. A better framework is stratification economics, which argues that, while discrimination is unjust, it serves the functional role of preserving hierarchy. Identity can be structured so that investing in, or associating with, a group identity can lead to economic returns and benefits.


Codetermination and power in the workplace

Simon Jäger and Shakked Noy, Massachusetts Institute of Technology, and Benjamin Schoefer, University of California, Berkeley

How does codetermination—entitling workers to participate in firm governance, either through membership on company boards or the formation of works councils—affect worker welfare and corporate decision-making? We critically discuss the history and contemporary operation of European codetermination arrangements and review empirical evidence on their effects on firms and workers. Our review suggests that these arrangements are unlikely to significantly shift power in the workplace, but may mildly improve worker welfare and firm performance, in part by boosting information-sharing and cooperation and in part by slightly increasing worker influence.


The great reversal: The story of how an influential international organization changed its view on employment security, labor market flexibility, and collective bargaining

John Evans and William Spriggs

The claim that labor market flexibility—the lack of regulations and collective bargaining constraints on employers—is essential to maximizing employment, minimizing unemployment, and obtaining growth simply does not have empirical support. That the claim lacks evidence can be seen by tracing how the market fundamentalist assertions made in the initial OECD Jobs Strategy in 1994, conducted with limited external evidence, has been reversed by the OECD and by other international financial institutions in the years since. The OECD now notes that new evidence “shows that countries with policies and institutions that promote job quality, job quantity [maximum employment rather than minimum unemployment] and greater inclusiveness perform better than countries where the focus of policy is predominantly on enhancing market flexibility.” It has also rejected the argument that collective bargaining defends the interest of “insiders” against “outsiders” in the labor market. While OECD reports previously made almost indiscriminate calls for lowering labor standards to increase labor market flexibility for employers, they now caution that irregular work can be a danger.


The legal ‘freedom of contract’ framework is flawed because it ignores the persistent absence of full employment

Lawrence Mishel, Economic Policy Institute

The “freedom of contract” view that employment arrangements negotiated between employers and employees are necessarily optimal exchanges between equal parties willfully ignores the fact that workers rarely enjoy full employment, and without full employment employers enjoy plentiful access to willing new workers while employees face difficulties and costs in finding alternative comparable jobs. Many groups of workers, particularly Blacks and those without college credentials, have higher-than-average unemployment, and never enjoy a full employment environment even when the aggregate economy is thought to be at full employment. Excessive unemployment matters a great deal: When unemployment is high, voluntary quits and the ability to switch jobs diminish, unemployment spells are longer, finding a good job is harder, and, correspondingly, wage growth is subdued for low- and middle-wage workers. Employers, on the other hand, are able to fill vacancies with qualified workers more quickly and with less effort. Simply acknowledging the persistent absence of full employment for many workers renders the freedom-of-contract framework a flawed basis for assessing employment relationships.


Identifying the policy levers generating wage suppression and wage inequality

Larry Mishel and Josh Bivens, Economic Policy Institute

There is now widespread acceptance across the political spectrum that the typical worker’s wages have grown very slowly or been stagnant for several decades but a consensus narrative explaining wage stagnation has not developed yet.


Risk without reward: The myth of wage compensation for hazardous work

Peter Dorman, Evergreen State College, and Les Boden, Boston University

A small but dedicated group of economists, legal theorists, and political thinkers has promoted the argument that little if any labor market regulation is required to ensure the proper level of protection for occupational safety and health (OSH), because workers are fully compensated by higher wages for the risks they face on the job and that markets alone are sufficient to ensure this outcome.


Gender inequality and bargaining in the U.S. labor market: Why care work is undervalued

Nancy Folbre, University of Massachusetts-Amherst

Empirical research on the causes of the surprisingly persistent earnings gap between women and men often takes the form of statistical models that control for as many variables as possible—race, ethnicity, education, labor force experience, job tenure, hours of work, occupation, industry—but ignore any measures of bargaining power other than unionization.

Employment law


The powerful role of unproven economic assumptions in work law

Julia Tomassetti, City University of Hong Kong

Many rules and statutory interpretations in U.S. work law that entrench employers’ power over workers rely on unproven economic assumptions. This article explores three. First, courts assume that the individual employee and employer have relatively equal bargaining power, an assumption often framed and defended within the circular logic of “freedom of contract.” Second, courts assume that the employer’s authority over the enterprise—its managerial prerogative—must be near absolute to promote efficiency in the enterprise and economy. Third, courts assume that the costs of maintaining the status quo of managerial prerogative and an employer’s at-will authority are less than the costs of altering it. Courts use these assumptions to give employers broad rights to terminate employees, to impose arbitration agreements, and to limit worker collective rights.


Was it something I said?: Legal protections for employee speech

Charlotte Garden, Seattle University School of Law

“At-will” employment is sometimes shorthanded as employers’ rights to fire employees (and employees’ right to quit) for a bad or arbitrary reason, or for no reason at all.


Death by inequality: How workers' lack of power harms their health and safety

Ann Rosenthal, former Associate Solicitor for Occupational Safety and Health at the Department of Labor

This paper focuses on the legal constraints on employers created by the Occupational Safety and Health Act of 1970 (OSH Act) and use some common examples to explore how, despite these constraints, employers retain considerable powers over their workers’ abilities to protect themselves from injury, illness, death, and loss of human dignity.


Strengthening accountability for discrimination: Confronting fundamental power imbalances in the employment relationship

Jenny R. Yang and Jane Liu

The promise of our nation’s anti-discrimination laws has not been fully realized because our current enforcement and legal system has failed to confront the fundamental power imbalance underpinning the employment relationship. At the root of the problem is a system that places the primary responsibility for enforcing anti-discrimination laws on individual workers, who must file complaints with their employer or a government agency.


Power in the employment relationship: Why contract law should not govern at-will employment

Julia Tomassetti, City University of Hong Kong

This paper examines the consequences of designating at-will employment a “contractual” relationship. When employment is “at will,” both the employer and employee have a right to quit the relationship for any or no reason, at any time.


Lochner lives on: Lochner presumption of equal power lives in labor law and undermines constitutional, statutory, and common law workplace protections

Samuel Bagenstos, University of Michigan

In the early 20th century (the “Lochner era”), courts invalidated numerous labor and employment laws for violating a supposed constitutional “freedom of contract.” 



Understanding the claims about labor markets in debates on ‘Private Government‘

Chetan Cetty, University of Pennsylvania • Preface by Elizabeth Anderson, University of Michigan

Elizabeth Anderson’s book, Private Government, and associated preceding publications, has generated an important debate about the lack of freedoms in and out of the workplace due to the severe imbalance of power between workers and employers. This paper identifies the economic claims made in philosophy debates on private government to justify the presumption of equal power between employers and employees.

Political science


Business power and the turn toward the local in employment standards policy and enforcement

Janice Fine and Hana Shepherd, Rutgers University

As the strength of laws governing labor relations has diminished across the private sector, a wave of labor policy change has swept over states and cities, with the result that employment ordinances and public enforcement have become the predominant labor market institutions protecting workers. But how are these ordinances successfully crafted, implemented, administered, and enforced, and what role does business, with its outsized economic power and political influence, play in shaping, amending, or blocking these efforts? This paper uses comparative case studies of three major Democrat-controlled U.S. cities—Seattle, Los Angeles, and New York—that not only expanded their employment protections but also established a local agency and directed substantial resources toward enforcement. The findings from these successful efforts reveal how pro-business (particularly pro-small-business) narratives are deeply woven into perceptions, even among progressives, of what public policy can and should accomplish, and they offer specific lessons for worker advocates undertaking new campaigns.  


Alt-labor’s turn toward politics and public policy to combat the exploitation of low-wage workers: Building power and ‘punching above their weight’

Daniel J. Galvin, Northwestern University

Rampant exploitation and discrimination across many industries belies the conventional assumption of equal bargaining power in the workplace.


Where are the employers?: American labor relations in comparative perspective

Kathleen Thelen, Massachusetts Institute of Technology

This paper traces the role of employer organization in shaping economic equality and shared prosperity.


Explaining the erosion of private-sector unions: How corporate practices and legal changes have undercut the ability of workers to organize and bargain

Larry Mishel, Economic Policy Institute, Lynn Rhinehart, Economic Policy Institute, and Lane Windham, Georgetown University

A full appreciation of the need for comprehensive labor law reform requires an understanding of the serious shortcomings in current law and how they have been exploited over the years by employers resisting efforts by their workers to form unions.


Power and politics in the U.S. workplace: What imbalances of workplace power mean for civic engagement—and democracy

Alexander Hertel-Fernandez, Columbia University

Scholars have long recognized that the workplace is not just where workers carry out their jobs. It is also a place where individuals can learn and exercise civic skills and move to political action.

External publications