View and download the full publication here. This publication appears in “Not So Free to Contract: The Law, Philosophy, and Economics of Unequal Workplace Power,” Journal of Law and Political Economy vol. 3, no. 1, special issue edited by Lawrence Mishel of the Economic Policy Institute.

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.

I. Introduction

Economists of all political stripes agree that a key restraint on employers in the labor market is the threat of workers quitting for other jobs. In theory, the voluntary flow of workers across firms, and in and out of the labor market, ensures that workers are rewarded according to “the law of one price,” which says that workers with similar characteristics, doing similar jobs, at similar firms, must be paid similar wages. Firms that attempt to underbid other firms should quickly lose all of their employees. Importantly, this logic applies to all attributes of a job, including nonwage benefits and working conditions more generally. When quitting is easy, no abusive bosses can last long, no predatory supervisors can keep their jobs, and other excessively onerous and unpleasant conditions of work will either be compensated for or competed away. Employers will bend over backward to provide amenities and wages to retain labor, and workers will be roughly indifferent across the jobs they can hope to get. As Milton Friedman wrote in Capitalism and Freedom (1962, 19), “the employee is protected from being coerced by his employer by the existence of other employers for whom he can work.”

The easy, and voluntary, flow of workers from job to job is one of the defining features of a competitive labor market. Competition, in turn, implies that firms cannot exercise power over their workers beyond what was agreed to in the employment contract, an assumption that is pervasive in economics, law, philosophy, and political science. The presumption that labor markets are defined by competition shapes both how we think about labor markets and how labor markets are governed both formally and informally. For example, the importance of an employee’s ability to quit is given great prominence in Epstein’s (1984, 947–8) well-known defense of the employee-at-will doctrine, which was clearly articulated in an oft-quoted passage from Payne v. Western & Atlantic Railroad, 81 Tenn. 518–19 (1884):

[M]en must be left, without interference to buy and sell where they please, and to discharge or retain employees at will for good cause or for no cause, or even for bad cause without thereby being guilty of an unlawful act per se. It is a right which an employee may exercise in the same way, to the same extent, for the same cause or want of cause as the employer.

In other words, the argument for at-will employment legislation, and much of existing employment law doctrine, rests on the presumption that both firms and workers can easily terminate an employment relationship. For workers, this presumption means that one can either easily transition to another, equally good job, or that unemployment is not penurious.

In reality, however, finding another job as good as the job one has is not so easy, and quitting a job is a fraught, complicated, and often costly decision. Jobs are complex, idiosyncratic relationships, and individuals value them for reasons that are often only theirs. A friendly coworker or generous boss, an easy commute, proximity to schools, and access to child or elder care all matter in the preferences a worker has for a job. Further, workers do not know about all the offers in the labor market: Most of us are not veteran job hunters, and we depend on a variety of ad hoc mechanisms and heuristics to find out about jobs that are good fits. The result is that job offers are rare, and even in tight labor markets finding a good new job depends a lot on luck in social networks, location, and skills.

The basic fact that work cannot be separated from workers means that limited mobility in response to wage differences across employers is pervasive, and this is true even without colluding or concentrated employers, noncompete agreements, or a variety of policies exacerbating this limitation. The availability of alternative offers, and so the cost of quitting a job, also likely varies by geography, race, and gender, as evidenced by, for example, persistently higher unemployment among Black men (Couch and Fairlie 2010) and the gendered expectations around female mobility.

When quitting a job is costly, employers have power over their employees—a form of power economists call monopsony power. This power allows firms to accept possibly higher turnover in exchange for paying workers lower wages, providing fewer benefits, and allowing worse working conditions, resulting in firms that are too small, pay too little, and have high turnover. This tradeoff is made possible by the fact that, when quitting is costly, workers are less willing to leave their jobs than they should be, and they are thus less sensitive to differences in wages and working conditions across various jobs. They leave jobs slowly, or not at all, thereby reducing the competitive pressure that firms may feel to eliminate discrepancies, and they are vulnerable to the arbitrary whims of their managers and employers.

Importantly, monopsony power does not require anticompetitive artifices such as noncompete agreements, collusion, or concentrated employers to generate employer market power. That is, monopsony power does not come solely from archetypically anticompetitive activities but rather is inherent to how laissez-faire labor markets work and how workers find and value jobs. As Alan Krueger noted in his Jackson Hole keynote address in 2018:

Although economists’ go-to model of the labor market is often one with perfect competition—where bargaining power is irrelevant because supply and demand determine the wage, and there is nothing firms can do about it—in many applications I think it is more appropriate to model the labor market as imperfectly competitive, subject to monopsony-like effects, collusive behavior by firms, search frictions, and surpluses that are bargained over. As a result of these labor market features, firms should be viewed as wage-setters or wage-negotiators, rather than wage-takers.1 (Krueger 2018, 267)

All monopsony requires is that quitting a job is costly, that these costs result in workers being so reluctant to leave their jobs that firms do not have to adjust wages or attributes of a job to keep workers, and that this cost differs from worker to worker in ways that employers may not be able to, or may choose not to, factor into their pay schemes.

An important by-product of monopsony power is that it gives employers latitude to use contractual devices like noncompete clauses to further lock in workers without having to compensate them for forgoing alternative employment (Starr, Prescott, and Bishara 2020). If the labor market were perfectly competitive, noncompete contracts would be perfectly offset by higher compensating wages (or other amenities)—a notion called a compensating wage differential—because workers would never accept the disamenity of forgoing future employment opportunities without being compensated by their current employer. When labor markets are monopsonistic, a noncompete contract will not necessarily be perfectly offset by higher wages, and so it might pay for an employer to use one. One could imagine an inverted-U relationship between noncompete contracts and the degree of monopsony. At one end, where the labor market is a perfect monopsony, there is no need for a noncompete agreement because there is only one employer and therefore nowhere else for workers to go; at the other end, where the labor market is perfectly competitive, there is no scope to introduce a noncompete agreement without losing all ability to recruit unless workers are sufficiently compensated, which would undermine the reason for using the agreement in the first place. But in between is a range of situations where workers may be willing to accept a noncompete agreement without demanding a commensurate increase in pay or benefits.

While noncompete clauses are one particularly important example, monopsony power means that, in general, the specific job and many of the features of a given employment relationship are designed to increase retention, particularly retention of high-productivity workers, potentially at the expense of less-productive workers in the same firm. This means that workplace cultures, tolerance of harassment, and even things like health benefit packages and workplace safety are not provided to satisfy the interest of the firm’s average workers but instead the most productive, or the ones most likely to quit. This potential for disparate treatment creates an important role for institutions of voice, such as collective bargaining, to represent the interests of all workers but most importantly those who are least likely to quit, because it is these workers over whom employers have the most power.

Although monopsony does not rely on the presence of anticompetitive practices like noncompete and antipoaching agreements and simple, naked collusion, anticompetitive practices certainly exacerbate monopsony. There is evidence that these practices are pervasive in today’s labor market (see Block and Harris 2021), and indeed even Adam Smith noted the predilection for employers to collude in setting wages. Yet merger screening policy overwhelmingly focuses on consumer welfare rather than worker welfare, despite the fact that mergers in thin labor markets have a detectable negative effect on wages (Arnold 2019; Prager and Schmitt 2019; Naidu, Posner, and Weyl 2018). New papers are coming out every few months that document negative effects of labor market concentration on wages, with the takeaway that roughly 10% higher concentration (as measured by the Herfindahl index) implies 0.1% to 1% lower wages.

One common method of measuring the degree of monopsony power—the method we use below—is the quit elasticity, a measure of how much more likely a worker is to quit a job in response to a (small) wage change. Monopsony comes, in part, from a reluctance of workers to quit their jobs. This implies a low quit elasticity because being reluctant to quit a job means that the likelihood an individual quits a job does not change very much in response to wage changes (i.e., a small decline in the wage does not increase the probability of quitting, and a small increase in the wage does not decrease the probability of quitting). Conversely, a competitive labor market implies a very high quit elasticity because even small changes in the wage should result in large-scale changes in quits.

Experimental and quasi-experimental variation in wages across workers within a given job results in quit elasticities in just the 2–3 range, implying that a 10% reduction in firm wages increases the probability that the average worker will quit by 20–30%. While this may seem like a lot, high competition theoretically implies the probability of quitting in response to even a small wage decrease should approach 100%. Moreover, trading off lower wages for somewhat higher turnover may be appealing to many firms, especially in situations where the cost of turnover is low. Evidence from survey data suggests quit elasticities that are even smaller, though these estimates are likely biased due to a failure to account for other labor market dynamics changing at the same time that may affect wages and the likelihood of quitting.

What is the cost to workers, and the profit to employers, of quit elasticities in such low ranges? And how might the impact vary between different groups of workers? Less is known on how the degree of monopsony power varies across historically disadvantaged groups, although related evidence on the comparative weakness of labor market outcomes experienced by these groups (Couch and Fairlie 2010) suggests that they should face higher levels of monopsony power as employers choose to leverage the weaker labor markets. Among our calculations (discussed in more detail below) are the following:

• If employers are strictly profit-maximizing, then a quit elasticity of 2–3 implies that workers are paid about 80–85% of the value they produce for the firm (i.e., marginal revenue product), with employers (or other input suppliers) pocketing the difference.

• Monopsony, as measured by lower quit elasticities, is higher in low-wage sectors such as retail and restaurants, for low-wage workers as measured by the bottom quartile of worker fixed-effects, and during business cycle downturns. These workers (and during these periods) may as a result reap an even lower share of their productivity.

• For men, however, the quit elasticity is 0.16 compared to 0.09 for women, implying that men are almost twice as likely to quit a job due to the same-size wage decline as are women.

• For white workers the quit elasticity is 0.12 compared to 0.07 for Black workers, implying that white workers are also almost twice as likely to quit a job in response to the same-size wage decline as are Black workers. Again, that historically disadvantaged groups—particularly Black workers, according to our results—are less sensitive to wage changes implies that firms have more leeway to actively reduce, or fail to increase, their pay because they are less likely to exercise the primary form of power available to them, which is to quit. And, while the elasticity estimates themselves are small compared to quasi-experimental evidence, the comparison of elasticities between groups is still a valid exercise.

Of course, no one would argue that labor markets are truly perfectly competitive, but viewed from this perspective, it is clear that elasticities of the size that have been estimated to date are far from what are expected in a competitive labor market. Even urban labor markets in low-wage, high-turnover sectors like food services or retail have low quit elasticities, despite being precisely the setting where labor markets ought to be competitive because there should be myriad alternative employment opportunities for workers and the workers ought to be easily substituted by firms.

The presence of monopsony suggests a more expanded view of how to judge the health of a labor market. Specifically, because monopsony power comes from an inability of workers to voluntarily switch jobs whenever they want, the voluntary job separation rate (or quit rate) can be a useful metric for judging the health of the economy, in addition to standard measures like the vacancy or unemployment rate. Its usefulness is partly because there is a “job ladder” that is an important source of wage growth during expansions and a major source of wage stagnation during downturns, when the ladder collapses; it is also partly because quits summarize the ability of workers to leave terrible working conditions that are not adequately compensated for. Further, the quit rate is a flow measure of labor market slackness, and so it moves more quickly than stock measures like unemployment, and relying on the former could speed up the timing of policy changes. Combined, these facets of the quit rate imply it should be a macroeconomic indicator that monetary and fiscal authorities pay attention to. If there is pervasive and persistent involuntary unemployment or underemployment, then there is always a “reserve army” of the unemployed available as new recruits, and so employers do not have to worry so much about preventing quits. Markets that do not guarantee full employment cannot guarantee worker freedom of choice or rely on worker exit to constrain employer exploitation.

One caveat to the literal monopsony interpretation of the labor market is that employers do not have to use all the monopsony power they have. For example, some firms may choose to use pay and/or benefits to elicit higher effort and quality or (even) stronger loyalty from their workers, steps that could in certain circumstances increase firm profitability.2 In order to deter shirking on the job, the threat of costly unemployment must be salient, and so monopsonists (particularly those without extensive workplace surveillance technologies) may have to pay wages higher than workers’ outside options. Incorporating effort implies that the output-reducing prediction of simple monopsony may not be borne out empirically, as powerful employers can impose faster work speed as well as lower wages. Similarly, employers can’t perfectly control their managers, and managerial interest in empire building may prevent employers from exercising all their monopsony power. Employers may also choose to set pay in a way that is largely unresponsive to local labor market conditions because, thanks to their power, they can be indifferent to the wage, paying arbitrary wages without worrying too much about losing all their workers. This indifference is revealed by the surprising degree of uniformity of wages paid by the same employer across disparate labor markets.3 Finally, some firms may choose to pay higher wages either in an attempt to increase their applicant pool and hopefully identify the most productive workers, or as an attempt to produce a reputation that consumers (or politicians) might reward.

II. Dynamic monopsony: The microeconomics of quits

Labor economists have long been divided over whether (and which) labor markets are best characterized by perfect competition or by monopsony. The defining feature of a perfectly competitive labor market is that a firm can hire as many workers as it desires at the prevailing wage rate, but also that it cannot hire any workers without paying that rate. Again, this implies that the firm faces an extremely elastic quit rate, or that decreasing wages even slightly below the market rate should result in essentially all of the workers quitting. The quintessential monopsony is a company town, where the only way a firm can hire more workers is to either draw in people already in the town but out of the labor force or draw new people into the town. In a monopsonistically competitive labor market there may be many employers, but it remains the case that, in order to recruit and retain more workers, firms must raise wages in order to overcome the costs workers incur in either entering the labor market or in switching jobs. The monopsony literature—and the term monopsony—dates back to 1933, when Joan Robinson published The Economics of Imperfect Competition (Robinson 1933). Since then, the literature on imperfect competition in labor markets has ballooned, not just in labor economics but also in law and economics, macroeconomics, international trade, and even industrial organization.4

Besides responding to outstanding puzzles in the minimum wage literature, the recent explosion of papers on monopsony reflects both the growing availability of detailed administrative data linking workers and employers and the decreasing cost of experimental interventions in real-world labor markets. Paradoxically, the decline of union coverage, minimum wages, and the willingness of firms to promote from within has made monopsony more visible. Recent empirical work suggests that a firm’s labor supply elasticity, which represents the combined impact of the change in workers quitting and the change in new employees when the wage changes, lies somewhere between 2 and 6, which implies that a 10% decrease in the wage decreases labor supply to the firm by 15–50%.

The sensitivity of firm-specific employment to wages, or the elasticity, is a direct measure of how much wage-setting power employers have. Set wages too low, and an employer will lose all its workers. Set wages too high, and an employer will lose profits. The just-right level of wages will trade off profit per worker with the number of workers staying at the firm. The more sensitive employment is to the wage—i.e., the larger the elasticity—the steeper this trade-off is, so that any attempt to lower worker wages will result in a much larger exodus of workers. In contrast, if this labor supply elasticity is low, then firms can pay workers low wages without having to worry about too many quitting. Variation in the elasticity a firm faces can come from differences in the type of work the firm requires, the location of the firm and the local labor market conditions the firm faces, and the pool of available labor from which the firm can hire.

Direct estimates of monopsony power that are obtained in thick labor markets—where there are both many workers and many employers—offer the most compelling evidence that monopsony is pervasive. Thick labor markets should mean that there are lots of workers looking for a job and lots of employer competition, and that no individual firm is large enough to be able to unilaterally alter conditions in the labor market; thus, labor supply elasticities to any one firm ought to be quite high. Generally, these estimates rely on the fact that a substantial fraction of people who quit employment at one firm become a new employee at another, meaning that there is a tight link between the average quit elasticity and the average labor supply elasticity to that firm. When the firm increases its wages, it both loses few workers and gains new workers, who will be quitting other firms.

Some of the most credible evidence on monopsony power in the United States is provided by the few randomized controlled experiments in which wages are randomized for identical jobs in markets with many wage-setters and little in the way of barriers to entry and movement between firms. Caldwell and Oehlsen (2018) randomized wages for Uber drivers, including those who also drove for Lyft. Examining the rate at which drivers switched between the two, they found a surprisingly low elasticity of between 4 and 5, suggesting that if the implied hourly wage was 10% higher at Uber (Lyft), then 40–50% of workers would switch to Lyft (Uber). Given that workers literally just have to switch apps on their phone, this is a surprisingly low rate of switching in response to a large wage difference. Dube, Jacobs, Naidu, and Suri (2020) experimentally varied wages for an identical task and found substantial monopsony power even on (putatively thick) Amazon Mechanical Turk.5 And, in a nonexperimental setting, Dube, Giuliano, and Leonard (2019), examining a large national retailer that implemented a national wage increase policy pretty much independently of any local labor market conditions, found that quits happened predominantly among those who didn’t get raises while their peers did. This paper illustrates both dimensions of monopsony: the constraints on internal wage differentiation and the extent of labor market competition. Workers quit a lot in response to arbitrary wage differences with their peers, but not so much in response to their own wages alone.6 A meta-analysis of the literature by Sokolova and Sorensen (2021) found an average labor supply elasticity of around 4, implying that a 10% increase in the wage is associated with a 40% increase in employment from a combination of fewer people leaving the firm and new people joining.

Other important evidence on labor supply elasticities comes from firm-specific shocks to labor productivity. In this literature, firms are suddenly hit with a shock that raises the productivity of labor (e.g., a patent is approved, a federal procurement bid is won, or student enrollment at a university goes up). If the employer has to raise or lower firm-specific wages, that suggests they have labor market power, and the resulting change in employment can be used to estimate labor supply elasticities. For example, Lamadon, Mogstad, and Setzler (2022) find a labor supply elasticity between 6 and 6.5 using shocks like this, while Goolsbee and Syverson (2019) find a labor supply elasticity of 1.9 (for full professors) to 7.8 (for assistant professors). One limitation of this literature is that firms can adjust many dimensions of compensation (e.g., hours) in response to productivity shocks (either upward or downward), making isolating the effect of wages difficult.

A. Monopsonistic competition: Evidence from matched worker firm data

In Bassier, Dube, and Naidu (2022), the quit elasticity is estimated by matching workers who are at the same firm and paid the same wage at time t–1 but leave to different firms at time t. They then look at how long workers stay at that next firm as a function of the wage change they got between t−1 and t. Workers lucky enough to land at a high-wage firm will stay longer before leaving again, and workers who land at a relatively low-wage firm will likely leave quickly.

This relationship is summarized in Figure A, reproduced from their paper. It shows a declining relationship, so that the probability of quitting decreases as the wage increases. Faster declines (a steeper slope) mean less monopsony power because workers are more sensitive to the wage change. The magnitude is similar to the other experimental and quasi-experimental estimates described above, where the quit elasticity was about 2 and implied a labor supply elasticity of around 4. So, if the employer decreases wages by 10%, the probability of quitting rises by 20%, it becomes 20% harder to get new recruits, and so overall labor supply to the firm falls by 40%. Quits matter, but they are hardly adequate as the sole device for restraining the capricious or exploitative whims of employers.

Figure A

Further, the connection between aggregate labor market tightness and degree of employer power can be seen in differences in the labor supply elasticity across periods and across groups of workers (Figure B). Recessionary periods with higher unemployment have lower labor supply elasticities, implying more employer power, which makes sense because there are fewer alternative employment opportunities: fewer workers are quitting, and firms are hiring fewer workers. Low-wage workers have lower labor supply elasticities, implying that they face greater employer power. This is perhaps prima facie surprising because low-wage workers have higher turnover in general. But this turnover seems to be not particularly sensitive to the wage, and indeed one can imagine many competing risks, besides those that are wage-related, driving quit behavior for workers facing volatile schedules and other life shocks.

Figure B

B. Heterogeneity: Evidence from the SIPP

The prospect of heterogeneity in monopsony power by gender dates to Joan Robinson’s early work on monopsony, which found women being paid less not because of lower productivity but because of social norms and intra-household bargaining power that dictated that wives move for their husbands and not vice versa. Employers, even nonsexist ones, would lower women’s wages relative to men’s, knowing that women’s outside options were circumscribed. A similar argument would apply to other ascriptive characteristics like race or even education: Employers are looking for “tags” for workers having better or worse outside options, and to the extent the law permits them to condition on those tags, they will. Even a nonracist employer would pay Black workers less, knowing that Black workers have both fewer other job options (as long as some racist employers exist in the same market) as well as lower average wealth and access to credit.7

We can explore worker-level heterogeneity a bit more in depth using the Survey of Income and Program Participation (SIPP).8 Here, we estimate the probability of voluntarily leaving one’s job for either another job or for nonemployment in each month for a given wage level in the previous month, while also adjusting both wages and the probability of quitting for human capital, demographic, and geographic factors.9 One issue to note is that both wages and the probability of quitting are, to some extent, affected by idiosyncratic worker-specific characteristics. That is, they are both endogenous, meaning that these estimates should not be taken as evidence that the causal effect of changes in the wage on the probability of quitting is different across groups, but rather that heterogeneity is present and worthy of future research. The following figures report the (residual) relative probability of quitting for each (residual) wage level, where wages are measured relative to the average (residual) wage in the group and the probability of quitting is measured relative to the probability of quitting for the middle-wage group. Residualizing wages and quits adjusts for differences in human capital and demographic characteristics, ensuring that comparisons are made among people with similar characteristics.10

Figures C–F show how the quit elasticity varies across the wage distribution (adjusted for covariates like education, age, geography) for all workers (Figure C) and by gender (Figure D), race/ethnicity (Figure E), and urban versus rural (Figure F). A comparison of slopes across groups gives an estimate of how monopsony power varies among them. Flatter slopes represent higher levels of monopsony power, because they imply that the probability of quitting is less sensitive to changes in the wage.

Figure C

Figure D

Figure E

Figure F

The results are qualitatively similar to those seen in Figure A, though measured in different units. Specifically, the wage (horizontal) axis shows the percent difference between a given wage level and the average wage (which is defined as zero), and the quit rate (vertical) axis shows the percent difference in the probability of quitting between a given wage level and the average wage. Broadly, the quit elasticity tends to be smaller for low and high wages and larger for the middle of the wage distribution, as evidenced by the fact that the lines are largely horizontal in low (high) wages, indicating that the probability of quitting is similar across a wide range of wages (though much higher for low wages than for high wages). In the middle of the distribution monopsony power is lower, since this is the area where the probability of quitting declines as the wage increases. For example, Figure D shows that at a residual wage of -0.6 (an adjusted wage that is 60% below the average), the adjusted probability of quitting for men is about 20% higher than at the average wage (residual wage equals zero) but only 11% higher for women. Normalizing the adjusted probability of quitting to zero at the average wage for men and women shows that the probability of quitting falls faster for men as the wage increases in the bottom half of the wage distribution than it does for women. That is, for low-wage jobs an increase (decrease) in the wage decreases (increases) the probability of quitting more for men than it does for women. Similar patterns hold for Black versus white workers (Figure E) and urban versus rural workers (Figure F).

Figure G shows the quit elasticities implied by the slopes in Figures C–F, confirming that disadvantaged groups have lower quit elasticities and thus face more monopsony power. Variation across groups is meaningful and shows that employers have more power over those disadvantaged in the labor market (women, Blacks, and Hispanics). Overall, the implied quit elasticities in the SIPP—a 10% wage decrease resulting in a 1.2% increase in the probability of quitting (i.e., a quit elasticity of 0.12) are on the low end of the range seen in the literature using survey data. These are also very small relative to estimates identified using exogenous variation, but in any case nowhere close to the very high numbers (say 5 or higher) that perfect competition would imply. While the estimated quit elasticity is likely biased in this exercise, the estimates are meant to illustrate the differences across groups, as the wage variation here is clearly endogenous to many omitted factors, unlike the quasi-experimental estimates discussed above.

Figure G

Men as a whole have the highest elasticity, with a 10% increase in the wage resulting in a 1.6% decrease in the probability of quitting, while Black individuals face the most monopsony power, with a 10% wage increase associated with a 0.7% decline in the probability of quitting. So, while elasticities are low for all groups, meaning employer power is pervasive, the results show employers have more power over disadvantaged groups in the labor market (women, Blacks, and Hispanics) than advantaged groups (whites and men). Again, the estimated elasticities are certainly biased toward zero due to important omitted variables that are correlated with both the wage and whether an individual quits a job, but we believe that comparisons across groups are still valid, at least for illustrative purposes.

C. Job ladders: The macroeconomics of quits

Recent research affirms the important role of quitting and labor market competition in driving wage growth. Traditionally, we measure the business cycle with unemployment, or the stock of workers out of a job who are actively looking for one. But this measure of the state of the labor market, while important, misses how tight labor markets help all workers by raising the degree of labor market competition. The job ladder (Moscarini and Postel-Vinay 2016), mentioned above, implies that during periods of expansion even employed workers get more and more offers for better jobs, leaving their employers no choice but to either raise wages or recruit new workers. At first employers recruit from the unemployed, and thus may not need to raise wages much, but once the pool of unemployed starts falling, employers begin poaching from each other, driving wage growth. Indeed, Moscarini and Postel-Vinay (2018) show that nominal wage growth responds to the quit rate even controlling for the unemployment rate, which supports the notion that the quit rate is an independent signal of a strong labor market along with the unemployment rate. A 1% decrease in the unemployment rate raises nominal wage growth by about 1 percentage point—the classic “wage curve” relationship between unemployment and wages. However, the authors also find that, even controlling for unemployment, a 1% increase in the employer-to-employer rate (i.e., leaving a job for another job, an admittedly imperfect proxy for quits) increases nominal hourly wage growth by 4 percentage points, and even more for people who actually switch jobs. The fall in the quit rate of roughly 0.5 over the Great Recession is thus associated with about a 2% fall in real wage growth. This pattern suggests that macroeconomic measurement may want to gauge tightness of the labor market based not just on the overall unemployment rate but also on the frequency of quits, in particular quits in response to wage differences across firms.

We have some spotty historical measures of quits, at least at an aggregate level, for manufacturing. Figure H shows the quit rate in manufacturing from two sources, the Historical Statistics of the United States (HSUS) and the Job Openings and Labor Turnover Survey (JOLTS), as well as the overall unemployment rate (from HSUS and the Bureau of Labor Statistics).11 If you want to see what a really tight labor market looks like, consider World Wars I and II, when the quit rate was the highest it has ever been, coincident with historically low unemployment rates. This pattern is consistent with the high pressure of the wartime economy and suggests that the labor market has never been as friendly to worker choice as it was then, even during the recent recovery.

Figure H

Similarly, the lowest level of quits in manufacturing was observed during the historically highest rates of unemployment during the Great Depression. While we don’t have quit data for the late 19th century, the presence of substantial unemployment in the 20 years prior to World War I suggests that, even during the archetypical laissez-faire, freedom-of-contract period of Lochner, worker choice was circumscribed by labor market slack. Figure I, which shows the relationship between quits and the unemployment rate for the whole economy, not just manufacturing, confirms that quits rise substantially when unemployment drops or is low, and it shows that the positive correlation between quits and low unemployment remains true today. Times when most of the labor force has a job are also times when the employed have the most freedom to leave their jobs.

Figure I

However, the very fact of cyclicality suggests that the market does not reliably deliver freedom in the workplace. The business cycle is as capricious as and less accountable than any monarch. If quitting is the primary force that disciplines employer behavior, then the cyclicality of quits suggests that employers are not always tightly constrained by market forces. In fact, employers are rarely constrained by market forces as the economy is rarely in periods of sustained low unemployment. As long as there is structural involuntary unemployment, employers will have the whip hand in setting wages and working conditions. The very fact of booms and busts tracking the quitting behavior of workers suggests that the real freedom experienced by workers, measured by the job options available rather than the current job, is higher when the economy is running hot, and choices are dramatically limited when unemployment is high. This is particularly true for historically disadvantaged groups and now generally true for less-educated workers, because of both the persistently higher rates of unemployment faced by these workers and the higher cyclicality in employment among these groups (particularly for men).

Some evidence on the sources of differential Black unemployment is provided in Couch and Fairlie (2010), who looked at matched Current Population Survey data on transitions from unemployment (and nonparticipation) for Black and white workers. They found that the gap in racial unemployment rates is highest at the lows of the business cycle and that little of this is explained by standard human capital variables like education and age. Thus, tight labor markets likely play an important role in mitigating racial inequality.

One practical way to implement these labor market proxies for economic freedom into macroeconomic policymaking is to use the quit rate for marginalized groups to augment measures of labor market slack, as mentioned above. Full employment becomes measured not just by the number of people looking for work who are unable to get it, but also by the real freedoms experienced by workers with jobs, proxied by their readiness to exercise exit.

One disadvantage of this measure is that the raw quit rate alone doesn’t distinguish between workers who don’t quit because they have a great job and those who don’t quit because they have terrible outside options. For example, Reich and Prins (2020), using data from the National Longitudinal Survey of Youth, show that prior incarceration reduces the responsiveness of quitting to job satisfaction. While people with prior incarceration are more likely to quit in absolute terms as their jobs worsen or options improve, their response has less to do with job conditions than it does for individuals without any experience of incarceration. For reasons such as this, raw quit rates should be supplemented by estimates of the quit elasticity, which manipulate the quality of the job or the outside options and measure the quit response.

But on average, the job ladder/dynamic monopsony model implies that increases in the quit rate are also likely to track the quit elasticity. Just by the fact that quits are most common at low-wage jobs and much rarer at high-wage jobs, the average level of quits is likely, in practice, to be correlated with the elasticity of labor supply facing the firm: when quits are common, the gap in quits between high- and low-wage firms is much higher, so the elasticity is higher. This is consistent with the procyclicality of the quit elasticity measured above. Why? Because if you’re at a firm that pays a very high wage for a given job, you aren’t likely to quit, because there aren’t many offers that are better than the job you have. So, the bulk of quitting is happening for workers at lower wages. Since the number of quits at the top of the labor market is small and pretty constant, the business-cycle quit variation is likely driven by workers leaving low-wage firms, and so the difference in quits between low-wage and high-wage firms, i.e., the sensitivity of quits to wage differences, is highest when the overall quit rate is high.

Some preliminary evidence suggests that this combination of high tightness with high unemployment happened during the post-COVID-19 Great Resignation, in which quits were high, the quit elasticity was high,12 and real wages were growing at the bottom of the distribution, even as unemployment was elevated (if declining).

D. Implications of real-world quit elasticities and employer power

There is a long history of the presumption of competitiveness in labor markets being used to weaken legal protections for workers. Bagenstos (2020) presents evidence that the presumption of no employer power is still pervasive in the law and has the adverse impact of undercutting the constitutional, statutory, and common law basis of workplace protections. Specifically, he examines the Lochner-era freedom-of-contract assumptions being used to justify at-will employment, forced arbitration, and limited enforcement of health and safety regulation. Essentially, almost any employment condition that a worker will accept is presumed to be the outcome of competition in the labor market, where contracts offered by employers can readily be turned down by workers. This presumption was illustrated in the U.S. Supreme Court’s recent decision on forced arbitration in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018), in which the majority opinion, written by Justice Gorsuch, invokes freedom of contract in the first sentence. Were the forced arbitration agreements genuinely bilateral? Petitioner Epic Systems e-mailed its employees an arbitration agreement requiring resolution of wage and hours claims by individual arbitration. If the employees “continue[d] to work at Epic,” they would be “deemed to have accepted th[e] Agreement” (at 1649). The underlying presumption was that workers could readily quit to another job as good as the one they had at Epic. The dissent by Justice Ginsburg focused on the employer-employee power imbalance: “To explain why the Court’s decision is egregiously wrong, I first refer to the extreme imbalance once prevalent in our Nation’s workplaces, and Congress’ aim in the NLGA [Norris-LaGuardia Act] and the NLRA [National Labor Relations Act] to place employers and employees on a more equal footing” (at 1633).

The opinion in 1905’s Lochner v. New York, 198 U.S. 45 (1905), held that “the freedom of master and employee to contract with each other in relation to their employment, and in defining the same, cannot be prohibited or interfered with, without violating the Federal Constitution” (at 64). In a nutshell, the argument held that, since there was no externality or social problem (in the baking industry), there was no need for the state to use its police power to regulate labor markets. Until weakened by the New Deal, Lochner held considerable sway in preempting labor market regulation.

One could imagine the justification of Lochner being that there was no externality (public health, for example) that would warrant restricting the liberty to contract. But when employers have market power over wages, and worker effort and outside options are difficult to observe, then the wage chosen by the employer is too low, and the chance of a given worker getting hired is also too low, employment is too low, and thus output/revenue is too low. These outcomes are potentially something a sovereign state would have an interest in, allowing use of the police power (particularly when the state is funded out of labor income taxes).

Were Lochner-era labor markets competitive? The clearest evidence of whether this was the case would be quit elasticities estimated on 19th century data, but only indirect evidence on the extent of monopsony in pre-New Deal labor markets is available. In the South, of course, Jim Crow agricultural labor markets were characterized by overt collusion and legal restrictions on competition (Naidu 2010). Looking at the North, Naidu and Yuchtman (2018) use the census of manufacturing establishment samples from the 1850–1880 censuses to estimate the degree of rent-sharing, although the absence of linked worker-firm data makes it difficult to identify cleanly. Nonetheless, the implied labor supply elasticity facing the firm in the 19th century was roughly 2—consistent with a quit elasticity of 1—suggesting that even the unregulated open labor markets of the 19th century did not look frictionless or perfectly competitive. More evidence can be found in Henry Ford’s famous experiment of raising the wage from $2.30 to $5.00; company records indicate that the quit rate fell from 370% to 54% (Raff and Summers 1987). While this is a dramatic fall in quits, it is not so large given the magnitude of the wage change. As a point estimate it would imply a quit elasticity of -0.72, and an arc labor supply elasticity would be roughly 2. These are low and well within the range of contemporary estimates.

The upshot of this calculation of the quit elasticity is that Ford had plenty of labor market power, but, like the Amazon of today, he chose not to use it all. One interpretation (Levy 2021) is that Ford was so obsessed with output and production that he simply chose to not exercise the monopsony power he had in order to implement his Taylorist, high-effort production process. Ford wasn’t just maximizing profits, he was building an empire (and was later sued for this by his shareholders).

Even Lochner-era labor markets were characterized by considerable monopsony power. Employers didn’t have to worry about workers all leaving in the event of a wage cut; indeed, Hanes (1993) argues that it was the institutional memory of violent 19th-century strikes that deterred wage cuts in practice. The dents in this “hired hands” regime really began to appear only with the onset of World War I and the short-lived rash of accompanying unionization, and these early “high road” employers persisted into the 1920s and beyond.

E. Monopsony, exploitation, and freedom at work

When quits aren’t perfectly responsive to wages, employers know that they can pay lower wages, offer worse working conditions, and generally provide a subpar working experience, exactly because they know that not all workers will quit. Sure, some workers will quit, but enough will stay on at the lower wage to make it profitable. This wage/turnover trade-off is one of the core dilemmas facing every employer and human resources manager: How well must you treat your workers in order to keep turnover down? In economic terms, this is dynamic monopsony in action. The upshot is that workers are paid below their marginal product, and outside options (e.g., unemployment insurance, family and friend networks, alternative job offers, and plain old wealth) influence a worker’s wages and working conditions. So the rate of return to skill is depressed, workers invest less in those skills, and employers perpetually complain about the lack of skilled workers.

Measuring monopsony with the quit elasticity gives a simple formula for the (neoclassical) exploitation rate, which is the difference between the wage and the marginal product of labor. If the quit elasticity is Eq, we can approximate the labor supply elasticity by (2 − unemployment rate) × (quit elasticity).13 The fraction of marginal productivity captured by workers can then be approximated by:

where u is the unemployment rate and e < 1 (for effort) is a placeholder for all the other constraints on wage-setting employers are facing, in particular the need to provide incentives, maintain morale, and manage employee behavior. β can be thought of as the degree of bargaining power a worker has and depends on unemployment, the quit elasticity, and countervailing constraints on employer wage-setting as measured by e. As the labor market approaches perfect competition and full employment, (2 − u)Eq gets larger and larger, and β approaches 1. But for the values of the quit elasticity we have, around 2–3, and unemployment around 3–6%, and with no other constraints so that e = 0, in unrestricted monopsony β should be between 0.7 and 0.85, and so workers are receiving only 70–85% of their marginal product. In this clear, empirically operationalizable sense, workers are exploited.

The remaining share of income would show up in some combination of pure profit shares and capital shares. Because book values of investment goods and commercial real estate may capitalize the value of labor market rents, it is difficult to disentangle pure profit from returns on investment. Nonetheless, a recent working paper (Seegmiller 2021), as an example of one of a few recent studies, finds that roughly a third of capital income may be due to monopsony power.

What is a worker’s marginal revenue product? Forget about defining it in some transcendental, economywide way. Empirically it is a simple object: the causal effect of a given worker’s employment on a given firm’s revenue,14 holding all other inputs constant, or the amount of additional revenue a given worker generates for a firm. Neoclassical economists gave the idea of marginal product—the additional output that comes from hiring an additional worker—a bad name because they used it as a measure of the economywide contribution of a worker, independent of particularities of job and industry and social networks and luck. But when market power is pervasive, there is also pervasive misallocation of workers across firms and jobs, and so the notion of a single marginal product ought to be scrapped. At best, it is a thought experiment that lives at the level of a worker-job match, not an economywide concept of value. Both critics and economists alike would be well served by not fetishizing the concept of marginal product beyond that of a simple, context-specific, causal effect. But let’s use it here as an illustration.

Under pretty standard assumptions, we can approximate marginal product with a rescaled average product, so that MPL = θY, where Y is output per worker, i.e., the average productivity of labor, and θ is a scaling factor between 0 and 1 relating average productivity to marginal productivity (say around 0.7 if the production function is Cobb-Douglas).15 If we consider the relationship between productivity and pay and its changing nature over time, we can decompose it into the component due to θ and the component due to β, because the wage w = βθY. The relationship between average productivity and marginal productivity (θ) is determined by things like production technology, organizational change, and structural change in the economy, which are themselves induced by macroeconomic policy, public-good provision, and the effects of international trade. As these have all changed, so has θ. We can include product market power in θ as well. But β, which can be thought of as the fraction of value a worker produces that is paid to the worker, has also changed owing to deunionization, increased employer surveillance, and the collapse of internal labor markets/within-firm equity norms (all of which reduce e and thus reduce β), even if the underlying degree of monopsony, as measured by Eq, has not changed. Further we can imagine that this decomposition is different between college-educated and non-college-educated workers, and so some of the change in wage inequality could be explained by changes in bargaining power as well as changes in productivity.

Stansbury and Summers (2020) argue that the decline of the labor share can be accounted for purely by falling worker rents (which they somewhat confusingly call “worker power,” but rents, defined as payments to workers above their outside options, that can be withheld by employers are in fact employer power [Bowles and Gintis 1992]). Though they discuss unions, the “firm-size premium,” and other sources of rents, technological changes may have made the need to use wages as a labor-disciplining device (efficiency wages) less of a concern than before, so that a component of falling firm rents is improvements in workplace surveillance and easier supervision. (A not-small share of recent patent increases has been in technologies that facilitate the tracking and monitoring of workers.) What the technological elimination of rents has made possible is lower unemployment (i.e., the NAIRU—the non-accelerating inflation rate of unemployment—may have fallen), but also lower wages. Perhaps the increased surveillance and measurement of workers is a contributor to the increased salience of monopsony; the offsetting constraint of labor discipline has become less important. But whether workers have power when wage premia are vulnerable to the discretion of a manager or employer could be quarreled with, and indeed would contradict most discussions of the notion of power. The presence of rents is necessary but not sufficient to diagnose employer power: It depends on who can credibly threaten to deny rents to whom. A union premium is a very different rent from a labor discipline rent because the latter actually represents employers exercising power over workers.

Beyond exploitation, the fact of employer market power gives the capacity for employer domination. When firms have some latitude to choose wages and employment to maximize profits, they have some room for exercising what Pettit (1997) calls “arbitrary whim.” An employer can be generous, and benevolent, maintaining a great work environment, paying high wages, and providing great benefits, but equally an employer can be vindictive and abusive, lowering safety standards, underproviding health care and pensions, and paying low wages. Monopsony implies a capacity for employer domination, where employers can wiggle wages a little bit with little loss of profits but with large effects on worker welfare. Pervasive market power means that the market doesn’t completely constrain the capricious decisions of employers and managers.

The private power of employers has recently become a concern of political theorists and philosophers. Gourevitch (2014) shows that concern with arbitrary employer decisions on wages and shopfloor governance was an important component of the “labor republicanism” of the late 19th-century American labor movement. Along these lines, Anderson (2019) likens one’s ability to quit employers to choosing which communist dictatorship one hopes to work for. Monopsony (and labor discipline) give economic foundations to these writers, supplying empirical and theoretical reasons why employers have scope for exercising political power inside the workplace.

But Cowen (in the same volume) argues that Anderson exaggerates the situation. In his view there is little empirical evidence for the monopsony model of labor markets (i.e., a situation in which a large employer dominates the market) and no evidence therefore of pervasive employer power. That is, Cowen assumes that competitive labor markets, absent labor concentration, restrain employers. Moreover, Cowen argues that even firms with some market power over workers have an economic incentive to provide greater freedoms to workers. Specifically, he claims that firms’ profit motives constrain their ability to exploit workers because firms need to protect their reputations among consumers and retain and recruit workers. Cowen presumes that when employers provide freedoms they can secure a lower wage from employees that reflects the value of those freedoms (based on the assumption that compensation costs are equalized across opportunities, so the greater cost to the employers of any particular employee freedom is offset by the lower wage).

The evidence suggests that Cowen is wrong on the facts. Further, Cowen doesn’t pursue the logic of quality choice under conditions of market power (Spence 1975). Monopsony means that workplace public goods and governance rules (like benefits or, say, harassment and safety policies) are supplied not to maximize the benefit of the average worker at a workplace but rather to retain the “marginal worker,” i.e., the worker most willing to quit or having the widest outside option. So if richer and male and white workers have better outside options, then workplace amenities, including things like culture and training as well as health and other benefits, will be designed to keep those workers from leaving (a situation that could make them either over- or underprovided). But this scenario creates an important role for institutions of voice (like unions) and workplace democracy to represent the interests of average, rather than just marginal, workers in the design and implementation of workplace constitutions.

III. Conclusion

An indicator for the degree of worker power in a laissez-faire labor market is the level of quits, which closely tracks unemployment, but also the sensitivity of quits to changes in wages, the so-called quit elasticity. This measure of competition is a lower bound on the level of freedom workers have in the labor market, and it is consistent with recent work in philosophy theorizing nondomination in markets. Proxying aggregate labor market conditions with quits of historically marginalized populations can go further in measuring full employment than can proxying simply the aggregate stock of unemployment. The fact that quits are not enormously sensitive to changes in wages and job characteristics suggests that competition alone cannot deliver robust protection against arbitrary employer demands and market fluctuations. Rather, a variety of legal rebundling of and restrictions on the rights transacted in labor markets may be required in order to create an environment in which equal power between workers and their employers can be a reality rather than a frictionless fiction.

About the authors

Suresh Naidu (suresh.naidu@gmail.com) is professor of economics and public affairs at Columbia University, external faculty at the Santa Fe Institute, and a research associate with the National Bureau of Economic Research.

Michael Carr (michael.carr@umb.edu) is associate professor of economics at the University of Massachusetts Boston.

Notes

1. Krueger in a footnote (1) went further: “Notice that I don’t call these features ‘imperfections.’ They are the way the labor market works. The assumption of perfect competition is the deviation from the norm of ‘imperfection’ as far as the labor market is concerned.”

2. The classic example of this is the labor discipline model, in which firms voluntarily pay wages above a worker’s next best alternative in order to elicit maximum effort from workers for which effort might be hard to determine (e.g., workers who work in groups, or service providers where quantity is hard to measure).

3. Two pieces of evidence for this: When big national employers change wages, they often don’t announce different wages for different labor markets, but rather blanket policies like a $15 an hour internal minimum wage or a 10 cent increase across all workers contingent on previous wage (Dube, Giulani, and Leonard 2019; Derenoncourt et al. 2021). Secondly, there is a surprising amount of “bunching” in the wage distribution that the availability of paycheck-level data has allowed us to document with much greater certainty than before (Dube, Manning, and Naidu 2019).

4. A recent article reviewing the literature is Manning (2021).

5. Amazon Mechanical Turk (MTurk) describes itself as “…a crowdsourcing marketplace that makes it easier for individuals and businesses to outsource their processes and jobs to a distributed workforce who can perform these tasks virtually.”

6. Emanuel and Harrington (2020) also use nationally uniform wage-setting relative to local differences in pay to recover recruitment and quit elasticities, with implied labor supply elasticities somewhat higher (between 6 and 9), but the variation here partially comes from cross-market variation in outside wages, not from within-firm variation in wages across identical workers.

7. Whatley and Sedo (1998) show that Black workers were less likely than white workers to quit Ford Motor Company despite having worse working conditions (albeit similar pay). Fryer, Pager, and Spenkuch (2013) find offered and current Black wages are 17% lower, even conditional on previous wages, suggesting differences in outside options. Looking directly at survey data, they find that Black workers have reservation wages 7% lower than white workers. In a monopsonistic labor market, the presence of background racial differences in outside options generates racial differences in wages unrelated to productivity at the current job.

8. We use the 2004, 2008, and 2014 panels of the SIPP. The SIPP is a nationally representative survey of the United States. Each panel is longitudinal, lasting three to six years, and each comprises a new representative sample. We limit the sample to individuals between ages 25 and 59, with nonimputed earnings, work hours, and employment status, who were employed in month t−1. We then estimate the probability of quitting between month t and t−1, conditional on the wage in t−1 and additional human capital, demographic, and geographic controls.

9. Specifically, we adjust wages for race, gender, education, residence (or not) in an urban area, and a cubic in age. By voluntary, we mean quitting due to reasons aside from the employer. This includes quitting to take another job, because of working conditions, because of one’s own health or family health issues, because of child care responsibilities, and because of other reasons specific to the person.

10. Residual wages and quits are (log) hourly wages or an indicator for whether an individual quit a job where the effect of education, age, geography, and other observable wage determinants have been removed. Ranking workers using residual wages, instead of the actual wage, ensures that when we compare workers across demographic groups we are making an apples-to-apples comparison. For example, it is well documented that wages increase with age, and it is also likely the case that the probability of quitting one’s job decreases with age. If, for example, Black male workers are on average younger than white male workers, then comparison of Black and white men using observed wages might be biased by the fact that both race and age are different between the two groups. Using residual wages solves this problem.

11. The unemployment concept implemented prior to 1938 is different, but a harmonized series is provided by HSUS. See Carter (2006).

12. See, e.g., Dube 2021.

13. This follows from Chapter 4 of Manning (2003) under the assumption that the share of recruits from nonemployment is equal to the unemployment rate, that there are no voluntary separations to unemployment, and that the elasticity of recruits from unemployment is 0, all of which are plausible simplifying assumptions.

14. We use marginal product as a placeholder for both quantity-based marginal product as well as marginal revenue product, as we’re not discussing market power in product markets here.

15. To be distinguished from the Marxian exploitation rate, which is the difference between the wage and the average product of labor. See Elster 1978 for a discussion.

References

Anderson, Elizabeth. 2019. Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It). Princeton University Press.

Arnold, David. 2019. Mergers and Acquisitions, Local Labor Market Concentration, and Worker Outcomes. Economics Department, Princeton University.

Bagenstos, Samuel. 2020. Lochner Lives On: Lochner Presumption of Equal Power Lives in Labor Law and Undermines Constitutional, Statutory, and Common Law Workplace Protections. Economic Policy Institute.

Bassier, Ihsaan, Arindrajit Dube, and Suresh Naidu. 2022. “Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies.” Working Paper no. 27755. National Bureau of Economic Research.

Block, Sharon, and Ben Harris. 2021. Inequality and the Labor Market: The Case for Greater Competition. Brookings Institution.

Bowles, Samuel, and Herbert Gintis. 1992. “Power and Wealth in a Competitive Capitalist Economy.” 21 Philosophy & Public Affairs 324.

Caldwell, Sydnee, and Emily Oehlsen. 2018. “Monopsony and the Gender Wage Gap: Experimental Evidence from the Gig Economy.” Working Paper. Massachusetts Institute of Technology. https://app.scholarsite.io/sydnee-caldwell/articles/monopsony-and-the-gender-wage-gap-experimental-evidence-from-the-gig-economy.

Carter, Susan B. 2006. “Labor Force.” In Chapter Ba of Historical Statistics of the United States, Earliest Times to the Present: Millennial Edition, edited by Susan B. Carter, Scott Sigmund Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright. Cambridge University Press.

Couch, Kenneth A., and Robert Fairlie. 2010. “Last Hired, First Fired? Black–White Unemployment and the Business Cycle.” 47 Demography 227.

Derenoncourt, Ellora, Clemens Noelke, David Weil, and Bledi Taska. 2021. “Spillover Effects from Voluntary Employer Minimum Wages.” Working Paper no. 29425. National Bureau of Economic Research.

Dube, Arindrajit (@ArinDube). 2021. “This is preliminary, but….” Twitter, October 29, 2021, 6:43 p.m. https://twitter.com/arindube/status/1454217257765126146.

Dube, Arindrajit, Laura Giuliano, and Jonathan Leonard. 2019. “Fairness and Frictions: The Impact of Unequal Raises on Quit Behavior.” 109 American Economic Review 620.

Dube, Arindrajit, Jeff Jacobs, Suresh Naidu, and Siddharth Suri. 2020. “Monopsony in Online Labor Markets.” 2 American Economic Review: Insights 33.

Dube, Arindrajit, Alan Manning, and Suresh Naidu. 2019. “Monopsony and Employer Mis-Optimization Account for Round Number Bunching in the Wage Distribution.” Unpublished manuscript.

Elster, J. 1978. “Exploring Exploitation.” 15 Journal of Peace Research 3.

Emanuel, Natalia, and Emma Harrington. 2020. “The Payoffs of Higher Pay: Elasticities of Productivity and Labor Supply with Respect to Wages.” Working Paper. Harvard University.

Epstein, Richard A. 1984. “In Defense of the Contract at Will.” 51 University of Chicago Law Review 947.

Friedman, Milton. 1962. Capitalism and Freedom. University of Chicago Press.

Fryer, Roland G., Jr., Devah Pager, and Jörg L. Spenkuch. 2013. “Racial Disparities in Job Finding and Offered Wages.” Journal of Law and Economics 56, no. 3: 521–53.

Goolsbee, Austan, and Chad Syverson. 2019. “Monopsony Power in Higher Education: A Tale of Two Tracks.” Working Paper no. 26070. National Bureau of Economic Research.

Gourevitch, Alex. 2014. From Slavery to the Cooperative Commonwealth: Labor and Republican Liberty in the Nineteenth Century. Cambridge University Press.

Hanes, C. 1993. “The Development of Nominal Wage Rigidity in the Late 19th Century.” 83 American Economic Review 732.

Krueger, Alan B. 2018. “Luncheon Address: Reflections on Dwindling Worker Bargaining Power and Monetary Policy.” Proceedings of the Jackson Hole Economic Policy Symposium, “Changing Market Structures and Implications for Monetary Policy,” Jackson Hole, Wyo., August 23–25. https://www.kansascityfed.org/documents/6984/Lunch_JH2018.pdf.

Lamadon, Thibaut, Magne Mogstad, and Bradley Setzler. 2022. “Imperfect Competition, Compensating Differentials, and Rent Sharing in the U.S. Labor Market.” 112 American Economic Review 169.

Levy, J. 2021. Ages of American Capitalism: A History of the United States. Random House.

Manning, Alan. 2003. Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton University Press.

Manning, Alan. 2021. “Monopsony in Labor Markets: A Review.” 74 ILR Review 3.

Moscarini, Giuseppe, and Fabien Postel-Vinay. 2016. “Did the Job Ladder Fail After the Great Recession?” 34 Journal of Labor Economics S55.

Moscarini, Giuseppe, and Fabien Postel-Vinay. 2018. “The Cyclical Job Ladder.” 10 Annual Review of Economics 165.

Naidu, Suresh. 2010. “Recruitment Restrictions and Labor Markets: Evidence from the Postbellum U.S. South.” 28 Journal of Labor Economics 413.

Naidu, Suresh, Eric A. Posner, and Glen Weyl. 2018. “Antitrust Remedies for Labor Market Power.” 132 Harvard Law Review 536.

Naidu, Suresh, and Noam Yuchtman. 2018. “Labor Market Institutions in the Gilded Age of American Economic History.” In Oxford Handbook of American Economic History, Vol. 1, edited by Louis P. Cain, Price V. Fishback, and Paul W. Rhode, 329. Oxford University Press.

Pettit, Philip. 1997. Republicanism: A Theory of Freedom and Government. Clarendon Press.

Prager, Elena, and Matthew Schmitt. 2019. “Employer Consolidation and Wages: Evidence from Hospitals.” Working Paper. Washington Center for Equitable Growth.

Raff, Daniel M.G., and Lawrence H. Summers. 1987. “Did Henry Ford Pay Efficiency Wages?” 5 Journal of Labor Economics S57.

Reich, A.D., and S.J. Prins. 2020. “The Disciplining Effect of Mass Incarceration on Labor Organization.” 125 American Journal of Sociology 1303.

Robinson, Joan. 1933. The Economics of Imperfect Competition. Palgrave Macmillan.

Seegmiller, B. 2021. “Valuing Labor Market Power: The Role of Productivity Advantages.” Working Paper. https://www.bryanseegmiller.com/publication/jmp/.

Sokolova, Anna, and Todd Sorensen. 2021. “Monopsony in Labor Markets: A Meta-Analysis.” 74 Industrial and Labor Relations Review 27.

Spence, A. Michael. 1975. “Monopoly, Quality, and Regulation.” 6 Bell Journal of Economics 417.

Stansbury, Anna, and Lawrence H. Summers. 2020. “Declining Worker Power and American Economic Performance.” 2020 Brookings Papers on Economic Activity 1.

Starr, Evan, James J. Prescott, and Norman Bishara. 2020. “Noncompete Agreements in the U.S. Labor Force.” 64 Journal of Law and Economics 53.

Whatley, Warren C., and Stan Sedo. 1998. “Quit Behavior as a Measure of Worker Opportunity: Black Workers in the Interwar Industrial North.” 88 American Economic Review 363.

Several legal rules and statutory interpretations in U.S. work law that entrench employer power are premised on assumptions about how the economy works, and courts rely on these assumptions to justify their decisions without subjecting them to empirical scrutiny. This paper focuses on three:

1. The assumption of balanced power

The first assumption is that there is no acute, systematic imbalance of power between an individual employee and employer. The worker’s right to quit or withhold assent to employment is comparable to, if not equal to, the employer’s power to terminate the worker or withhold employment.

Courts use the maxim of freedom of contract as shorthand for the assumption and as a circular means to legitimate the legal rules it underlies. The Supreme Court has used the assumption in several decisions ruling that the Federal Arbitration Act enables employers to require that employees waive their rights to go to court and to pursue claims collectively; other courts have used the assumption to justify decisions to narrow public policy and contractual limits on the employer’s at-will authority. Further, courts assume there is no substantial inequality of bargaining power between an employer and employee when they give employers unilateral rights to change the terms of the employment agreement to the employee’s disadvantage, for instance, by requiring employees to submit disputes to arbitration. The assumption enters into interpretations of statutes governing worker collective rights as well.

The balanced-power assumption gives rise to arguments about labor markets and market competition that then legitimate legal rules protecting employer power over workers:

• An employee can just or almost as readily walk away and find an equivalent position as the employer can terminate the employee and find an equivalent employee.

• There is power in threatening to quit, because the employee can inflict economic harm on the employer comparable to the harm that the employer can inflict on the employee by termination.

• The market disciplines employers to act rationally in the best interests of their businesses; employers are therefore unlikely to abuse their authority. Employees who perform well have little need to worry the employer will treat them badly.

• Changing the at-will rule would give employees unfair economic and legal advantages. The legal system provides an avenue of redress for employees that is not available on the same terms to employers.

2. The assumption of managerial prerogative

The second assumption is that the employer’s control over nearly all aspects of the commercial enterprise must be near absolute to prevent adverse economic consequences. Courts claim that restricting this prerogative will harm the enterprise and the economy by restricting the employer’s ability to adjust to market dynamics.

Courts assume the necessity of managerial prerogative when protecting and legitimating the employer’s power to control virtually every aspect of the enterprise—from personnel to capital allocation decisions. So powerful is the inclination to protect employer prerogative that, when presented with the opportunity to subject employers to the same contract rules as other commercial parties, the courts generally decline. Courts invoke managerial prerogative to relieve the employer of contractual limitations on the employer’s rights to terminate employees, modify the employment relationship unilaterally, and abide by job security commitments. The assumption of managerial prerogative also underlies interpretations of the National Labor Relations Act (NLRA).

The courts make several economic claims to justify these rules, all based on the assumption that managerial prerogative is necessary for economic efficiency:

• The employer must have the flexibility to adjust to dynamic market conditions.

• Contract law does not adequately protect the employer’s managerial prerogative.

• We can trust the employer—and only the employer—to exercise its business judgment in a manner beneficial to the enterprise and the economy as a whole, because employers are best positioned to understand and react rationally to market conditions.

• We should not second-guess the employer even where it appears to exercise its prerogative inscrutably, irrationally, or based on incorrect facts.

• Managerial prerogative over hiring and firing is so critical that, even where it appears the employer has relinquished some of this prerogative, courts must sometimes save an employer from its imprudent bargain.

• Courts must in particular defer to managerial prerogative when interpreting job security commitments and contractual obligations to terminate employees only for “cause.” Enforcing these can impose formidable costs on employers and lead to bankruptcy.

3. The status quo assumption

Under the third assumption, even where courts do not necessarily assume that the individual worker and employer have relatively equal bargaining power or that managerial prerogative reflects the most efficient economic system, they assume that the costs to workers and the economy of maintaining the status quo are less than the costs of altering it. 

Courts rely on these three assumptions for several purposes:

• To give employers extremely broad rights to terminate employees. Thus, courts have relied on the assumptions to justify decisions (1) maintaining the at-will presumption, which enables the employer to terminate an employee at any time, for any reason; and (2) limiting the reach of exceptions to the employer’s authority to terminate employees, such as the public policy exception, the ordinary contractual duty to act honestly (in “good faith”), and obligations that the employer had agreed to voluntarily.

• To give employers rights to alter employment terms and working conditions on a take-it-or-leave-it basis, usually leaving employees with no option but to quit if they do not want to accept the change. In particular, courts have used the assumptions to justify decisions (1) allowing employers to impose noncompete agreements and to rescind benefits; (2) allowing employers to impose mandatory arbitration agreements, under which employees waive their rights to bring employment disputes to court and to pursue employment claims collectively in other forums; and (3) allowing employers to revoke job security commitments.

• To limit employee protections under statutes that were premised on the finding that the individual worker does not have power comparable to that of the employer. In particular, courts have used the assumptions to limit workers’ collective rights under the NLRA and state collective bargaining law.

It is important to identify and critique these assumptions because, if they fail under empirical scrutiny, then much of the legitimacy of the rules and interpretations they support evaporates, with scant other sources of legitimacy to replace it, whether democratic, regulatory, or doctrinal. For instance, the at-will rule was not created by elected legislatures; judges began announcing it as the rule in the late 19th century. Nor is the at-will rule a product of regulatory processes that draw on social science or policy expertise. Some of the legal rules sustained through the assumptions cannot even claim doctrinal coherence, since they exempt employment from contractual norms. With respect to the NLRA, the Supreme Court argues or implies that its use of the assumptions is consistent with legislative intent, although it has made little attempt to excavate Congress’s precise intent and in either case has offered no empirical support for the assumptions.

In sum, these unproven assumptions about economic phenomena play a substantial role in legitimating law that devalues workers’ dignity and welfare and protects employer power over workers. By identifying how courts rely on them, this paper exposes the assumptions for empirical examination.

I. Introduction

Several legal rules and statutory interpretations in U.S. work law1 that entrench employer power are premised on assumptions about how the economy works, and courts rely on these assumptions to justify their decisions without subjecting them to empirical scrutiny. This paper focuses on three:

1. The assumption of balanced power, i.e., there is no acute, systematic imbalance of power between an individual employee and employer. The worker’s right to quit or withhold assent to employment is comparable to, if not equal to, the employer’s power to terminate the worker or withhold employment. Courts often telegraph this assumption by reciting the value of “freedom of contract.”
2. The assumption of managerial prerogative, i.e., that the employer’s control over nearly all aspects of the commercial enterprise must be near absolute to prevent adverse economic consequences. Courts claim that restricting this prerogative will harm the enterprise and the economy by restricting the employer’s ability to adjust to market dynamics.
3. The status quo assumption, i.e., even if the individual worker and employer do not have relatively equal bargaining power, and even if managerial prerogative does not reflect the most efficient economic system, the costs to workers and the economy of maintaining the status quo are less than those of altering it. 

Courts rely on these assumptions for several purposes:

• To give employers extremely broad rights to terminate employees. Thus, courts have relied on the assumptions to justify decisions (1) maintaining the at-will presumption, which enables the employer to terminate an employee at any time, for any reason; and (2) limiting the reach of exceptions to the employer’s authority to terminate employees, such as the public policy exception, the ordinary contractual duty to act honestly (in “good faith”), and obligations that the employer had agreed to voluntarily.

• To give employers rights to alter employment terms and working conditions on a take-it-or-leave-it basis, usually leaving employees with no option but to quit if they do not want to accept the change. In particular, courts have used the assumptions to justify decisions (1) allowing employers to impose noncompete agreements and to rescind benefits; (2) allowing employers to impose mandatory arbitration agreements, under which employees waive their rights to bring employment disputes to court and to pursue employment claims collectively in other forums; and (3) allowing employers to revoke job security commitments.

• To limit employee protections under statutes that were premised on the finding that the individual worker does not have power comparable to that of the employer. In particular, courts have used the assumptions to limit workers’ collective rights under the National Labor Relations Act (NLRA)2 and state collective bargaining law.

The following sections show how the legal rules and statutory interpretations protecting employer power rely on the three assumptions, and they illustrate the economic arguments that courts make based on the assumptions.

Part II examines the assumption of balanced power (see Bagenstos 2020 for a complementary analysis). It shows that courts use the maxim of freedom of contract as shorthand for the assumption and as a circular means to legitimate the legal rules it underlies. The Supreme Court has used the assumption in several decisions ruling that the Federal Arbitration Act (FAA) enables employers to require that employees waive their rights to go to court and to pursue claims collectively; other courts have used the assumption to justify decisions to narrow public policy and contractual limits on the employer’s at-will authority. Further, courts assume there is no substantial inequality of bargaining power between an employer and employee when they give employers unilateral rights to change the terms of the employment agreement to the employee’s disadvantage, for instance, by requiring employees to submit disputes to arbitration. The assumption enters into interpretations of statutes governing worker collective rights as well.

The balanced-power assumption gives rise to arguments about labor markets and market competition that then legitimate legal rules protecting employer power over workers:

• An employee can just or almost as readily walk away and find an equivalent position as the employer can terminate the employee and find an equivalent employee.

• There is power in threatening to quit, because the employee can inflict economic harm on the employer comparable to the harm that the employer can inflict on the employee by termination.

• The market disciplines employers to act rationally in the best interests of their businesses; employers are therefore unlikely to abuse their authority. Employees who perform well have little need to worry the employer will treat them badly.

• Changing the at-will rule would give employees unfair economic and legal advantages. The legal system provides an avenue of redress for employees that is not available on the same terms to employers.

Part III shows that courts assume the necessity of managerial prerogative when protecting and legitimating the employer’s power to control virtually every aspect of the enterprise—from personnel to capital allocation decisions. So powerful is the inclination to protect employer prerogative that, when presented with the opportunity to subject employers to the same contract rules as other commercial parties, the courts generally decline. Courts invoke managerial prerogative to relieve the employer of contractual limitations on the employer’s rights to terminate employees, modify the employment relationship unilaterally, and abide by job security commitments. The assumption of managerial prerogative also underlies interpretations of the NLRA.

The courts make several economic claims to justify these rules, all based on the assumption that managerial prerogative is necessary for economic efficiency:

• The employer must have the flexibility to adjust to dynamic market conditions.

• Contract law does not adequately protect the employer’s managerial prerogative.

• We can trust the employer—and only the employer—to exercise its business judgment in a manner beneficial to the enterprise and the economy as a whole, because employers are best positioned to understand and react rationally to market conditions.

• We should not second-guess the employer even where it appears to exercise its prerogative inscrutably, irrationally, or based on incorrect facts.

• Managerial prerogative over hiring and firing is so critical that, even where it appears the employer has relinquished some of this prerogative, courts must sometimes save an employer from its imprudent bargain.

• Courts must in particular defer to managerial prerogative when interpreting job security commitments and contractual obligations to terminate employees only for “cause.” Enforcing these can impose formidable costs on employers and lead to bankruptcy.

The status quo assumption, discussed in Part IV, sometimes masquerades as an argument about the separation of powers rather than an economic one. Even where courts may not subscribe to the assumptions of balanced power or the necessity of managerial prerogative, they often assume that altering the rules built on these assumptions would be more costly than maintaining the status quo, because the alteration would create commercial uncertainty and instability. Thus, courts argue that only the legislature should effect such big policy changes.3

It is important to identify and critique these assumptions because, if they fail under empirical scrutiny, then much of the legitimacy of the rules and interpretations they support evaporates, with scant other sources of legitimacy to replace it, whether those be democratic, regulatory, or doctrinal. For instance, the at-will rule was not created by elected legislatures;4 judges began announcing it as the rule in the late 19th century, following the lead of a treatise that claimed it was the rule across the U.S. without demonstrating this claim. In fact, courts rely on the at-will rule to undermine protective legislation that workers achieved through political contests (Bagenstos 2020). Nor is the at-will rule a product of regulatory processes that draw on social science or policy expertise. Some of the legal rules sustained through the assumptions cannot even claim doctrinal coherence, since they exempt employment from contractual norms. With respect to the NLRA, the Supreme Court argues or implies that its use of the assumptions is consistent with legislative intent, although it has made little attempt to excavate Congress’s precise intent and in either case has offered no empirical support for the assumptions.

In sum, these unproven assumptions about economic phenomena play a substantial role in legitimating law that devalues workers’ dignity and welfare and protects employer power over workers. By identifying how courts rely on them, this paper exposes the assumptions for empirical examination.

II. The assumption of balanced power

One of the most persistent and pervasive economic assumptions underlying the case law on work relationships is the assumption of balanced power. Courts often assume that the employee’s leverage in quitting or in withholding assent to employment is roughly equal to the employer’s power to terminate or refuse to hire the employee. An iteration of this assumption is that any disparity in bargaining power has no real bearing on individual autonomy and therefore does not negate the employee’s ability to make meaningful choices.

A. Forced arbitration

The Supreme Court assumes balanced power between employees and employers in its jurisprudence on forced arbitration in employment relationships. The Federal Arbitration Act promotes arbitration as an alternative to resolving disputes through litigation by making such agreements enforceable; however, Congress never intended the FAA to apply to employment relationships, and the statute expressly excludes them. Nonetheless, the court has several times held that the FAA allows employers to force employees to arbitrate employment-related disputes.5 In Gilmer v. Interstate/Johnson Lane Corp., in holding that an employee’s age discrimination claim was subject to compulsory arbitration, a Supreme Court majority held, “Mere inequality in bargaining power, however, is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context,” because the FAA’s “purpose was to place arbitration agreements on the same footing as other contracts.”6

Such analysis ignores the reason for anti-discrimination legislation—the legislature’s judgment that contract rights were inadequate to prevent discrimination in some relationships, particularly employment. Under a mandatory arbitration agreement, the employee must submit almost all employment-related disputes to individual arbitration and waives the right to bring these claims to court.7 Employers usually “offer” arbitration agreements to employees on a take-it-or-leave it basis, as a condition of employment. With some exceptions, employees can only “reject” the arbitration agreement by rejecting the offer of employment or, for someone already employed, by quitting. Likewise, contract law generally deems that, by accepting the job or not quitting, the employee assents to the agreement. Thus, by subjecting employment to the FAA, the court “allow[s] the very forces that had practiced discrimination to contract away the right to enforce civil rights in the courts.”8 Further, despite its “same footing” reference, the court has been hostile to state court efforts to limit arbitration on contractual grounds where the contract is characterized by an acute power imbalance.9

B. Freedom of contract

Courts often express the assumption of balanced power in the adage of freedom of contract, as illustrated by the Supreme Court’s recent case of Epic Systems v. Lewis, where the majority held that the NLRA did not prohibit employers from requiring employees to agree to mandatory, individual arbitration as a condition of employment.10 Under these agreements, the employee not only waives the right to bring disputes to court but waives the right to bring them to any forum for collective redress, such as arbitration where multiple employees bring claims together. In practice, imposing an individual arbitration agreement often leaves the employee without any recourse to pursue claims against the employer. Given the expense of litigation, one employee’s claim is often not enough to make it cost-effective for an attorney to bring the claim.

Passed in 193511 along with two other pillars of the New Deal—the Fair Labor Standards Act (FLSA) and the Social Security Act—the NLRA protects workers’ rights to associate, organize, form unions, and bargain collectively with employers. Its proponents recognized that a severe inequality in bargaining power between employers and employees was a major cause of the Great Depression and the ruinous competition it entailed. U.S. workers did not have enough spending power to sustain the economy, let alone forfend the misery of privation. The idea behind the NLRA was that, while the individual employee had little bargaining leverage, employees organized on the scale of capital could raise and stabilize wages across employers (Cobble 2010; Gross 1974).

At issue in Epic Systems was whether, by requiring an individual arbitration agreement, the employer was violating its employees’ rights under Section 7 of the NLRA to take collective action for purposes of “mutual aid or protection.”12 Despite the NLRA’s guarantee, the Supreme Court found that courts could enforce these agreements. The majority opens its opinion with a question:

Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective actions, no matter what they agreed with their employers?13

Above, the majority suggests that employees’ freedom of contract was at stake. So, what is freedom of contract, and what is its connection to the balanced-power assumption? The maxim of freedom of contract embodies several normative and empirical claims, but most relevant here is the tenet that there is no real imbalance of power between two parties who strike a deal under the auspices of contract law and without other state “interference.”

The connection between the ideas of freedom of contract and balanced power is circular. Freedom of contract is shorthand for the conflation of actual freedom with the formal freedom to transact in the market, signified by “contract” as the main legal instrument of market transactions. Thus, the maxim is often invoked not as a reference to contract law per se but as the tenet that government should not “regulate” or “interfere” with how individuals engage in market transactions (whether or not these transactions are strictly contractual).

Inscribed in freedom of contract is a theory about markets, efficiency, and individual freedom: by participating in markets (buying and selling or refraining from doing so), individuals optimize their preferences according to their true interests. Under market governance, social resources are produced and allocated according to the demand of these preference-optimizing individuals. Therefore, markets are “efficient” because they channel resources to those who value them most. The theory depends on two assumptions: market decisions are presumptively voluntary, and they provide the best evidence—and the only legitimate evidence—of how an individual values something.14

That market deals are voluntary and result in optimal contracts presupposes the absence of true power imbalances. And contract law reflects this tautology by defining most agreements as the products of voluntary choice. Where courts invoke employees’ freedom of contract and its contributions to efficiency and autonomy, they likewise assume balanced power. For example, where individuals have a formal right to engage in the market trades of their choosing, no systematic power imbalances along class or other status lines should persist—only those related to the vagaries of fortune and natural endowments. Justice Pitney captured this sentiment in a Lochner-era decision striking down a state law prohibiting yellow-dog contracts: “it is from the nature of things impossible to uphold freedom of contract and the right of private property without at the same time recognizing as legitimate those inequalities of fortune that are the necessary result of the exercise of those rights.”15 An implication is that courts and legislatures need not worry that unemployment or low wages will lead to durable social inequality, because these phenomena cannot be systematic and persistent under a free contracting regime. Their existence in any individual case is attributable to low skills, low productivity, low motivation, or some other demerit causing reduced demand for an individual’s labor.

As illustrated in Epic Systems and the following examples, courts often suggest that virtually all employment agreements are efficient because they reflect the decisions of parties who, according to contract law, act voluntarily and who would not otherwise have chosen the agreement.

Apart from the circular logic, the problem with the Supreme Court’s invocation of freedom of contract in Epic Systems is that, in passing the NLRA, Congress determined that individual employees did not enjoy “actual liberty of contract” when they faced capital in its organized form as the employer. The preamble is crystal clear on this:

The inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract, and employers who are organized in the corporate or other forms of ownership association substantially burdens and affects the flow of commerce, and tends to aggravate recurrent business depressions, by depressing wage rates and the purchasing power of wage earners in industry and by preventing the stabilization of competitive wage rates and working conditions within and between industries.

The NLRA rejects the equation of liberty with formal freedom of contract. The court’s framing of the question in Epic Systems—about agreements between “employees and employers”—elides the critical issue of whether an individual employee should be required to waive collective rights, as Justice Ginsburg highlighted in her dissent.

C. The First Amendment and the assumption of balanced power

In Janus v. AFSCME, Council 3116 the Supreme Court also relies on the balanced-power assumption and purported benefits of free contracting, although more subtly than in Epic Systems. The Janus majority held that requiring an objecting public employee to pay a fee (an “agency fee”) to cover the costs of services provided by the workplace union violates the employee’s First Amendment rights. Because public-sector unions are under legal mandate to represent all employees in the bargaining unit, not just union members, Janus creates an incentive for employees to free ride rather than pay dues, in turn making it more difficult for unions to promote and protect workers’ interests.

At first blush, Janus seems to reject the premise that employees have freedom of contract, since, unlike in Epic Systems, the Janus majority finds that an employee does not make a voluntary choice when presented by the employer with a take-it-or-leave-it condition of employment: pay the agency fee or find employment elsewhere (Bagenstos 2020). Yet, the decision disregards why states enacted collective bargaining laws for public employees and why public employees form unions under these laws: the unequal power between the individual employee and the employer. The majority largely dismisses the interests expressed by a majority of workers in having an effective bargaining agent.

Janus makes little sense as a case about free expression—to strike down mandatory agency fees, the majority had to carve out an exception in First Amendment jurisprudence regarding the government’s ability to regulate public employee speech about workplace matters.17 What most stands out is the majority’s repeated suggestions that public-sector unions foist costly, inefficient agreements on states, a consequence of the “tremendous increase in power”18 they realize as employees’ exclusive representative and the “considerable windfall” that agency fees provide.19 The connotation is that, if employees were not forced to pay agency fees, unions would have less power, and governments would enter more efficient employment contracts. It seems that the majority’s concern with agency fees is that they interfere with an employee’s freedom of contract (the freedom not to contract with the union), and that this interference distorts the market, enabling the union to impose inefficient bargains on the state.

D. Assuming balanced power to protect employer power

This part next looks at a key manifestation of the assumption of balanced power—the at-will presumption. It then illustrates how the presumption underlies case law protecting the employer’s power of termination and modification more generally, even outside of the at-will context. The part concludes by illustrating how the assumption shapes NLRA jurisprudence.

1. Termination

a. Background: At-will employment and exceptions

The at-will presumption is the law in all but one state.20 This means that courts presume, in the absence of other evidence, that the employer and employee agreed either party would have a right to end the relationship for any reason at any time. Thus, the employer can terminate the at-will employee “for good reason, bad reason, or no reason at all.”21 With some exceptions, particularly for employees covered by collective bargaining agreements, employers do not have to act honestly, rationally, or fairly when making termination decisions.

As a presumption, the at-will term is formally a default term that the parties can contract around. For example, the employer and employee may alternatively agree that their relationship will last two years or that the employer may only terminate the employee for some “cause,” such as “just cause.” The party arguing that the relationship is not at-will (usually the employee) has the burden of proving in court that the parties departed from the at-will term. The vast majority of nonunion employees in the U.S. serve at will, and nonunion employees constitute the vast majority of the workforce today (Shierholz 2022).

The at-will presumption is a creature of the common law, meaning it was created and is maintained by judges. Only a few states have codified it. Scholars trace its origins to a 19th-century treatise by Horace Wood, where Wood claims, without adequate support, that the at-will presumption is the predominant legal rule in the U.S. (VanderVelde 2020). Following publication of Wood’s treatise, more courts began adopting the rule (Beermann and Singer 1988; VanderVelde 2020). Where the rule is not codified, state judiciaries could eliminate it, since it was their creation; however, no state judiciary has done so.

For a time, however, state courts were willing to impose limits on the employer’s at-will authority, mainly through two ways: the tort of wrongful discharge and the “implied-in-fact” contractual limitation.

Around the 1980s, most states began recognizing the employee claim of wrongful discharge in violation of public policy, where a termination was illegal if it undermined the state’s ability to achieve an important public policy. Examples include terminations in retaliation for the employee exercising a legal right, fulfilling a legal duty, or refusing to violate the law. The scope of the exception varies across states, but normally it is illegal for the employer to terminate an employee for filing a workers compensation claim, assuming jury duty, or refusing to commit perjury on behalf of the employer.

Further, in most states, courts have found that in some circumstances employees can hold employers to implied promises of job security, meaning a promise not expressed orally or in a written contract. Thus, in some situations, employees can enforce job security policies described by the employer in a handbook issued to all employees or a group of employees.22

This trend of recognizing tort or contract-based limits on the employer’s right to terminate basically ended in the 1980s, and the implied-in-fact exception is less relevant today: many employers now include disclaimers in their written policies stating that the employment is at-will and that nothing in its policies should be interpreted as contractually binding. Courts find a clear, conspicuous disclaimer to be strong evidence against allowing the employee to enforce the policy.23

b. Illustration

Courts have relied on the assumption of balanced power, sometimes expressed in the credo of freedom of contract, to justify decisions to keep the at-will rule, to circumscribe exceptions to the rule, and to otherwise give employers almost unlimited authority to terminate employees.

For instance, in ruling that the public policy exception did not protect a hospital employee who was terminated for reporting unsafe patient care, the Missouri Supreme Court stated that the at-will doctrine is “[r]ooted in freedom of contract and private property principles, designed to yield efficiencies across a broad range of industries.”24 The court assumes that the employee’s power is comparable to that of the employer, so that both realize “freedom of contract” and their arrangement produces an optimal allocation of social resources. The court’s inaccurate allusion to the origins of the rule suggests the potency of the assumption. As noted, we cannot trace it to a deliberate design to achieve efficiency.

Courts suggest that the symmetry in the parties’ formal rights reflects a symmetry in bargaining power. The presumption is merely the legal expression of balanced power:

The employee usually feels free to leave and take another job if it presents a more desirable opportunity. Similarly, the employer generally feels free to discharge the employee if he no longer wants his services. The at-will presumption is simply a legal recognition of the parties’ normal expectations.25

2. Keeping management rights unfettered

Within the balanced-power assumption are additional assumptions about the employee’s bargaining power and labor markets, and courts rely on them to explain why the employer must have almost unlimited rights to terminate employees and to modify employment agreements unilaterally.

a. The power of quitting

The case law tends to assume balanced power by assuming that employees can adequately protect their interests by quitting or threatening to quit. We see this assumption in legal rules regarding the employer’s right to change the employment agreement unilaterally and to impose binding obligations on employees that outlast the agreement. Most states permit the employer to modify agreements to the disadvantage of its at-will employees through unilateral action. The employer can, on a prospective basis, lower wages, decrease benefits, impose a noncompete agreement, require arbitration, or retract promises of due process regarding disciplinary action. Because courts claim that at-will employment is a contract, formally the employee must assent to the change to make it enforceable. However, the law in most states deems that the employee assents by not quitting (Arnow-Richman 2016). The reasoning is that, because the at-will employee can walk away at any time without legal penalty, by not quitting the employee accepts the change voluntarily. Thus, where the employer introduces an arbitration agreement, the employee assents by turning up for work. This was the situation in Epic Systems and how millions of U.S. workers have lost their rights to go to court and pursue claims collectively.26 Also, in most states, an arbitration agreement binds the employee even if the employer terminates the employee the next day.

b. Market discipline

Another iteration of the balanced-power assumption is the argument that employees do not need legal protection from termination because the market disciplines employers from acting irrationally or treating employees badly. Employers must compete for employees, and labor is in such demand relative to its supply that employers will not terminate employees for arbitrary or undeserved reasons: “It is, of course, not economically feasible for an employer to frequently discharge employees for purposes unrelated to the betterment of his business,”27 and “Employers pay a price if they get a reputation for tricky dealings with their employees…. Employees work under contracts of employment at will because they think it unlikely they will be fired as long as their work is satisfactory and the firm does not encounter rough weather.”28 Another court suggested that the at-will rule was not a legal rule at all but instead just a legal expression for the rigorous market discipline under which employers operated: if an employer fails to maintain a good employee, “the penalty for any mistake will be paid in the market (because the [employer] will have a harder time recruiting a quality replacement, or will need to pay more to make up for the greater uncertainty) rather than in the courts.”29 On this reasoning, some courts have found that an employer and employee who want to contract around the at-will default must articulate their intentions more clearly than parties who seek to contract around a default in other kinds of agreements.30 The possibility that an employer might terminate a well-performing employee because it could find someone else to perform the work for less, with fewer benefits, or under more onerous conditions does not enter the court’s reasoning. 

c. Changing the rules would be unfair to employers

Another kind of argument based on the assumption that the employee can readily damage the employer by walking away is the argument that changing the status quo would give employees unfair economic and legal advantages. One court cites “simple fairness” as the reason for the at-will presumption, criticizing the notion that “it leaves the ‘poor’ employee without legal protection.”31 The court argues that, if the law instead presumed that employment contracts were for a certain duration or were otherwise not at will, employers would generally be unable to recover damages from employees who breach the agreement by quitting: 

Absent the presumption, the law is naturally prone to favour the interests of the employee. The presumption may make it slightly more difficult for the employee to recover if he brings an action. But this merely serves as a partial redress of the unfair situation which would otherwise occur.32

The court remarks, “The old adage that you can not get blood from a stone is particularly apt in this situation.”33

For this situation to be unfair, it must be that the employer who loses an employee needs a legal remedy to a comparable extent as the employee who loses a job. The court is assuming that a worker can more readily leave the employer and find a new job than the employer can find a new employee. Under contract law, if an employer wants to sue an employee for quitting before the expiration of the agreement, the employer’s damages will be limited to whatever loss the employer could not avoid by hiring a replacement. The court’s argument in Greene assumes that an employer is generally unable, without difficulty, to hire someone to replace the employee who quit. Thus, for redress the employer must go to court to seek damages from the breaching employee. Since the employee is likely impecunious, however, the employer would be without real recourse under this non-at-will regime.34

3. The NLRA and balanced-power assumption

The Supreme Court has not entirely disregarded the inequality of bargaining power between the employee and employer when interpreting the NLRA; however, it has overlooked where this inequality comes from, as illustrated by its opinion in N.L.R.B. v. Bell Aerospace Co. holding that “managerial” employees were excluded from the NLRA.35 The majority adopts the rationale from the dissenting opinion in a case holding that foremen could unionize under the NLRA:

The present decision…tends to obliterate the line between management and labor…. It tends to emphasize that the basic opposing forces in industry are not management and labor but the operating group on the one hand and the stockholder and bondholder group on the other…. The struggle for control or power between management and labor becomes secondary to a growing unity in their common demands on ownership.36

Bell Aerospace excludes managerial employees from the NLRA so as not to create (expose) fault lines of class conflict between those who produce and those who possess capital, something the majority deems Congress could not have intended. The majority assumes that the opposing interests of employees and employers come from occupying different strata in an organizational hierarchy rather than class position. While the precise legislative intentions behind the NLRA are beyond the scope of this paper, the majority’s rationale ignores the preamble’s conclusion that workers needed the right to organize because of the imbalance of power between an individual and aggregated capital.

III. The assumption of managerial prerogative

Courts also protect employer power on the assumption that the employer must have nearly full authority over the commercial enterprise to promote efficiency and prevent adverse economic consequences, both at the enterprise and macroeconomic levels. Courts appeal to managerial prerogative to carve out exceptions for employers from contract law and to limit worker rights under the NLRA. Legal rules and statutory interpretations assume or state that the employer’s managerial prerogative must include the right to command nearly every aspect of the business, including hiring and firing, compensation and benefits, working conditions, investment decisions, product lines (what to produce), the labor process (how to produce it), and whom to do business with.

A core claim is that restricting managerial prerogative will harm the enterprise and economy by restricting the employer’s flexibility to adapt to changing circumstances. The courts make several economic arguments based on this claim: Employers are better positioned than anyone else to perceive and respond rationally to market conditions. So confident are we in the employer’s business judgment that we must not second-guess it and must sometimes defer to inscrutable and apparently irrational decisions. Contract law does not provide adequate protections for managerial prerogative; we cannot impose on employers the same rules we impose on other commercial parties. So critical is managerial prerogative that we must sometimes save employers from their own bargains. The costs of restricting managerial prerogative would be formidable and create chaos.

The courts’ arguments about managerial prerogative are, above all, policy assumptions about how they think the economy works and, with respect to the NLRA, how they think Congress thought the economy worked. The idea that an employer-as-business entity “owns” the enterprise as a going concern and therefore has a near absolute right to command it has achieved taken-for-granted status in the law. However, courts have never been able to articulate a sound legal foundation for this proposition, including through property rights (Atleson 1983; Racabi 2022). In cases of statutory interpretation, particularly NLRA cases, the Supreme Court has suggested that deferring to managerial prerogative is consistent with legislative intent, on the assumption that the legislature could not have meant to intrude upon the powers that companies claim for themselves.

A. Contract law exceptions

The assumption of managerial prerogative is so tenacious that courts have created exceptions within contract law for employers, sometimes without any pretence that they are conferring advantages on employers unavailable to parties in other commercial agreements.

1. Termination authority

The court’s preservation of the at-will rule relies on the assumption of managerial prerogative. As illustrated in Part II, some courts defend the employer’s at-will presumption based on freedom of contract. However, the at-will presumption is unique in contract law and hard to reconcile with it. Courts do not presume that any other kind of contract is at will, and it is hard to find another at-will agreement that courts will recognize as a contract—at a minimum, courts generally require a term providing for notice before termination (Tomassetti 2021).

The peculiar status of the at-will rule within contract law makes managerial prerogative an important source of its legitimacy. Courts contend that the employer’s prerogative over hiring and firing must be near absolute, because a “variety of unforeseen business and economic conditions that can and do arise, require the ability to adapt to prospective needs.”37 Another court notes:

…an employer is free to run his business as he sees fit. In a day-and-age when government regulation tends to act as an impediment to free enterprise, stifling initiative in the private sector, courts must be mindful to remember that freedom of contract still reins [sic]: absent contractual restrictions or federal or state laws [that] restrict management prerogatives, an employee serves at the whim of the employer.38

The assumption is so taken for granted that courts have wrongly attributed its origin to rational, “policy” reasons. Thus, a court provides that the at-will rule “reflects the nation’s historical policy favoring rapid industrial development.”39

Courts also turn to the necessity of managerial prerogative to explain why employers are not required to exercise their termination authority in good faith. Despite its peculiarity, courts claim that at-will employment is a contract, but that designation would subject employers to a duty of good faith in making termination decisions. Contract law implies a duty of good faith into every contract, and parties cannot contract out of it. However, when it comes to at-will employment, courts in every state except Montana reject this idea. The employer may act dishonestly, irrationally, and opportunistically in terminating at-will employees. Courts have invoked the assumption of managerial prerogative to explain their position, for instance, arguing that it is “unnecessary and unwarranted for the courts to become arbiters of any termination that may have a tinge of bad faith attached. Imposing a good faith duty to terminate would unduly restrict an employer’s discretion in managing the work force.”40

2. Revoking promises and protecting employers from bargaining away their prerogatives

Courts also appeal to managerial prerogative to give the employer a right to modify the terms of an employment agreement without meeting the ordinary requirements of contract law. While the courts provide the most flexibility to employers with respect to at-will employees, in most states they also permit employers to revoke promises to non-at-will employees if the employer made the promise via personnel policies.

For instance, in Asmus v. Pacific Bell, the California Supreme Court permitted an employer to unilaterally, on notice, deem non-at-will employees to be at-will employees.41 Pacific Bell had made a written promise to managerial employees that it would not terminate them unless the company ran into certain business difficulties. Years later, however, the employer terminated the employees despite conceding that the contractual condition permitting it to terminate them had not occurred. The court did not dispute that the employer’s promise was contractually binding, and the company did not dispute that the promise was clear. Under these circumstances, the court should have enforced it or required the employer to follow the usual requirements to negotiate the managers’ departure. Instead, it decided that, because the job security policy for the managers could last an indefinite time, it would be unreasonable to hold the employer to it. Without citing any case law, the court created a new rule for employers allowing them to rescind job security promises upon notice after the policy has been in place for some time. The court remarked that to rule otherwise would be “leaving the employer unable to manage its business, impairing essential managerial flexibility, and causing undue deterioration of traditional employment principles.”42 Asmus illustrates the tendency of some courts to save an employer from what the court sees as an imprudent limitation on its prerogative.

Other courts have likewise used dramatic language to describe the consequences of requiring employers to abide by job security policies or otherwise follow the usual requirements for modifying contracts. One case finds, “It would be unreasonable to think that an employer intended to be permanently bound by promises in a handbook, leaving it unable to respond flexibly to changing conditions.”43 The Michigan Supreme Court ruled that employers could unilaterally transform non-at-will employees into at-will employees by amending its policies, because otherwise, “many employers would be tied to anachronistic policies in perpetuity….”44 And, while finding in favor of a furloughed employee, a court still sympathizes with the employer’s concern about being “shackled with a workforce it is unable to reduce without fear of wrongful discharge litigation….”45

Sometimes courts find that employers should not be expected to abide by job security policies because, if the employer were to create new policies from time to time, this could leave an employer with different agreements in place for different employees. The administrative costs of keeping track of different agreements would be too high. One court explained that such a situation would “create chaos for employers who would have different contracts of employment for different employees….”46 This position seems to assume that keeping track of the policies in place for different employee cohorts is a logistical challenge beyond others inherent in managing an enterprise (like managing relationships with suppliers, customers, investors, etc.).

3. Interpreting contractual limitations on at-will authority

The case law on interpreting cause limitations on employer termination rights also assumes the necessity of managerial prerogative.47 Courts generally divide for-cause terminations into two types: (1) terminations allegedly based on the individual employee’s conduct, for instance, where the termination is allegedly based on the employee’s poor performance or misconduct; and (2) terminations unrelated to the employee’s conduct and based on “economic decisions.” In both situations, courts protect the employer’s prerogative in a somewhat anomalous manner from the perspective of contract law.

a. Employee conduct

In contractual terms, where the cause for termination is related to the employee’s conduct, the employer is essentially saying that the employee breached the employment agreement or failed to fulfill contractual obligations. An employee who disputes the termination on the basis that the conduct did not warrant termination is essentially claiming that the employer breached the agreement by terminating the employee without cause.

Courts have interpreted cause limitations to extend the employer’s managerial prerogative to what is normally the prerogative of a judge or jury. Normally, under contract law it does not matter whether a party believes it fulfilled its contractual duties if the party did not fulfill them, even if the party’s belief was reasonable. Likewise, it does not matter whether a party breaches its obligations intentionally, carelessly, or even after exercising all reasonable precautions to avoid breaching them. For instance, “a defaulting borrower’s good faith belief he or she has repaid a loan is not a defense to a lender’s claim for payment.”48 Also under contract law, the trier of fact (a judge or jury) determines whether the party breached the contract. In employment disputes, however, several courts allow the employer to avoid liability for terminating an employee without cause by showing that it had reasonable grounds to believe it had cause. The California Supreme Court has ruled that employers have a “fact-finding prerogative,” one they do not automatically “relinquish…” when agreeing to a for-cause limitation.49 Courts have suggested that this fact-finding prerogative is accessory to the employer’s at-will authority, since a right to terminate at will is a right to terminate regardless of “facts.”50 It is unclear, however, why the employer retains this accessory after it has expressly contracted away some of its at-will authority.

What seems to drive the courts’ conclusions is the assumption that only employers have been inducted to the arcana of the market and only they can be trusted to respond to its mysterious tides for the benefit of the enterprise and economy. The California Supreme Court relies on this assumption to rationalize departing from the normal position of contract law and displacing the jury’s role as a “fact-finding board”:

[A]llowing a jury to trump the factual findings of an employer that an employee has engaged in misconduct rising to the level of “good cause” for discharge, made in good faith and in pursuit of legitimate business objectives, is a highly undesirable prospect…. In effect, such a system would create the equivalent of a preeminent fact-finding board unconnected to the challenged employer…. This ex officio “fact-finding board,” unattuned to the practical aspects of employee suitability over which it would exercise consummate power, and unexposed to the entrepreneurial risks that form a significant basis of every state’s economy, would be empowered to impose substantial monetary consequences on employers whose employee termination decisions are found wanting.51

The majority extends the employer’s “broad latitude” over personnel decisions to being “factually incorrect,” a prerogative not enjoyed by other contractual parties.52

b. Economic decisions

Where the employer argues that it terminated an employee for an “economic” reason, such as a layoff or business reorganization, this reason satisfies a for-cause limitation on its termination authority.53 The employer has “complete discretion” when discharging employees for economic reasons.54 Unlike the situation where the employer alleges that the decision is based on the employee’s conduct, here the employer need not establish that it had reasonable grounds to believe the decision was justified.

As noted, normally a party has cause for terminating a contract where the other party breached the agreement, meaning the party failed to do what it promised.55 Alternatively, to be excused from its contractual obligations the party needs to show that some exception applies, such as “frustration” or “impracticability.” These doctrines relieve a party from its contractual duties where unforeseen circumstances make their performance impossible, pointless, or exorbitant, and where the contract does not itself allocate the risk of these circumstances coming to pass.56

Where the employer has an economic reason for the termination, courts treat the for-cause term differently. In these cases, nobody disputes that the employee performed the contract adequately; however, the court permits the employer to terminate the employee without liability, without requiring the employer to demonstrate one of these contractual exceptions.

Courts appeal to managerial prerogative to explain why. Their findings regarding what an employer and employee must have intended in agreeing to a for-cause limitation reflect the policy assumption that the economy works better where employers have near plenary flexibility in managing the enterprise. For instance, the Vermont Supreme Court argued:

…“history is replete with examples of technological and business innovations which have created new markets and destroyed old ones, thereby necessitating changes and shifts in the work force.” Attempting to second-guess these shifts would be self-defeating as well as an inappropriate interference in managerial discretion.57

Another court dramatizes the situation: “To hold otherwise would impose an unworkable economic burden upon employers to stay in business to the point of bankruptcy in order to satisfy employment contracts and related agreements terminable only for good or sufficient cause.”58

Above, we see courts treating employers differently than other parties to commercial contracts and justifying this disparate treatment based on the assumption of managerial prerogative. While addressing different issues, the cases share several motifs: The courts use speculative, overwrought language to describe the consequences of limiting managerial prerogative. They assume that the costs to the economy and employers of retaining employees under job security policies or for-cause provisions are formidably high and outweigh the costs of job losses. They assume that the employer’s interest in flexibility, and the contribution of this flexibility to economic dynamism, outweigh the economic benefits of job security. Unlike in the case of other commercial parties who may have sound reasons for wanting out of their agreements, the courts do not require employers to renegotiate with the other party, to show that a contractual exception relieves them from their promises, or to pay damages.

B. Statutory protections: The NLRA

Several areas of NLRA law are based on Supreme Court interpretations that argue the necessity of managerial prerogative. The court often suggests that these interpretations are required by or at least consistent with legislative intent. This article does not take a position in the debate on the congressional intent behind certain NLRA provisions. The point is that, whether as a result of legislative intent or the Supreme Court’s independent appraisal, the assumption drives much of labor law. The following discusses three areas of NLRA law where the Supreme Court has defended the necessity of managerial prerogative: (1) reserved authority, (2) mandatory bargaining subjects, and (3) interference and discrimination.

1. Reserved authority

Arbitrators often treat the employer as possessing “reserved authority,” meaning that the employer legally has default authority over the enterprise, even in the absence of contracting for such authority. Arbitrators assume that the employer “reserved” whatever prerogative the employer did not specifically contract away (Young 1963) and thus may take unilateral action in these domains without running afoul of the agreement. For instance, a text on how arbitrators should interpret collective bargaining agreements provides:

It has been said that, unless restricted by contract, management has the right “to determine what is to be produced, when it is to be produced, and how it is to be produced.” Again, unless restricted by the agreement, management has the right to determine what work shall be done; to determine what kinds of services and business activity to engage in; and to determine the techniques, tools, and equipment by which work on its behalf shall be performed. (Elkouri and Elkouri 2003, 664)

The idea of reserved authority sits uncomfortably with the notion that employment is a contract. In a contract, the parties’ duties toward one another are for the parties to determine and exist only by virtue of the parties’ agreement. This distinguishes a contract from a status relationship, where some external authority, like the state or custom, determines the existence and content of a social relationship. (Examples of status or quasi-status relationships include the obligations of parents to their minor children and the relationship between the military and a drafted soldier). The above excerpt on arbitration suggests that, even before entering an agreement, the employer has certain rights over the employee that it can bargain away if it pleases. This does not sound contractual. In fact, the National Labor Relations Board, the agency responsible for enforcing the NLRA, has ruled that employers cannot rely on “basic management prerogative” to make unilateral changes to the employment agreement where the employer did not secure a contractual provision allowing it this authority.59

2. Mandatory bargaining subjects

The Supreme Court has legitimated the employer’s managerial prerogative with respect to the subjects over which the employer must bargain with a union. The NLRA provides that the employer must bargain with its employees’ duly chosen representative “in good faith with respect to wages, hours, and other terms and conditions of employment.”60 If the employer refuses to bargain over these subjects, or makes a unilateral change regarding one of these subjects without bargaining, it breaches its duty under the NLRA.61 Further, a union may deploy what economic leverage it can in negotiations over these subjects, and the employer likewise violates the NLRA if it retaliates against employees for exerting this pressure. For instance, the employer cannot terminate employees who strike to improve their leverage at the bargaining table with respect to these issues.62 Thus, the NLRA expressly subjects employer prerogative to negotiation with the employees’ union.

Nonetheless, the Supreme Court has ruled that some decisions are too much a matter of managerial prerogative to subject to negotiation, even if they significantly impact employment. In First National Maintenance Corp. v. NLRB (FNM), the majority held that a building services company did not have to bargain over its decision to cancel its maintenance contract with a nursing home over a fee dispute and terminate the employees who worked on the contract.63 The majority ruled that, “in view of an employer’s need for unencumbered decisionmaking in the conduct of its business,” the employer must bargain where the “benefit, for labor-management relations and the collective bargaining process, outweighs the burden placed on the conduct of the business.”64 The employer “must be free from the constraints of the bargaining process to the extent essential for the running of a profitable business.”65

The FNM test assumes that the employer alone is capable of rationally assessing commercial conditions, requiring flexibility in managing the enterprise. The benefit for labor-management relations appears as a distinct objective (on the other side of the balance) and a “burden” on the “conduct of the business.” Employee interests in job security do not appear in the balance at all.

Applying the test to the facts in FNM, the court found that the “harm likely to be done to an employer’s need to operate freely in deciding whether to shut down part of its business purely for economic reasons outweighs the incremental benefit that might be gained through the union’s participation in making the decision.”66 The most that the union could hope to achieve through bargaining was to “delay or halt the closing.”67 The court dismissed the idea that bargaining could “augment [the] flow of information and suggestions” regarding alternatives, noting that the “employer also may have no feasible alternative to the closing….”68

In sum, the majority assumed that the employees could not contribute anything helpful in managing the enterprise, an assumption that, as the dissent points out, is speculative at best. As the experience with codetermination shows (see Jäger, Noy, and Schoefer in this volume), allowing worker input into these decisions does not necessarily lead to adverse economic outcomes.

The court distinguished FNM from Fibreboard Paper Products Corp. v. N.L.R.B.,69 where it ruled that an employer was required to bargain over a decision to outsource work. The court noted that the Fibreboard employer had not sought to alter its “basic operation” but simply to replace unionized employees with subcontracted workers who would produce the same services for less. Although FNM did not clearly articulate the distinction, Harper (1982) notes that one could differentiate Fibreboard and FNM on the principle that decisions about what to produce and market should be determined by consumer demand rather than employer-employee bargaining. This interpretation makes sense—the FNM majority suggested that its decision turned on characterizing the termination as an “economically motivated decision to shut down part of a business,” i.e., to cease to offer certain services for sale.70 As explored below, Harper’s insight is also consistent with NLRA jurisprudence suggesting that managerial prerogative is most out of reach of the NLRA when dealing with decisions about allocating capital between employment and other uses.

3. Anti-union interference and discrimination

Section 8(a)(1) of the NLRA makes it an unfair labor practice “to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in Section 7.” In Supreme Court jurisprudence, managerial prerogative defines the limits of this prohibition. Many employer activities that prima facie would seem to interfere with, restrain, or coerce employees with respect to their associational and organizational rights are not considered to be violations of 8(a)(1). For instance, the Supreme Court ruled in NLRB v. Mackay Radio & Telegraph that employers could hire permanent replacements for striking employees without violating the NLRA, based on the assumption, for which it did not offer analysis or evidence, that the employer had the “right to protect and continue his business,” outweighing any interest in resolving the conflict with its employees.71

Likewise, if the employer decides to close its business or part of its business in response to a union drive, this is generally not a violation of the NLRA. The exception is where a closing is discriminatory under Section 8(a)(3), requiring proof that the employer’s motive was to discourage its other workers from unionizing (for instance, at other establishments the employer owns).72 As in the case where courts interpret contractual limits on an employer’s termination authority, the commercial rationality of the employer’s decision is not subject to scrutiny, because, “some employer decisions are so peculiarly matters of management prerogative that they would never constitute violations of §8(a)(1), whether or not they involved sound business judgment unless they also violated §8(a)(3).”73

While Section 8(a)(3) prohibits some employer decisions that Section 8(a)(1) would permit, the case law on Section 8(a)(3) is also limited by the assumption of managerial prerogative. Section 8(a)(3) of the NLRA prohibits employers from discriminating against workers with respect to their employment “to encourage or discourage membership in any labor organization.” To find a violation of this section, courts generally require proof of employer motive, and they distinguish between a motive to discourage union activity for its own sake and a motive to pursue “economic” interests. For example, without showing some form of anti-union animus, it is generally not a violation of Section 8(a)(3) for the employer to close a plant or shift capital to nonunionized plants, even where the employer does so because of the higher labor costs accompanying unionization.74 Where the employer claims it is acting in its economic interests, it is hard to prove discrimination (Estlund 1992). Further, in Textile Workers Union of America v. Darlington Manufacturing, the Supreme Court ruled that an employer may go out of business entirely even if its only motive is to discourage union activity.75 Making a conspicuous showing of “runaway capital” is within the employer’s managerial prerogative.

In another line of Section 8(a)(1) decisions, the Supreme Court limited employee rights to receive, on employer property, information from union organizers, on the basis of the employer’s right to control access to its property. Under Lechmere v. NLRB, an employer may usually prohibit union organizers who are not its own employees from entering the employer’s property to provide information to its employees.76 The exception is the “rare case where ‘the inaccessibility of employees makes ineffective the reasonable attempts by nonemployees to communicate with them through the usual channels,’”77 such as a remote mining camp where employees reside on the premises. The court acknowledged that the employees had a Section 7 right to learn about the advantages of unionization.78 Nonetheless, it framed the issue as one about the rights of “non-employee union organizers,” which it held had only derivative Section 7 rights.

In this line of cases, the court distinguishes between the rights of the employer’s own employees and the rights of others: where the alleged interference with Section 7 rights involves the employer’s own employees, the court has found that the employer’s prerogative is limited by its interest in workplace “discipline.”79 This means that some employer decisions, like implementing nonsolicitation policies that apply to its employees even during nonworking times, are presumptively violations of Section 8(a)(1).80 In cases involving union organizers, however, the court views managerial prerogative as more absolute—it issues not from the employer’s interest in “discipline,” or in running a productive establishment, but from “property” rights.81 As in FNM and Darlington, where the employer qua capital owner indicates it wants more license in the use of its capital than that necessary to manage a workforce, the court’s solicitude toward managerial prerogative likewise seems to expand.

IV. The status quo assumption

Even where courts are not convinced that employers must have broad managerial prerogative to promote efficiency or that the employee and employer enjoy relatively equal bargaining power, they tend to assume that the costs of disrupting the status quo outweigh the costs of maintaining it. The core claim is that altering the status quo of expansive managerial prerogative will destabilize the economy.

Courts frame this claim as a “judicial abstention” argument—that the courts should abstain from intervening in complex policy issues and leave these to the legislature to resolve. A New York court ruling to preserve the at-will rule argued, “We have noted that significant alteration of employment relationships, such as the plaintiff urges, is best left to the Legislature…because stability and predictability in contractual affairs is a highly desirable jurisprudential value.”82 Criticizing the trend among states to recognize a public policy exception to the employer’s at-will authority, a Pennsylvania court fretted:

The at-will presumption, the citadel that once governed the field with such predictability, has been eroded of late by piecemeal attacks on both the contract and tort fronts and the entire field seems precariously perched on the brink of change…. Pennsylvania has thus far escaped the widescale turbulence so common to the field and still clings to the at-will presumption…. [W]e believe that if terminable at-will contracts are to be forbidden, the judicial process may be an inappropriate forum for such sweeping policy change.”83

In limiting terminated employees to contract remedies (rather than more generous tort remedies) for certain unlawful terminations, the California Supreme Court cited the need for “commercial stability,” arguing that to rule otherwise “has the potential to alter profoundly the nature of employment, the cost of products and services, and the availability of jobs,” issues “arguably…better suited for legislative decisionmaking.”84

V. Conclusion

While the above survey illustrates that the assumptions of balanced power and managerial prerogative in the case law are pervasive, their hold is not absolute. There have been, and are, countertrends:

• In establishing exceptions to the employer’s at-will authority for implied-in-fact contracts and discharges in violation of public policy, many courts recognized that the employee’s freedom to quit was not equivalent to the employer’s freedom to terminate, noting, for instance, that “this ‘freedom’ of the employee is largely illusory,”85 or “assures equality to the employee as does the law which forbids the rich as well as the poor to sleep under bridges.”86 Some courts rejected the alarm sounded by employers about enforcing job security policies, suggesting employers “may benefit from the increased loyalty and productivity that such agreements may inspire.”87 Others criticized the origin myth that at-will employment sprung from the head of freedom of contract.88

• Much FLSA jurisprudence on waivers and settlements also rejects the balanced-power assumption. The Supreme Court has held that employees cannot waive their rights to liquidated damages under FLSA,89 and many courts review proposed out-of-court settlements of FLSA claims to ensure that they are reasonable and fair to employees in light of the “often great inequalities in bargaining power between employers and employees.”90

• Courts sometimes strike down arbitration and noncompete agreements applicable to employees under the doctrine of unconscionability, on the basis that provisions are too unfair and too much a product of unequal power to be enforced.

• Dissenting opinions in the Supreme Court’s decisions on dispute resolution also reject the assumption of balanced power. Justice Ginsburg’s dissent in Epic Systems observed that by permitting employers to force employees to resolve employment-related disputes as individuals, the majority “ignores the reality that sparked the NLRA’s passage: Forced to face their employers without company, employees ordinarily are no match for the enterprise that hires them.”91

• In deciding whether certain individuals are employees entitled to statutory protections or independent contractors excluded from these protections, some courts (but not all) ground their analysis on the underlying legislative premise that workers require protection due to their inferior bargaining power.92

• Despite many NLRA decisions deferring to managerial prerogative, the Supreme Court has recognized that the NLRA sanctions some broad encroachments on managerial prerogative, including employee rights to protect themselves via collective action on employer property even when no union formation is contemplated.93

Nonetheless, while not unqualified, this article shows that many rules and statutory interpretations in U.S. work law rely on the assumptions that the employee and employer have relatively equal bargaining power, that employers must have near plenary control over the enterprise for the sake of efficiency, and that the costs of disrupting the status quo of expansive employer prerogative would be greater than that of maintaining it. These unproven assumptions underlie decisions that protect employer power over workers and deprive workers of economic security and autonomy. The decisions give employers broad rights to terminate employees, to force workers to arbitrate disputes as individuals, to renege on assurances of job security, to otherwise modify the terms of employment unilaterally, and to undermine workers’ collective rights.

Behind the main assumptions and the economic claims that depend on them are additional ones that courts generally leave unarticulated—assumptions about information, rationality, externalities, organizational dynamics, and competitive strategies. For example, the claim that markets discipline employers not to mistreat employees assumes that employers seek to maximize profits through long-term, product market competition and not low-wage competition or short-term financial strategies like stock price inflation. The claim that requiring employers to abide by job security commitments would impose fearsome costs on the employer and economy assumes that the costs of the current regime are less economically destructive. It also assumes that the costs of job security policies to employers outweigh their potential benefits in the form of employee productivity, initiative, loyalty, and morale. The claim that only legislatures should alter the judge-made rules protecting managerial prerogative so as not to destabilize the economy assumes away the instability that workers face under the status quo—one characterized by unemployment, dependence on the employer for one’s livelihood, and limited opportunities to make a living outside of labor markets.

By showing how much of U.S. work law rests on unproven assumptions about how the economy works, this paper sets the stage for the companion papers in this volume. In these papers, social scientists will interrogate the veracity of these assumptions, hopefully informing future court rulings and policy changes.

Acknowledgments

I am grateful to Michael Harper, Wilma Liebman, Larry Mishel, and Brishen Rogers for their invaluable feedback, and to Larry Mishel for inviting me to be a part of the Unequal Power Project.

About the author

Julia Tomassetti is an assistant professor of law at City University of Hong Kong. Please direct correspondence to jtomasse@cityu.edu.hk.

Notes

1. By “work law” I refer to a trilogy of subfields: labor law (the law dealing with worker collective action and unionization); employment law (the law dealing with individual worker rights, like minimum wage laws, the common law of employment, and contracts); and employment discrimination law.

2. By focusing on the NLRA, I do not mean to imply that this is the only legislation whose interpretation is shaped by these assumptions.

3. Given that the common law rules discussed in this paper are products of judicial law-making, the argument that courts should let the rules stand to avoid treading on legislative authority is somewhat wanting.

4. Some states have since codified the presumption, however, including Louisiana and California.

5. Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001).

6. 500 U.S. at 33.

7. For a discussion of the shortcomings of forced arbitration, see Colvin 2018.

8. Gilmer, 500 U.S. at 43 (J. Stevens dissenting) (internal citation omitted).

9. AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011).

10. 138 S. Ct. 1612, 1619 (2018).

11. The Supreme Court upheld its constitutionality in N.L.R.B. v. Jones & Laughlin Steel Corp., 301 U.S. 1 (1937).

12. Section 7 guarantees employees the rights “to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection.”

13. Epic Systems, 138 S. Ct. at 1619 (emphasis added). For a similar framing of the arbitration issue as one of contractual freedom, see Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 122 (2001).

14. See Naidu and Carr in this volume for a fuller critique of this theory as applied to labor markets.

15. Coppage v. Kansas, 236 U.S. 1 (1915).

16. 138 S. Ct. 2448 (2018).

17. Ibid. (J. Kagan dissenting).

18. Ibid. at 2467.

19. Ibid. at 2462, 2473–77, 2483, 2486.

20. Montana abrogated the at-will rule via statute, and it is not the rule in Puerto Rico or the U.S. Virgin Islands.

21. Harris v. Mississippi Valley State University, 873 So. 2d 970, 987 (Miss. 2004).

22. For example, see Woolley v. Hoffmann–La Roche, Inc., 99 N.J. 284 (1985). In most of these states, however, courts permit employers to modify these policies unilaterally, including by rescinding job security assurances.

23. This and the redirection of disputes from the courts to arbitration explains why many of the cases discussed below that rely on the balanced-power assumption are from the 1980s and 1990s, and also why they represent the definitive law on these issues despite their age.

24. Margiotta v. Christian Hosp. Northeast Northwest, 315 S.W.3d 342, 346 (St. Ct. Mo. 2010) (internal citations omitted).

25. Greene v. Oliver Realty, Inc., 363 Pa.Super. 534, 547 (1987). 

26. The same applies to non-at-will employees if the employer promised the job security via a policy issued to multiple employees rather than through a contract with the individual employee.

27. Martin v. Capital Cities Media, Inc., 354 Pa. Super. 199, 213 (1986).

28. Curtis 1000, Inc. v. Suess, 24 F.3d 941 (7th Cir. 1994).

29. Garcia v. Kankakee Cty. Hous. Auth., 279 F.3d 532, 536 (7th Cir. 2002).

30. Martin, 354 Pa. Super. at 213.

31. Greene v. Oliver Realty, Inc., 363 Pa.Super. 534 (1987).

32. Ibid. at 549.

33. Ibid.

34. For another example, see Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561(1983) (J. Day, concurring).

35. 416 U.S. 267 (1974).

36. Ibid. at 278 (quoting Justice Douglas’ dissenting opinion in Packard Motor Car Co. v. NLRB, 330 U.S. 485 (1947).

37. Woolley v. Hoffmann–La Roche, Inc., 99 N.J. 284, 491 n. 8 (1985).

38. Bass v. M & S Music Co., No. 78-556, 1979 WL 1969, at *4 (S.D. Ala. Oct. 12, 1979) (internal citation omitted).

39. Riquelme v. Comcast Cellular Commc’ns, Inc., 1994 WL 273415, at *4 (D.N.J. June 14, 1994).

40. Brockmeyer v. Dun & Bradstreet, 113 Wis.2d 561, 569 (1983).

41. 23 Cal. 4th 1 (2000).

42. Ibid. at 13. Normally, how one enters a contract does not determine how one may get out of it. Despite its doctrinal incoherence, however, Asmus provides more protections for employees than courts that never enforce employer policies or courts that do not require employers to provide notice or wait some period before making unilateral modifications.

43. Ferrera v. Nielsen, 799 P.2d 458, 460 (Colo. App. 1990).

44. In re Certified Question, 432 Mich. 438, 456 (1989). For another example, see Dumas v. Auto Club Ins. Ass’n, 437 Mich. 521, 532 (1991), noting the “traditional reluctance of courts to interfere with management decisions and the needed flexibility of businesses to change their policies to respond to changing economic circumstances.”

45. Brooks v. Trans World Airlines, Inc., 574 F.Supp. 805, 810 (D.Colo.1983).

46. Bedow v. Valley Nat’l Bank, 5 IER cases 1678, 1680 (D. Ariz. 1988).

47. Note that the vast majority of U.S. employees are at will; they have no for-cause limits on their termination.

48. Cotran v. Rollins Hudig Hall Int’l, Inc., 17 Cal. 4th 93, 102 (1998) (internal citation omitted).

49. Ibid. (quoting Simpson v. Western Graphics Corp. 293 Or. 96, 100–101 (1982).

50. Towson University v. Conte, 384 Md. 68 (2004).

51. Cotran, 17 Cal. 4th at 104 (quoting Southwest Gas v. Vargas, 111 Nev. 1064, 1075 (1995)).

52. Ibid. at 101 (internal citation omitted).

53. Taylor v. Nat’l Life Ins. Co., 161 Vt. 457, 466 (1993). Statutory law in Montana, the only state not recognizing at-will employment, also deems that “good cause” for termination includes “disruption of the employer’s operation, or other legitimate business reason.” Mont. Code Ann. §39-2-903(5).

54. Friske v. Jasinski Builders, Inc., 156 Mich. App. 468, 472 (1986).

55. Parker v. Diamond Crystal Salt Co., 683 F. Supp. 168, 173 (W.D. Mich. 1988).

56. Restatement (Second) of Contracts §§261-64 (1981). An example of a contract becoming impracticable would be where someone books a concert hall to host performances, but the concert hall burns down before the performances take place. Taylor v. Caldwell, 122 Eng. Rep. 309 (Q.B. 1863).

57. Taylor, 161 Vt. at 467 (internal citations omitted).

58. Friske, 156 Mich.App. at 472. See Parker, 683 F. Supp. at 173 for a similar sentiment.

59. Columbian Chemicals Co., 307 NLRB 592 (1992).

60. NLRA §8(d).

61. NLRA §8(a)(5) (making it an unfair labor practice “to refuse to bargain collectively with the representatives of his employees”).

62. Employers may, however, “permanently replace” employees who strike for this purpose. N.L.R.B. v. Mackay Radio & Telegraph, 304 US 333 (1938).

63. 452 U.S. 666 (1981). However, the court held that the employer must bargain over the “effects” of the decision on its employees. “Effects” bargaining includes issues like severance and priority in re-engagements.

64. Ibid. at 679.

65. Ibid. at 678–79.

66. Ibid. at 667.

67. Ibid. at 681.

68. Ibid. at 683.

69. 379 U.S. 203 (1964).

70. FNM, 452 U.S. at 677. If the nursing home rather than FNM had cancelled the contract, the terminations would look less like the consequence of an entrepreneurial decision and more like a redundancy layoff due to a business downturn.

71. 304 U.S. 333, 345 (1938).

72. Textile Union Workers v. Darlington Mfg. Co., 380 U.S. 263 (1965).

73. Ibid. at 269.

74. NLRB v. Adkins Transfer Co., 226 F.2d 324 (6th Cir. 1955).

75. 380 U.S. 263.

76. 502 U.S. 527 (1992).

77. Ibid. (internal citation omitted).

78. Also, the NLRA states that it covers “any employee, and shall not be limited to the employees of a particular employer.”

79. Republic Aviation Corp. v. N.L.R.B., 324 U.S. 793, 798 (1945).

80. Ibid.

81. Lechmere, Inc. v. N.L.R.B., 502 U.S. 527 (1992).

82. Sabetay v. Sterling Drug, Inc., 69 N.Y.2d 329, 336 (1987) (internal citation omitted).

83. Martin v. Cap. Cities Media, Inc., 354 Pa. Super. 199, 208 (1986).

84. Foley v. Interactive Data Corp., 47 Cal.3d 654, 694 (1988). See also the concurrences in Dumas v. Auto Club Ins. Ass’n, 437 Mich. 521, 532 (1991) and Berube v. Fashion Centre, Ltd., 771 P.2d 1033, 1052 (Utah 1989).

85. Berube, 771 P.2d at 1045.

86. Ludwick v. This Minute of Carolina, Inc., 287 S.C. 219, 221–222 (1985). See also Pugh v. See’s Candies, Inc., 116 Cal.App.3d 311 (1981).

87. Foley, 47 Cal.3d. at 681.

88. Woolley v. Hoffmann–La Roche, Inc., 99 N.J. 284 (1985).

89. Brooklyn Savings Bank v. O’Neil, 324 U.S. 697 (1945).

90. Nall v. Mal-Motels, Inc., 723 F.3d 1304, 1307 (11th Cir. 2013) (quoting Lynn’s Food Stores, Inc. v. U.S., 679 F.2d 1350, 1352 (11th Cir. 1982).

91. 138 S. Ct. 1612, 1640 (2018). See also the dissenting opinions of Justice Stevens in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) and Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991).

92. For example, see the California Supreme Court’s decision, Dynamex Operations W. v. Superior Ct., 416 P.3d 1 (Cal. 2018), which the legislature has since codified.

93. N.L.R.B. v. Washington Aluminum Co., 370 U.S. 9 (1962).

References

Arnow-Richman, Rachel. 2016. “Modifying At-Will Employment Contracts.” 57 Boston College Law Review 427.

Atleson, James B. 1983. Values and Assumptions in American Labor Law. University of Massachusetts Press.

Bagenstos, Samuel R. 2020. Lochner Lives on: Lochner Presumption of Equal Power Lives in Labor Law and Undermines Constitutional, Statutory, and Common Law Workplace Protections. Economic Policy Institute.

Beermann, Jack M., and Joseph William Singer. 1988. “Baseline Questions in Legal Reasoning: The Example of Property in Jobs.” 23 Georgia Law Review 911.

Cobble, Dorothy Sue. 2010. “The Intellectual Origins of an Institutional Revolution.” 26 ABA Journal of Labor & Employment Law 201.

Colvin, Alexander. 2018. The Growing Use of Mandatory Arbitration: Access to the Courts Is Now Barred for More than 60 Million American Workers. Economic Policy Institute.

Elkouri, Frank, and Edna Asper Elkouri. 2003. How Arbitration Works. 6th ed. Bureau of National Affairs.

Estlund, Cynthia L. 1992. “Economic Rationality and Union Avoidance: Misunderstanding the National Labor Relations Act.” 71 Texas Law Review 921.

Gross, James A. 1974. The Making of the National Labor Relations Board: A Study in Economics, Politics, and the Law. Vol. 1, 1933–1937. State University of New York Press.

Harper, Michael C. 1982. “Leveling the Road from Borg-Warner to First National Maintenance: The Scope of Mandatory Bargaining.” 68 Virginia Law Review 1447.

Racabi, Gali. 2022. “Abolish the Employer Prerogative, Unleash Work Law.” 43 Berkeley Journal of Labor and Employment Law 79.

Shierholz, Heidi. 2022. “Testimony before the House Committee on Economic Disparity and Fairness in Growth for a Hearing on the Impact of Corporate Power on Workers and Consumers.” U.S. House of Representatives, April 6.

Tomassetti, Julia. 2021. Power in the Employment Relationship: Why Contract Law Should Not Govern At-Will Employment. Economic Policy Institute.

VanderVelde, Lea. 2020. “The Anti-Republican Origins of the At-Will Doctrine.” 60 American Journal of Legal History 397.

Young, Stanley. 1963. “The Question of Managerial Prerogatives.” 16 ILR Review 240.

As the strength of laws governing labor relations and collective bargaining has diminished across most of 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 labor standards 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 paper1 uses comparative case studies of three major Democrat-controlled U.S. cities—Seattle, Los Angeles, and New York—in Democrat-controlled states between about 2010 and 2020 that not only expanded their employment protections but also established a local agency and directed substantial resources toward the enforcement of local employment laws. Drawing on public comments in city council hearings, mayoral statements, media coverage, city government documents, campaign donations from employers and employer organizations, and interviews with enforcement office leaders and staff, other city government officials, labor standards advocates, and employer advocates outside of government, we examine (1) the strategies used by employers and employer organizations to attempt to shape all parts of the process of enacting, implementing, and enforcing local employment standards, and (2) the ways city government officials construed business interests and the role of government accommodation of business concerns.

We pay special attention to forms of employer influence that appear related to the employers’ instrumental power—derived from direct influence through deploying resources in order to secure favorable decisions from politicians—and to their structural power—derived from the ability to withdraw capital and jobs and thereby affect the economy. The concept of structural power includes both the ability of business to affect the economy directly and an ideational component: how policymakers and bureaucrats think about the structural power of business. This ideational component involves beliefs among elected officials that if businesses disagree with political decisions, the businesses will act in a way that significantly harms the state of the economy.

In the three cities, we observed four common mechanisms by which employer influence functions:

• Employers win legislative concessions not due to greater resources but through being repeat players in the policymaking process, either by representing (in Seattle and Los Angeles) an enduring interest group that legislators feel they must be responsive to as part of the everyday functioning of local government, or by representing (in New York) a powerful constituency (large businesses) or a constituency in need of protection (small businesses).
• Even when minimum wage and paid sick laws passed with lopsided majorities, mayors, city councilors, and sometimes agency leaders were nevertheless strongly attuned and responsive to the ideational structural power of business. The form of structural power that most worries politicians is not fear of divestment and capital moving to other jurisdictions, but rather a fear that businesses know what they’re talking about when they claim they will be bankrupted and have to close in response to employment standards reforms. As mayoral and city council staff as well as labor advocates repeatedly pointed out, this has become the automatic response by business to any proposed employment policy improvement, and it is automatically taken seriously as a legitimate threat without employers even having to provide much evidence in support of their claims.
• Politicians have a sincere concern for small businesses that is reflected in widely circulating narratives. But while these narratives are certainly deployed strategically, they also speak to deeply held beliefs on the part of politicians in each of the cities.
• In addition to sincere concern for the fates of small businesses, mayors were also concerned with how robust enforcement of employment standards might impact their future political careers.

Thus, while we see some evidence of instrumental power in the process of enforcement, the invocation of structural power—especially the dimensions of ideational influence—is an important barrier to robust implementation. To counter this endemic advantage that business enjoys, we suggest four key areas for worker advocates to attend to:

• Attention to cleavage within the business community. In each city, business was not a monolith. For worker and community advocates, before beginning a campaign, it is important to disaggregate the business community and do a thorough power analysis of each of the players. But power is often hard to see: Business influence is not always easy to track because sometimes businesses are intentionally trying to stay off the record, not testifying at hearings but instead communicating directly to mayors or their political consultants. In all three cities, we heard accounts of specific carve-outs that were accomplished this way.
• Attention to ideational power using narratives and frames. The ideational aspects of structural power are extremely powerful in shaping the enforcement of employment standards. Narrative and cultural strategies are essential to challenging the hegemonic power of business and the laissez faire narrative. Liberal and progressive elected officials in deep blue cities favor employment reforms but still worry about policy impacts on business and feel a need to be open to concessions.
• Attention to the fundamentally conflicted role of small businesses. In each of these cities, small businesses play a fundamentally contradictory role. Many of the elected officials involved in passing these policies and establishing these offices and the agency leaders who staff them feel badly that the majority of violations coming in are against small business, many of which are in immigrant ethnic enclaves and are often owned by immigrants and people of color. The organizations that mobilized to pass these policies do not believe that they are going to drive structural change by going after small businesses, but they also know that small businesses are frequent sources of violations for their constituents. There is room for progressive organizations to enter the policy arena in support of high-road small businesses.
• Pressuring of elected officials specifically on enforcement. There is a tendency on the part of worker advocacy organizations to trade off enforcement and funding in order to get a policy on the books. But worker advocates should budget and design campaigns around enforcement rules, practices, and budgets, in addition to waging the legislative battles over policy.

Introduction

Asymmetric power relations between business and labor have led to a radical decline in employer accountability over the past several decades, leading in turn to lower rates of private-sector unionization; the erosion of wages, benefits, and employment standards; and a fractured, fragmented, and precarious labor market for many workers (Appelbaum and Schmitt 2009; Bernhardt et al. 2013; Doussard 2013; Gautié and Schmitt 2010; Kalleberg 2009; Weil 2012, 2014; Weil and Pyles 2005). At the same time, the ability of federal labor law to evolve and address these conditions has been stifled by gridlock and polarization, thus locking large swaths of the U.S. workforce into jobs with stagnant wages, inadequate and costly benefits, increasingly erratic schedules, and poor working conditions.

Yet as the strength of laws governing labor relations and collective bargaining has diminished across most of 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, including low-wage workers (Galvin 2019).

While federalism is generally understood as being better for business’s structural power (e.g., Hacker and Pierson 2002; Peterson 2012) than for labor’s, in the past few decades it has also provided a significant opportunity for labor and its allies to improve employment standards. During the last decade, state and local policy entrepreneurs have succeeded in passing laws establishing minimum wages higher than the federal level in over 29 states and 44 localities2; enacting paid sick leave in 13 states, 19 cities, and three counties3; passing domestic workers’ bill-of-rights legislation in nine states and one city (Fernández Campbell 2019); winning “ban the box” laws removing conviction history questions on job applications across 35 states and more than 150 cities and counties (Avery & Lu 2020); passing predictive scheduling laws in six cities; and passing “just cause” employment protections for parking employees in Philadelphia and for fast-food workers in New York City. It is also of great significance that several cities have established new labor standards agencies to carry out enforcement of these laws.

In this paper, we examine the observable role of employer power and strategies in the creation of specific labor standards ordinances and in the implementation of those ordinances through administration and enforcement. By examining forms of business power and influence in the process of establishing employment standards and their implementation, we explicitly link forms of business power in the policy and administrative arena to the nature and extent of business power in workplaces.

As significant as the shift in employment policy to the local level is—as with any kind of policy change—the potential for these changes to fulfill their purpose to improve conditions and bolster workers’ rights is contingent on two crucial but often overlooked factors: implementation and enforcement (see Luce 2004). Higher minimum wages and paid sick and safe time ordinances that are unique to a municipality necessitate regulations and a city-level administrative apparatus to administer and enforce them. Political players can reshape a policy by blunting or expanding its reach (who is covered), affecting implementation (how long it will take for the policy to be phased in), and shaping the monitoring of compliance (e.g., practices regarding citations, investigations, fines, and penalties). The predominant model of enforcement of employment rights is complaint-based, and complaint-based enforcement assumes that workers have full information about their rights, that they feel equipped and empowered to report violations, and that they are not deterred by employer reactions to their reports of violations. Given the imbalance of power between employers and employees within workplaces, none of these assumptions hold true in practice (Weil and Pyles 2005). In a 2009 national survey (Bernhardt et al. 2009), 43% of workers who complained to their employers about pay and working conditions were victims of illegal retaliation. When employers have more power in workplaces, such as during recessions, we find that violations increase and that complaint-based enforcement becomes even less effective (see Fine, Galvin, Round, and Shepherd 2020). Effective enforcement practices therefore depend on expanding beyond the narrow limits of complaint-based enforcement to practices that promote compliance independent of specific complaints.

The city of San Francisco in 2001 was the first in the country to establish a full-time agency for enforcing employment standards. After enactment of $15/hour minimum wage and paid sick time ordinances over a decade later, Seattle, New York, and Los Angeles followed suit, establishing offices that now also boast significant staff and resources. Setting up and running each office required decisions such as which agency to house it within or whether it should be independent, how much money the office should receive, who should lead the office, what the other positions should be, and how staff should be recruited. Through the drafting and passage of minimum wage and paid sick and safe time ordinances as well as ordinances setting up the new offices, city councils can play a major role in determining the legal authority of the offices with regard to intake, investigation, remedies, subpoena power, collections, and appeals and settlements. Mayors appoint agency leaders and oversee their decisions. Mayoral staff and agency leaders have a say in the legal powers of the agencies through administrative rulemaking and in establishing agency practices, including investigation protocols, application of fines and penalties, partnerships with community organizations, and use of “name and shame” practices in publicly identifying violators and their activities. City attorneys also play a role through their interpretations of the laws and the decisions they make about which cases to take to court and which decisions to appeal.

In this paper, we use comparative case studies of three major Democrat-controlled U.S. cities (Seattle, Los Angeles, and New York) in Democrat-controlled states between about 2010 and 2020 that not only expanded their employment protections but also established a local agency and directed substantial resources toward the enforcement of local employment laws. Drawing on public comments in city council hearings, mayoral statements, media coverage, city government documents, campaign donations from employers and employer organizations, and interviews with enforcement office leaders and staff, other city government officials, labor standards advocates, and employer advocates outside of government, we examine (1) the strategies used by employers and employer organizations to attempt to shape all parts of the process of enacting, implementing, and enforcing local employment standards, and (2) the ways city government officials construed business interests and the role of government accommodation of business concerns. We do not assume, as Hacker and Pierson (2002) caution against, that we can infer employer power necessarily from the alignment of employer positions and outcomes. Instead, for each city, after charting changes in the policy and implementation proposals and practices over time, we spoke with the key political actors involved in the process to understand their accounts of what produced those changes, and then we compared these accounts. This approach provided evidence beyond what types of employer actions could be observed in public forums and available records. We also attend to points where there is open conflict over employment standards and points at which there is little open contestation. As Pierson (2015) argues, the lack of contestation can reflect unequal power between parties and the operation of other forms of influence such as agenda control, non-decisions in response to anticipated reactions, and cultural manipulation. Consequently, instances when policymakers changed policy proposals to align with employer interests, in the absence of specific employer actions or advocacy, are informative. These types of changes illustrate the manner in which employers—and ideas about employers and business among elected officials and city bureaucrats—impact the outcomes of these employment protection efforts.

We pay special attention to forms of employer influence that appear related to the employers’ instrumental power—derived from direct influence through deploying resources in order to secure favorable decisions from politicians—and to their structural power—derived from the ability to withdraw capital and jobs and thereby affect the economy, a power that exerts pressure on government officials (see Block 1987). Hacker and Pierson (2002) posit that structural power is most important in setting the public agenda and ruling out policy options that are unpalatable to business, while instrumental power determines the design of specific legislative proposals. Here, we first examine how these types of employer power in politics are manifest at the local level in cities with very particular economic profiles, and second, we extend the analysis of employer power beyond the legislative process to the process of implementation and enforcement. We attend to when these forms of employer influence appear in the process.

The concept of structural power includes both the ability of business to affect the economy directly and an ideational component: how policymakers and bureaucrats think about the structural power of business. This ideational component involves beliefs among elected officials that if businesses disagree with political decisions, the businesses will act in a way that significantly harms the state of the economy. Decision-makers actively construct an interpretation of the structural power of business (Bell 2012). This ideational component includes what Hacker and Pierson (2002) refer to as structural power as a signaling device: Threatened capital withdrawal is a signal that policymakers weigh relative to other concerns in pursuing a policy agenda.

In addition to these ways of thinking about the structural power of business already represented in the literature, the ideational aspect of structural power might be refined to include three other considerations:

• The ideational aspect of structural power can operate through hegemonic beliefs—widely circulating and shared beliefs— about the value of employer interests that policymakers and bureaucrats hold, along the lines of what is often referred to as the third face of power (Lukes 2004; Gaventa 1982).
• Policymakers can develop anticipated reactions—beliefs about what business might do in response to particular employment policies—that shape their actions. Policymakers might expect that employers and their advocates will be critical of their policy choices and speak out publicly against them.
• Political leaders may believe that the reactions of business to policy and implementation choices can impact the politicians’ political fortunes.

These beliefs about the structural power of employers may come from employers explicitly raising the specter of capital withdrawal or from other sources that reinforce the hegemonic power of business in political decision-making.

Based on extensive evidence from these three cases, we make two points relevant to the literature on employer power in the political process.

1. The value of being repeat players: Concessions to employers through the policy and implementation process are largely not the product of campaign donations and the deployment of resources as typically described in accounts of the instrumental power of business. Instead, employers secure concessions through being repeat players in the policymaking and governance processes. Employers represent an enduring interest group to which mayors, city councilors, and agency officials feel they must be responsive (e.g., Hansen 1991), largely, in Seattle and Los Angeles, as part of upholding a deliberative political process and, in New York City, as paying heed to a powerful constituency (large businesses) or a constituency in need of protection (small businesses).

2. The manifestation of structural power: Three themes emerge about the nature of structural power in these cities during these periods:

• First, instead of being worried about capital flight, as described in previous literature on the structural power of business, the mayors and city councilors in these three cities were particularly susceptible to claims about businesses having to close in response to regulations. Employers and their advocates explicitly raised the specter of bankruptcy, but they were also aided by widespread hegemonic beliefs about employment policies like minimum wage increases and paid sick leave protections hurting businesses; for this reason, these arguments did not need to be made explicitly for policymakers and bureaucrats to be vigilant about the possible impact on business. 
• Second, the structural power of and attention to small business concerns is particularly evident through the process of implementing local employment standards protections. In each of these cities, narratives about the value and valor of small businesses were widespread. The political invocation of small business can be thought of as a “spanning concept” (Hackworth 2007)—a concept with multiple meanings that are politically useful because different constituencies hear what they want to in those narratives.
• Finally, in each of these cities, mayors saw their stance on implementation of minimum wage standards and/or paid sick leave as having significant implications for business support of their political careers. Consequently, they often made decisions in the implementation process that weakened coverage and administration.

We now turn to the three cases. In Appendix A, we provide an overview of the technical issues at stake regarding these employment laws and their implementation. A detailed account of the specific changes to the ordinances for each city is provided in Tables 1 and 3. Details about the final statutory enforcement authority of each office—one dimension of the outcomes we are interested in—can be found in Table 4. Information about the political and economic context of each city is provided in Table 5, and information about the organization of business interests in each city appears in Table 6. We elaborate on our claims after we review the evidence from each of the cities. Given space constraints, the evidence we present below focuses on employer involvement in the implementation of these laws, but our argument is based on our analysis of the evidence of employer involvement in the legislative process as well.

Seattle

Between 2011 and 2015, led by Service Employees International Union (SEIU) Local 775 and a coalition of union, worker center, immigrant rights, and community organizations, Seattle became one of the first cities in the nation to adopt a municipal paid sick and safe time policy (2011), the first city to legislate a $15 minimum wage (2014), and the second city to establish a powerful municipal employment standards enforcement agency (2015), which included significant funding to community organizations for outreach and education. Seattle’s successful campaigns demonstrated that labor could win, but that winning always required concessions to business not only on policy but also on the implementation of enforcement authority and its exercise. These local policies represented a new frontier: They were complex, and the city was figuring out how to administer and enforce them in real time.

Mayoral support was instrumental to these policies moving forward. In 2013, in order to win the mayor’s race against an incumbent who was considered to be considerably to his political left, Ed Murray needed to project himself as a progressive, even though his political profile during his many years in the Washington State Senate was as a moderate. When he ran for mayor, he allied with SEIU and campaigned hard for a $15 minimum wage and the creation of an Office of Labor Standards; he was also endorsed by the Seattle Chamber of Commerce. From his years in the Washington State Legislature (1996–2013), he had many preexisting relationships with business and labor. Once in office, he continued to support the $15 minimum wage while also stressing that he wanted to ensure that business would not suffer.

“The main thing I saw in how the business community operated from 2012 to 2015 was how disorganized it was,” said a director of a city-funded community outreach and legal support organization.4 In order to pursue a progressive local labor policy agenda and address business concerns, the mayor set up and supported deliberative stakeholder committees and privileged the concerns of employers who came to the table and remained throughout the process. Large employers such as Amazon and Microsoft were not part of this process, but the Seattle Chamber of Commerce, through which those companies sometimes pursued their agendas, was actively involved (see Table 6 for more information about the organization of business interests). Many restauranteurs who were active and engaged in civic life had relationships with elected officials, and these connections yielded particular attention to their needs in the policymaking process. One staffer speculated, “It is not because of donations that restauranteurs were influential, it is the interpersonal relationships that develop.”5

The depth of interest in employment standards legislation among sectors and businesses also varied based on the degree to which the business or sector was impacted by a particular policy, largely resulting from its size and predominant business and employment models. For example, while restaurants were most exercised about the minimum wage increases, the retail sector got up in arms about the city’s fair scheduling ordinance. Fair scheduling—which we do not examine here—brought big companies and others who had been somewhat indifferent to paid sick leave and the minimum wage ordinance into open warfare with the Office of Labor Standards.

Types of employer influence over employment standards legislation and implementation

Seattle during this period had a progressive mayor and an overwhelming progressive majority on the city council, and public opinion in favor of employment standards policies was sky high (Rolf 2016). Nevertheless, major concessions were made to business both during and after the legislative process. Some of those concessions occurred through the exercise of instrumental power on the part of business, particularly through behind-the-scenes lobbying. Most individual businesses, particularly the larger ones, consistently avoided the spotlight and did not want to go on the public record. In the words of one city government employee who was close to the process:

Businesses don’t like going in front of council to protest these employment standards—that is just not their style. They will go into council members [offices] and schedule meetings once a week and visit each one, and they do that and will press and press and press and press….They keep at it.

Another mayoral staffer said, “Sometimes business went out of their way not to be on the record. You can’t find any testimony because Starbucks never testified on anything. They would send letters directly to the mayor.”6 In contrast, labor, community organizations, and liberal allies actively lobbied the council and testified in public, in addition to engaging in behind-the-scenes politicking. Both sides felt they had direct personal access to the mayor. A mayoral staff member put it this way: “The mayor was seen as the moderating voice over the very progressive council, so we had more access to business. [Employers and employer advocates] would say, ‘Oh we can’t even talk to the council.…’”7 The mayor engaged in private deal-making behind the scenes with key individual companies, negotiating carve-outs and accommodations. Ironically, these carve-outs also made the laws far more complicated, which became a source of business complaints.8 Both sides were financially competitive in terms of contributions (total independent expenditures across Seattle elections exploded from $556,385 during the 2013 election cycle to over $4.4 million in 2019; labor had an edge in independent expenditures in 2013 but business had an edge in both 2017 and 20199), and labor provided endorsements and volunteer muscle during elections. The abundant use of advisory councils composed of employers and worker representatives was crucial both for paving the way for these employment regulations and for concessions to employers. It was through these advisory councils that employers had a much more visible role in the process, allowing for many legislative changes.

But instrumental power alone cannot account for the types of concessions to employers in legislation and enforcement. The structural power of business—in particular a deep-seated narrative about the potential impact of employment protections on business solvency—conditioned every policy and enforcement practice beyond what can be explained by campaign contributions or lobbying efforts. A senior mayoral aide who was closely involved in deliberations at the mayor’s office provides a sense of how these beliefs operated:

They [employers] wield a huge amount of power and don’t have to do much. The business perspective is kind of the default even in progressive elected officials. It is the starting point of concern….They say, ‘Yeah, I want to do the right thing, but how do we address business concerns?’ This is the first thing on the top of their minds that gives business a lot of power….I see them being harder on their allies than business in some ways. The expectation is that if progressives want the policy, you have to come with your studies and your numbers and your hard data about why it is not going to harm business, and business can just rail and say, ‘I am going to go bankrupt,’ and that is taken as just as valid.10

The quote above highlights how businesses’ claiming they would be forced to close, rather than threatening to move, was a key way that structural power operated—becoming the default in political decision-making. Although it did not prevent the bills from passing, it conditioned coverage and implementation of the ordinances in significant ways. Mayor Murray had built a reputation as a pro-business moderate in the legislature before he ran for mayor with strong labor support, and although he campaigned on the $15 minimum wage and delivered on that pledge, he worked to preserve his public profile as a moderate, governing through tripartite commissions with strong business participation and promoting complex carve-outs and phase-ins. Based on our evidence, we conclude that the mayor’s protection of especially small business interests was due both to personal conviction and to future electoral ambition. As discussed above, the mayor and city councilors’ personal relationships with particular well-known small business owners and their concern for immigrant- and minority-owned small businesses (illustrated below) also contributed to modulation of implementation of employment standards.

Paid sick and safe time, minimum wage, establishment of OLS, and ‘harmonization’

In September 2011, the Seattle City Council passed a paid sick and safe time ordinance (PSST), guaranteeing all employees, whether full time, part time, temporary, exempt, or nonexempt, access to paid time off to care for themselves or a family member as needed. Enforcement was assigned to the Seattle Office for Civil Rights (OCR), with the intention that basic procedures would be modeled on those of the existing Seattle anti-discrimination ordinance. This choice of basing sick leave on civil rights enforcement had important ramifications for how this law and the minimum wage law that came after it were enforced. The administration pledged to do a “soft launch” of the law that would be focused on education and outreach, and this process became the norm for the other laws as well. The leadership of OCR was unfamiliar with employment standards enforcement but wanted the assignment in order to remain the premier enforcement agency. At the same time, OCR decided not to put many resources into enforcement of PSST: Management assigned a single person who was working 32 hours per week to enforce it. Personnel within OCR decided that, due to limited capacity, they would take an “advisory letter” approach.11 Upon receipt of a complaint, a letter would be sent to the employer that reminded it of its obligations under the law and said that, if it were in violation, OCR would work with it to come into compliance. Despite being advised of the need to go further, the agency embraced the advisory letter approach and also rejected the suggestion that it engage in companywide investigations. If a complainant wanted to settle and also remedy violations affecting all aggrieved workers, then OCR could pursue a companywide remedy as a settlement term, but if the worker just wanted to get paid and move on, OCR would remedy the case only for that one person. As a consequence, OCR collected a very limited amount of back wages and penalties from violators. This process was in place until 2014.

After taking office in January 2013, Mayor Murray formed a tripartite committee, the Income Inequality Advisory Committee (IIAC), and charged it with coming up with an actionable set of recommendations for increasing the minimum wage by mid-April. The committee was co-chaired by the president of SEIU Local 775, which was leading the fast-food-worker strikes, and the founder and chief executive officer of the Seattle Hospitality Group, a major developer and hotelier that owned the Space Needle, Seattle’s most prominent landmark. While the IIAC was the public forum for deliberations between stakeholders, some of the most consequential work was really taking place behind the scenes (with, for example, Starbucks and restauranteurs) as the mayor worked to accommodate key businesses so they would support the $15 minimum wage. The accommodations included a health care carve-out that allowed businesses to count their spending on health care toward the minimum wage, a small business cutoff number set at 500 employees, and tip credits. On the other hand, over the objections of business representatives, labor and community advocates won joint employer liability, which enabled the city to hold multiple entities, including those that were not necessarily the employer of record, liable for violations. They also won the option of expanding from seeking redress for a single complainant to conducting a companywide investigation and providing remedies to all affected workers. One key city council staffer said, “I would say that the center of the business community felt pretty good. This process stuff works: Ed Murray was a good mayor who used this kind of consensus-based process and got some really big political wins.” Murray’s proposal was heard by the city council’s Select Committee on Minimum Wage & Income Inequality on May 19, where it passed unanimously and was then adopted by the full council in a 9–0 vote. Mayor Murray signed it into law on June 3, 2014.

Another tripartite body with a similar mix of labor, business, and community and public interest groups set up by the mayor early on was the Labor Standards Advisory Council (LSAC). Although the mayor did not invest as much authority in it as in the previous advisory body, members worked hard developing detailed recommendations on how the city would administer PSST and the $15 minimum wage. In the initial discussions, SEIU 775’s two primary demands were to create an office of employment standards and to fund worker outreach. The Seattle Restaurant Association responded that it needed time to get used to the law, that there should not be fines right away, and that it didn’t know whether it wanted an employment standards office. According to a former senior staff member at a union, “We got what we wanted with the office, but we had to scratch and claw for outreach [to employers and employees about the laws]. We had to frame it around education, not enforcement.” At the end of the day, the LSAC recommended the establishment of a single entity that would house, implement, and coordinate all compliance, education, outreach, and enforcement functions. It advocated for a strong focus on education and supported an extensive outreach program through partnerships with organizations that would tailor their work to specific audiences and demographic groups. It called for strong and effective enforcement powers and practices that would focus investigations and penalties on habitual or egregious violators and systemic violations.

Mayor Murray proposed the establishment of the Office of Labor Standards (OLS) within the Office of Civil Rights in mid-September 2014; it would be empowered to “investigate and pursue administrative enforcement actions when wage-theft complaints are made by workers, with the aim of restoring any back wages and benefits they earned but were unpaid” (Murray 2014). The mayor pledged to take an approach to employment standards that emphasized “outreach and education.” A few sentences from an internal mayoral staff memo give a good sense of the stance the mayor’s office was taking:

Emphasis this first year is about education and outreach. If employers make mistakes in these initial months, OLS’s mission is not to penalize employers for their misunderstanding of the law, but only to instruct them and to ensure workers are properly compensated. It is envisioned that only where it can be shown that employers continued with a bad practice after instruction from OLS or other egregious situations where an employer will be penalized. OLS should be looked at as a resource for employers, not an adversary.12

The mayor’s concern with the well-being of business during the enforcement process was evident, reflecting the ideational structural power of business either in terms of hegemonic beliefs, the power of small business narratives, or calculations about implications for his future political fortunes.

The Greater Seattle Business Association thanked the city for the opportunity to help shape how it would implement and enforce its employment standards ordinances and supported the mayor’s choice to establish the OLS within the Office of Civil Rights. The United Food and Commercial Workers (UFCW) Local 21 supported the proposal but urged stronger penalties to strengthen deterrence. The mayor’s early preference for education and outreach over enforcement was also manifest in the budget allocations13—OCR and then OLS would have more non-investigative positions on staff than investigators for 2014 and 2015, only tipping the balance in favor of investigators in 2016—and only by one.

On November 24, 2014 the council voted to create an OLS that would “provide a centralized focal point for the City’s efforts on labor standards” and that would have three main functions: the promotion of compliance with labor standards through outreach and education, collection and analysis of data on the city’s workforce and workplaces, and administration of the city’s labor standards ordinances.14 A month before the vote to establish OLS at OCR, the city auditor15 presented findings from an audit of OCR’s initial PSST enforcement, which as discussed above relied primarily on a non-adversarial advisory letter process rather than formal investigations and sanctions. The city auditor found that while some advisory letters resulted in business owners taking corrective actions such as agreeing to pay back wages owed to employees for sick and safe time leave, OCR did not routinely address individual employee or companywide remedies, such as back pay and penalties for workers for paid sick and safe time requests that were denied by employers. A more robust investigation capacity, the auditor advised, would require increased enforcement staff. In effect, the city auditor was putting pressure on OCR to increase the efficacy of its employment enforcement practices.

The auditor’s report had a significant impact on the council’s OLS proposal. The council advocated staffing up the enforcement side more quickly than the mayor’s office had been recommending, and asked the mayor’s office to prepare legislation that would increase penalties and remedies for violation of employment laws. In a major win for SEIU and the larger labor/community coalition, the council also supported significant funding for partnerships with community organizations to engage in outreach to workers, identify violations, and make referrals to OLS. While the mayor’s budget proposal provided modest funding for business outreach ($100,000 in 2015 and $50,000 in 2016), the council allotted a million dollars over two years ($300,000 in 2015 and $700,000 in 2016) to conduct outreach to workers through partnerships with community-based organizations, a proposal first put forward by labor and worker advocates.

In November 2015, the mayor’s office proposed an ordinance that would harmonize the city’s four existing employment laws being enforced through the OLS (paid sick and safe time, job assistance, minimum wage, and wage theft) in terms of penalties and enforcement procedures. The bill was initially undertaken to appease business concerns because, although the paid sick/safe time and job assistance ordinances had been originally modeled on the city’s anti-discrimination laws, the four policies had different enforcement powers and remedies. The mayor’s office, the city council, business, labor, and community groups all agreed that the legal practices and administrative procedures needed to be streamlined. The 175-page harmonization ordinance developed by Dylan Orr, the dynamic first director of OLS, and Karina Bull, OLS policy manager, who worked closely with the mayor and city council staff, did create a uniform set of enforcement procedures for all four policies, but it also significantly strengthened the agency’s legal powers. Over strong objections from the main business associations and repeated threats to blow up the entire ordinance, the harmonization bill granted workers a private right of action to sue their employers for violations. Early in the process the mayor’s office explored many strategies. “Business was against so much of it,” a policy advisor recalled, “but the [proposed bill] was so big, the policy was huge…five hundred pages, so they had to focus on the most important things to them.” When asked to elaborate, the advisor offered the example that business was able to get the office to drop a proposal for a “hot goods” provision, modeled on the Fair Labor Standards Act, that would have allowed the city to seize goods manufactured in violation of the minimum wage law. “They had a fit about [the hot goods provision], and we were like, in the grand scheme of things, this isn’t the sword to fall on.” The bill was passed unanimously by the city council just over a month later.

Employer influence in implementation

In Mayor Murray, we see a tension between strongly supporting employment standards and weighing the concerns of the business community; such continuous balancing reflects forms of the ideational structural power of business. Murray used the language of “soft launches” and “education and outreach” because he believed in the practices and because they were tactically effective. But he received strong pushback from the city council, which wanted to engage in more robust enforcement, and from the city auditor, whose studies provided evidence of the need for such enforcement. The mayor walked a fine line: proposing to establish OLS as its own standalone office in the executive department (passed by the city council in November 2016) and selling it as necessary to support business compliance. He put significant funding into the business education and outreach work, but his staff also developed and advocated for strong employment policies as well as enforcement. OLS had the support of the mayor, but his administration was also keenly sensitive to the concerns of business—especially small business.

We see both the influence of direct employer intervention in shaping enforcement and the influence of small business narratives. For example, in the early days of becoming an independent agency, OLS staff had to recreate the entire intake, complaint, and investigation protocols from scratch; they had been using the existing Office of Civil Rights’ enforcement tools. Based on the city auditor’s report and their own views, the city councilors most involved in implementation pushed for a much more robust enforcement approach, and this was reflected in the system established by OLS. For example, businesses named in complaints were mailed a charge letter that looked like a legal document or subpoena. Several business organizations complained to the mayor that the approach had the effect of presuming guilt, and the mayor’s office subsequently ordered the OLS director to undertake a thorough revision of the forms. In his tacking back and forth to accommodate business concerns, we see the ideational power of small business narratives both in terms of how they influenced the mayor’s personal views as well as his sense of what would be good politics for his career.

OLS enforcement managers were particularly concerned about the disproportionate numbers of cases they were opening against minority-owned small businesses: “The thing I struggle with most is the complaints that are coming to us from small minority-owned businesses,” an OLS enforcement staff member said. Another enforcement staff member worried about this as well: “One of the things that makes me feel most guilty about the work done so far is that the vast majority of respondents are small businesses owned by people of color or immigrants. It feels like most of our cases are pointed at people who didn’t know about the ordinance, didn’t know how to implement it, or didn’t know how to run the business….” Both staff members pointed to the city’s Racial Equity Toolkit, which requires agencies to scrutinize their work from a racial equity lens.16 The agency staff empathized with small minority- and immigrant-owned businesses and were struggling to balance this concern with the need to ensure that the employees received the wages and benefits they were owed. In other words, narratives about the value of small businesses, especially minority- and immigrant-owned businesses, translated to worry about protecting employers even among agency staff committed to worker protections.

OLS has funded several of Seattle’s ethnic chambers of commerce to conduct education and outreach with their constituents, but the initiative has gotten a mixed reception. And staff members’ dual briefs as educators/outreach workers on the one hand and enforcers/punishers on the other often leave them often feeling stuck in the middle. A former OLS official pointed to the “schizophrenic mission” of the agency:

We are both the trusted teacher and the cop on the beat, and it is a huge challenge because of the obvious reason. Businesses don’t feel supported when they know you can lower the hammer on them. They want us to be, especially small and medium-size businesses…their HR department and employment lawyer.17

While working for the agency, this official had managed to persuade Mayor Jenny Durkan’s office of the importance of “naming and shaming” (publicizing employers who violated employment standards laws) as a deterrence strategy, and OLS often mentioned employers’ names in press releases about major settlements. But after the employee left the office the city discontinued this practice.

Summary

The debates over paid sick and safe time, minimum wage, harmonization, and Office of Labor Standards ordinances in Seattle highlight several important themes about business influence. Business won major concessions in the paid sick and minimum wage policy process but had to accede to the general policies. It won comparatively few concessions in the harmonization policy, although some of the employment standards rules were revised to give business more time to produce information. It exerted direct influence through the advisory councils as well as through off-the-record meetings with Mayor Murray. Elected officials’ concern for the interests of the business community—a reflection of the ideational structural power of business—was reflected in the approach to enforcement as one of education and outreach instead of punishment and deterrence. A concern among agency staff about the impact on small, minority-owned businesses also propelled an interest in directing resources to education and outreach in particular. At the same time, while there was a catechism of sorts around publicly and repeatedly acknowledging the importance of business to Seattle, it seems that paying heed to this dogma provided cover for elected officials and worker advocates to move their policy agenda.

Los Angeles

As Peter Dreier, John Mollenkopf, and Todd Swanstrom document in Place Matters (2014), a feature of deindustrialization across the country has been the erosion of the concentration of local, elite business power. In Los Angeles, local business power is no longer unified and coherent; for example, the organizing body responsible in the past for shaping so much of the city, the Committee of 25, is no longer an important political force, and attempts to reorganize the group have fallen short. Now, business elites in the city largely work for employers that are not headquartered in Los Angeles, and, since their time in the city is part of their journey up the corporate ladder, they have far less of a stake in what happens locally than did business elites of earlier generations. Business power in Los Angeles continues to be strong; for example, the Central City Association, which represents developers, has been very successful in stymying various housing and zoning-related reforms. However, these business interests are now fragmented and divided among various lobbying groups that often do not coordinate with one another. One lobbyist for an employer organization during the minimum wage and paid sick leave ordinance debates characterized the situation in L.A. as “organized labor and unorganized business.”18

Without a unified businesses community advancing a coherent set of priorities, new political space emerged in Los Angeles for progressive labor-related organizing (and for far-right political activity). While tenants’ rights reforms have fallen short due to the political strength of the real estate industry, Los Angeles has become an extremely favorable city for workers’ rights, as reflected in strong public support for labor protections from recent mayors and city council members.

One business sector that has remained influential in Los Angeles city politics is the restaurant industry. A labor advocate noted that the California Restaurant Association continues to be extremely well-organized and effective in shaping statewide legislation—often by claiming that it represents small businesses, particularly minority-owned small businesses.19 Another labor advocate maintained that restaurant industry representatives in L.A. were deeply involved in the minimum wage fight both in public testimony and behind closed doors,20 an assertion affirmed by a senior city council staffer.21 Restaurant associations consistently made the case that restaurants were largely small businesses that were just scraping by, an argument that garnered a lot of sympathy from elected officials. 

Types of employer influence over employment standards legislation and implementation

Despite relatively weak employer organization, employers and employer groups in L.A. were able to use the legislative process to win concessions on provisions of the minimum wage and paid sick leave ordinances, and they secured significantly delayed phase-in periods for employment standards and no exemption of collective bargaining agreements from the law. As one worker advocate put it, “they tried to slow it down—death by a thousand cuts—because they knew they didn’t have the [political] power to defeat it.”22 A former mayoral staff member observed that business lobbyists have enormous influence in city hall, with direct lines of communication to elected officials—lobbyists had the officials’ cell phone numbers and used them. Business advocates were successful when they were reasonable and asked for concrete changes, as opposed to a wholesale rejection of proposed legislation.23 For example, the restaurant industry, while it did not get all of what it wanted, was important to introducing a distinction between small and large businesses for the phase-in of minimum wage increases. As in Seattle, the use of narratives about protecting small businesses was a core strategy for shaping employment standards policy during the public hearings, and it made salient the structural power of business in a politically palatable way.

Implementation of the law in L.A. has been weak, due in part to bureaucratic idiosyncrasies and in part to a lack of political will for more aggressive enforcement. While Mayor Eric Garcetti proposed the minimum wage increases and supported the paid sick leave initiative, his support did not translate into political backing for enacting robust enforcement practices in the Office of Wage Standards (OWS) once it was established. A combination of forms of ideational structural power, including a general concern among both elected officials and agency leadership about ticking off business, affects the day-to-day enforcement practices within the office.

The following section describes the passage of the minimum wage and paid sick leave ordinances in Los Angeles, then turns to the story of how administration and enforcement proceeded.

Employer influence in implementation: Minimum wage and paid sick leave policy

In 2014, Mayor Garcetti proposed raising the minimum wage incrementally to $13.25 by 2017, after which it would be indexed to the regional consumer price index. By the time the minimum wage ordinance was passed in 2015, employers in Los Angeles had won two key provisions: separate minimum wage schedules for employers with 25 or fewer employees and those with 26 or more, and an extended phase-in period. According to one senior city council staff member closely involved in the negotiations, the small versus large business distinction, with different phase-in schedules, was the “restaurant accommodation.”24

When the Los Angeles City Council began considering paid sick leave legislation in the city, it was against the backdrop of a recent California state law requiring three days of paid sick leave a year to go into effect on July 1, 2015. Business associations used the existence of the state law to argue that there was no need for a city ordinance, particularly since employers would already be dealing with the new costs associated with the L.A. minimum wage and state paid sick laws. The council ultimately passed an ordinance, modeled closely after the state law, that entitled employees to 48 hours (i.e., six days) of leave per calendar year; this was a compromise from a proposed nine days supported by labor advocates. A separate motion to provide a slower phase-in for small businesses passed unanimously.

At the time of the hearings on increasing the minimum wage, in June 2014, Councilmembers Gil Cedillo and Paul Koretz submitted a motion to draft a wage theft prevention ordinance that would criminalize wage theft and provide for enforcement mechanisms. While representatives of worker centers and other community organizations defended the need for strong enforcement measures in public hearings about the minimum wage ordinance, business owners and associations were far less likely to bring up enforcement, and, when they did, it was briefly. Two business organizations—the Los Angeles Area Chamber of Commerce and the Central City Association—mobilized to shape enforcement using the legislative process, both before and after the passage of the enforcement ordinance. The Central City Association was the only business association to register lobbying activity specifically on enforcement issues, and it paid a consulting firm $13,000 to assist.25

Both of these organizations, while arguing that they supported enforcement, suggested that any enforcement division must be careful to punish only bad actors and not “well-meaning” businesses. Ruben Gonzalez of the L.A. Area Chamber of Commerce argued that the proposed enforcement ordinance laid out a system that was “rife for abuse” and argued that the appeals process was limited, that the amount of power given to hearing officers was too large, and that small business owners would be disadvantaged because they wouldn’t have the resources to pay attorneys to go to court for months to challenge findings. None of these points were reflected in the Economic Development Committee’s recommendations about the drafting of the ordinance. Also, though the L.A. Area Chamber of Commerce and the Central City Association called for a working group of advocates, including the business community, to figure out the best system for enforcement, the request was not formally realized.

After the passage of the minimum wage and enforcement ordinance in June 2015, the Bureau of Contract Administration (BCA), the executive agency responsible for contract compliance in the city and the one where the living wage enforcement mechanism had finally settled after moving among executive agencies, submitted an implementation plan for the new Wage Enforcement Division (later to be renamed the Office of Wage Standards). The BCA anchored its procedures and practices on precedent from agencies in San Francisco and Seattle, and it crafted its staffing and funding recommendations to focus on four key components: the informing of the community, intake concerns, investigation of complaints, and implementation of corrective actions. After submitting their first implementation report, leaders from the BCA met with the Los Angeles Coalition Against Wage Theft, the central organization established in 2009 advocating for wage theft enforcement in the city, and then with a number of employers and employer organizations: the Los Angeles County Business Federation; Mercury LLC (a firm representing the California Restaurant Association, which registered to lobby about the minimum wage ordinance); the Central City Association (which registered to lobby against the minimum wage ordinance and the enforcement ordinance); and Veronica Perez and Associates, a consulting firm representing McDonalds and the Central City Association (and which registered to lobby on wage and worker policies). After these meetings, the BCA submitted an updated implementation plan that shifted its recommendations for full staffing from four years to three. The updated plan also increased the number of staff, the administrative classifications of staff, and the budget for education and outreach (from $700,000 to $1 million annually, justified by “additional needs for services in the areas of translation services, labor law consulting services, and collections assistance when employers fail to make timely payments on wage and penalty assessments”).26

A lobbyist who worked at a key employer advocacy organization during this period said that business “got rolled” on the employment standards legislation but not on enforcement. The lobbyist described direct pathways of communication both to John Reamer at BCA and to the chief of staff of the mayor and the city attorney. In initial conversations with Reamer, the lobbyist had emphasized the need for outreach:

Our biggest concern was that the companies know about these laws and changes, understand ways to remedy mistakes….Labor…got their big trophy [legislation], so I don’t think they were quite as concerned about that [enforcement]. We were pushing for bringing people in to educate businesses on their rights and responsibilities.

The lobbyist was interested in a commitment from Reamer to answer businesses’ questions regarding implementation of the law: “Members are going to have a lot of questions—how are we going to get them answers in a timely way?” He characterized the communication and access to the BCA as good compared to other city agencies.27 In addition, an early legal interpretation by the city attorney’s office that an employer’s failure to pay overtime could not be enforced as a minimum wage violation was viewed as a significant victory for business.

The choice of specific enforcement practices in the OWS was shaped in part by political influence from the mayor’s office. The mayor, though occupying a structurally weak position in city government relative to the city council, is charged with enforcement oversight. According to a labor advocate, the mayor “runs the agency, but the city council still has its hooks in the agency.”28 When asked about the OWS implementing proactive investigations of target industries, one staff member stated that the office and BCA leader Reamer were “waiting for some direction from the city council and the mayor’s office.”29 Staff of the mayor’s office reported the office had been “very involved” in the outreach campaign of the OWS and reviewed the materials and general strategy. These staffers also said that the mayor, whose office was “big on data-driven management,” looked at quantitative reports from the OWS of the number of complaints, questions and inquiries received about the law, and the turnaround time on complaints on a weekly basis.30

Employers pushed back against the specific enforcement practices of OWS. For example, a BCA staff member reported that in meetings between OWS and BCA leaders and employer organizations, including the Valley Industry and Commerce Association, about the offices’ minimum wage enforcement practices, BCA leaders were “beat up” because the employers’ groups were “very upset with what we were doing.”31 The mayor’s office has been closely involved in the work of the OWS—for better or worse, according to advocates. For example, the mayor’s office conducted roundtables with restaurant owners to better understand the impact of the minimum wage increase on restaurants (as a form of “outreach that really comes more from our [the mayor’s] office to industries that are impacted in ways that we didn’t foresee”), and feedback from those roundtables went back directly to the OWS. One labor advocate noted that, while the mayor’s public support for employment standards was important, there was not sufficient political support for an aggressive approach to enforcement: “John Reamer is right that he knows the mayor does not have his back in some of these enforcement strategies.”32 Another labor advocate argued that the mayor construed business reactions to these employment standards as relevant to his political fortunes: “[Garcetti] is trying not to piss too many people off on his way to higher office; he is not leaning into wage theft enforcement, because that means he has to cross swords with the business community.”33

The consolidation of power by then-City Council President Herb Wesson—who played a pivotal role in passing minimum wage, paid sick leave, and enforcement provisions—posed an insurmountable obstacle to the efforts of other councilmembers to push for robust enforcement because, according to a labor advocate, it was not at the top of Wesson’s crowded agenda. Another advocate noted that the city council could have a good deal of power over enforcement, but that it is “not gonna do it unless we go to them and say you need to make sure [BCA] does this.”34 The mayor’s staffers reported that enforcing the minimum wage while balancing the needs of the economy is a “delicate dance, which is why we’re having difficult conversations with business owners, but the mayor has made clear that an honest day’s work deserves honest wages.”

Attention to the “delicate dance” has translated into a general orientation within the BCA toward the OWS maintaining neutrality and appeasing both sides—employers on one and labor unions and worker advocates on the other. As one BCA staffer put it, “Our office’s [BCA] gift to the city is walking the tightrope [between employer and employee] well. We were fair to both [union and business] about assessing penalties or doing restitutions, and we worked hard at being fair so that our decisions didn’t favor one or the other.” The staffer went on to say, “That behavior worked out for us in implementing minimum wage as well because we didn’t side just with the activist groups, the CBOs [community-based organizations] who wanted a lot more enforcement, and we didn’t just listen to businesses; I feel like we went down the middle ground.”35 Deference to business, particularly through an ethos of neutrality, within the enforcement agency itself is the backdrop of day-to-day decisions about enforcement practices.

Summary

A lack of coordinated effort against the minimum wage and enforcement and strong support for the policies in the city council and from the mayor translated into relatively few legislative gains for employers and their advocates. They did, however, secure a slower phase-in period for the minimum wage, differentiation in the timeline by size of the employer (though with a much lower threshold for small businesses than in Seattle), and a number of carve-outs.

Various forms of employer influence profoundly shaped the administration and enforcement of the laws. Employer involvement through lobbying and existing relationships meant that elected officials were very willing to provide accommodations to business, both during legislation and implementation, and translated into an emphasis on education of employers during implementation. Elected officials’ high levels of trust in the leadership of the BCA has meant that the city council is less involved in implementation than it might have been. And elected officials have failed to provide political support for robust enforcement practices and, according to some, have even exerted pressure against them, a stance that some key actors interpret to be the result of a mayoral calculation about how business might impact his political fortunes.

New York City

In New York City, following the 1963 case Wholesale Laundry Board of Trade, Inc. v. City of New York, municipal minimum wage protections have been interpreted by courts as preempted by the state minimum wage law. So, worker advocates focused instead on paid sick leave.

An important part of the story of paid sick leave standards in New York City involved the transition in January 2014 between Mayor Michael Bloomberg, who had served three terms as mayor from 2002 to 2013, and Mayor Bill de Blasio. Bloomberg, a Democrat before and after his term, was the founder, majority owner, and former chief executive officer of Bloomberg L.P., a financial information firm, and had deep ties to large, elite employers in the city. De Blasio spent seven years as a city council member and served as New York City public advocate from 2010 to 2013. In both roles he championed the causes of small businesses, especially immigrant- and minority-owned businesses, making it part of his political identity. As a mayoral candidate, he ran on a platform of addressing persistent economic inequality, and as mayor he promised to make “NYC the fairest big city in America.”

In contrast to Seattle and Los Angeles, large employers in New York City, largely under the aegis of the Partnership for New York City, an organization composed of several hundred business leaders and companies, including large corporations headquartered in New York (e.g., Bloomberg, Bank of America, Citigroup, Deloitte, J.P Morgan Chase, and the New York Times) and headed by Kathryn Wylde, played a much more active role in the trajectory of employment standards legislation and implementation. In particular, they helped organize small and medium-sized businesses against the paid sick leave legislation.

Types of employer influence over employment standards legislation and implementation

The passage of paid sick leave protections in New York City highlights several important themes about employer power. First, the mayor’s orientation to and perception of the business climate of the city is an essential element in shaping legal protections for workers. Under Mayor Bloomberg and City Council Speaker Christine Quinn, paid sick leave protections were stalled, and employer advocates gained many concessions that significantly weakened the proposed legislation; the bill that passed under Bloomberg and Quinn was a watered-down version of that first proposed by Councilwoman Gail Brewer in 2009. An alliance between big business organizations and small businesses and their organizations facilitated the pushback against the more robust protections. However, after de Blasio’s election and the election of progressive advocate Melissa Marc-Viverito as speaker, the council in short order passed a new version of the law that restored most of the protections of the original 2009 proposal. The second theme emerging about employer power is how large businesses use the rhetoric and political cover of small businesses to their advantage. Though big businesses were largely unaffected by the proposed legislation (many of them already provided sick leave, and they had the resources to accommodate paid sick leave), they saw the fight as a referendum on the business climate in New York City, and thus were closely involved in the process. The third theme to emerge is that attention to the needs of small businesses from the mayor and other city government employees can be important in shaping the administration of employment protections, as indeed it was within the Office of Labor Policy and Standards (OLPS).

It is important to note that even in the significantly altered political climate under de Blasio and Marc-Viverito, employers still won concessions. For example, in his revised paid sick leave legislation, de Blasio failed to include a private right of action for employees—something that business organizations strongly opposed during the several rounds of city council committee hearings under Bloomberg/Quinn. With regard to enforcement, while de Blasio’s choices for leadership of the agency demonstrated a commitment to robust enforcement of employment standards, his concern with reducing regulatory burdens on small businesses translated into instructions to both the enforcement agency and the administrative tribunal that adjudicates decisions for the agency that made enforcement less robust.

Employer influence in paid sick leave policy implementation

The paid sick leave ordinance (the Earned Sick Time Act) passed in June 2013 and was amended in February and March 2014, after de Blasio’s inauguration, and again in November 2017. The ordinance creating the Office of Labor Policy and Standards passed in November 2015. Along the way, employers and employer organizations mounted challenges to how the law would be enforced and by whom. Some concessions to employers about enforcement were made in the process of negotiating over legislation. Other concessions were longer term: Arguments business raised years earlier became embedded into new drafts of legislation and into how implementation occurred. Importantly, some of the ways in which enforcement authority fell short of the goals of labor advocates stemmed from choices guided by Mayor de Blasio. Employer challenges focused on five key issues: the Department of Health as the administering agency, the severity of fines, the administrative cost and burden of recordkeeping, the private right of action, and the burden of employment protections for small businesses and the need for resources for outreach to these businesses.

Employers and employer organizations strenuously advocated against housing enforcement of the law in the Department of Health, which had a negative reputation among businesses given its role in conducting business inspections. Beginning in 2013, with an amendment that located enforcement authority within the Department of Health, business barraged the city council with objections. Linda Baran, president and chief executive officer of the Staten Island Chamber of Commerce, speaking on behalf of the 5 Boro Alliance (​​an alliance of borough chambers of commerce formed out of opposition to the paid sick leave bill36), argued:

What does the Health Department have to do with regulating labor issues? This is a Department who many of our Council Members claim overregulating and charging exorbitant fees at restaurants to the tune of $52 million in 2012. Business will be subject to audits, inspections, onsite investigations by the Health Department and this bill will provide costly penalties up to $5,000 and we have a Department of Labor, and it is at the state level.37

Baran, in illustrating the nature of the Department of Health’s reputation among businesses, echoed a common business refrain that enforcement should be conducted at the state level. Another member speaking on behalf of the 5 Boro Alliance—John Binizio, a Bronx business owner and chamber member—took issue with “the Department of Health[’s] very intrusive fining power over every business in the city,” claiming it was a mechanism for the city to make money on the backs of small businesses.38

Councilmember Dan Halloran, Republican from Queens, suggested that the enforcement power might be better situated in the Department of Consumer Affairs (DCA), the city executive agency tasked with monitoring violations of consumer protections. Labor advocates, who had originally supported locating enforcement in the Department of Health, were not opposed to moving it to the DCA, and ultimately it was.

The choice of the DCA was not, however, without controversy, in particular from de Blasio himself. In June 2013, the Daily News published an “expose” of the DCA’s use of fines, claiming that the agency had a “secret quota system for violations” that “slaps business owners with sky-high fines” (Gonzalez 2013). While the DCA vehemently denied this, the article cited a study conducted by de Blasio, as public advocate, in February of that year that found a 70% increase in the number of DCA inspections between fiscal years 2002 and 2012—from 40,724 to 77,481. Importantly, the department’s enforcement seemed skewed against small, minority-owned businesses, as evidenced by the fact that the number of inspections spiked in all the outer boroughs but declined 14% in Manhattan, where most high-end businesses are located. The article quoted de Blasio as saying, “Before an inspector even walks through the door, the fix is in.” This orientation toward the DCA as biased against small businesses would inform a number of de Blasio’s enforcement-related decisions.

When de Blasio introduced the revised paid sick leave legislation after his inauguration, he kept the enforcement powers in the DCA (though with a provision that he could move it to another agency if he chose) and expanded the explicit authority of the DCA to initiate investigations and issue notices of violation based on those investigations. In defense of locating enforcement in the DCA, the new deputy mayor of housing and economic development, Alicia Glen, argued that it was the best agency for the job because it was the one that most directly engaged with, and had a productive and supportive relationship with, small businesses.39

In response to business community pushback on the enforcement provisions of the new bill, it was amended to include relatively minor concessions while leaving the basic enforcement provisions intact. The amendments clarified that the department and employer must agree on a time of day to review records during an inspection, waived penalties for the first six months for “newly implicated” businesses (those with under 20 employees and manufacturers), and reduced the statute of limitations for filing a complaint from three years to two.

A key pro-worker provision missing from de Blasio’s bill was a private right of action, and its omission was one of the most significant concessions to business interests. In hearings about the proposed legislation under Speaker Quinn, a representative of the 5 Boro Alliance argued that having a private right of action would cause “frivolous private actions which would further add to the court system’s backlog,” a regular refrain throughout the hearings from, for example, representatives of conservative think tanks and the New York State Restaurant Association. After the new administration took over, the new, progressive city council, led by Speaker Mark-Viverito, challenged the lack of a private right of action in hearings on the revised bill, but Deputy Mayor Glen argued that a private right of action was not necessary because “DCA is confident that [it] will successfully mediate complaints when they come into the agency.”40 In interviews, people familiar with de Blasio’s thinking felt that he did not see a private right of action as important to the protection of employment standards, regardless of the appeals of labor and worker advocates to the contrary. One suggested that for de Blasio, it was an easy concession to business advocates. To underscore how central enforcement staff saw the option for a private right of action, when one OLPS staff member was asked about the legal authority the office would need to pursue effective enforcement, a private right of action for paid sick leave was the first provision to come up.41 

The new council, while supporting the bill and grilling agency officials on the lack of a private right of action, repeatedly raised the issues of small businesses throughout the hearings. Councilmembers’ emphasis on the need for outreach to small businesses was echoed in Glen’s portrayal of the DCA as sympathetic to small businesses and in the proposed direction of resources toward outreach and the proposed outreach partnership with the Department of Small Business Services. The DCA commissioner at the time, Alicia Pico, noted the DCA’s focus on mediating with businesses and struck a conciliatory tone about the approach the agency would take to the enforcement of paid sick leave: “…we are really good at mediating. So when, if somebody happen[ed] to come in and complain about business, we use our mediation tools. We don’t issue violations. We mediate, go back and forth. If the business makes it right for the person that is complaining, no violations are issued.”42 

According to those familiar with the DCA, reforming the reputation of the agency, especially among small businesses, was an important goal of the new mayor. This attention to the concerns among small business owners was also reflected in the mayor’s choice for DCA commissioner. In announcing the appointment of Julie Menin, a regulatory attorney and former small business owner herself, de Blasio emphasized the economic benefits of small businesses and an approach to them that was not centered on fines: “Julie understands that small businesses are the key to economic growth in our city—and I know she will apply regulations with public safety, not city revenues, in mind” (Office of the Mayor 2014a; emphasis added).

The rhetoric regarding a conciliatory approach to enforcement of paid sick leave from the DCA was pervasive and slowed down initial enforcement of the law. Menin’s appointment was followed by an announcement of more than 20 reforms to DCA practices to reduce the burden on small businesses (Jonas 2014). These included reducing the number and size of fines, improving transparency, and providing inspections in a preferred language. De Blasio’s proposed budget indicated that the city planned to collect 8% less in total fine revenue over fiscal year 2015 than it collected in 2012 ($789 million versus $859 million) (Office of the Mayor 2014b). Labor advocates noted that there was a significant delay in the actual enforcement of the paid sick leave legislation, as the DCA spent the first six months on employer and employee education instead of on enforcement, with the result that initial violations were not punished. Labor advocates had a series of meetings with Menin to inform her that the strategy was not working and that workers were not being heard or compensated.43

Office of Labor Policy and Standards and implementation

The later legislative effort to establish a designated office for enforcing employment standards— the Office of Labor Policy and Standards—faced no public business or employer opposition, and de Blasio signed the legislation into law on November 30, 2015. In stark contrast to the conciliatory tone toward business struck by DCA leaders in hearings around the creation of the office, OLPS messaging about the agency’s job and responsibilities explicitly affirms the purpose of the office as protecting the rights of workers. As one OLPS staff member put it:

This office is not neutral, I tell people that all the time, in meetings….I appreciate the instinct to say that “this is government, we have to be fair,” but when you have an affirmative protection, enforcing law that affords rights to a group that is vulnerable, when you’re reversing a power dynamic, being fair is enforcing the law.…It isn’t an employer saying, ‘Oh, you should’ve gotten sick time, sorry, next time’; that’s not how it works. [They were] supposed to have given the sick time already….This is a legal right.44

De Blasio’s appointments were crucial to fostering such an orientation toward enforcement of employment protections, given that the background of DCA and OLPS leadership and staff was in worker protection and advocacy, in contrast to the Los Angeles OWS, where leadership and staff did not have such a background. In May 2016, de Blasio appointed as DCA commissioner Lorelei Salas, a housing, immigration, and employment lawyer who worked for years on behalf of immigrants and refugees, was a former senior manager at the New York State Department of Labor, and served as an administrator at the U.S. Department of Labor’s Wage and Hour Division under President Obama. In August 2016, de Blasio appointed Liz Vladeck, labor lawyer and advocate, as deputy commissioner of OLPS, under Salas, adding to the labor advocacy personnel. The appointment of Vladeck was, as one labor advocate put it, “a signal from the administration to take this seriously by appointing someone like her; not just someone to warm the chair, but someone looking to do good work.”

Yet despite the very public championing of worker rights as part of the de Blasio administration—the DCA was even rebranded as the Department of Consumer and Worker Protection—and the strong support for worker standards at all levels of the DCA as the result of the de Blasio appointments, OLPS has been hamstrung in various ways.

For example, bureaucratic reforms45 changed the administrative court for OLPS cases from an internal DCA court to a citywide tribunal, the Office of Administrative Trials and Hearings (OATH). OLPS staff have noted the extreme difficulties they have had with cases at OATH, in part because OATH was set up to deal with violations, not to hear trials, and in part because the judges had no experience in complex labor law. Agency staff repeatedly lamented what they felt to be legally inappropriate decisions within OATH that limited their enforcement powers. In an interview with a government employee, we learned that a commissioner of OATH who is appointed by the mayor provided guidance that the judges should “be good on supporting small businesses,”46 in part because of de Blasio’s concern with small businesses. This suggests that the rulings are not necessarily neutral decisions.

Another institutional feature limiting enforcement practices at OLPS is the size of its budget, which is small relative to the size of the city. In June 2020, DCA Commissioner Salas noted that OLPS had a budget of about $1.5–2 million, within the DCA’s budget of about $40 million. In contrast, the equivalent agency in San Francisco—with a population less than one-tenth that of New York City—had a budget of about $8.5 million. When asked about perceptions of what employers won in the fight over employment standards enforcement, a labor advocate noted: “The money—there’s just no staffing. It’s a tiny team that’s trying to do creative things. So the resources are awful.”47 The small budget does not reflect political choices, according to one government official, but is rather a feature of budgeting in NYC executive agencies.

Summary

In New York City under de Blasio, a champion of raising employment standards in order to combat inequality, and under a progressive city council, the ideational structural power of small business has played a key role in shaping both the legislation and, even more profoundly, the implementation of worker protection ordinances. The structural power of small businesses, through threats that they will either leave the city or go bankrupt; the strategic deployment of small business organizations and narratives by larger employers and their advocates, such as the Partnership for New York City; and the persistent attention to the concerns of small business by the mayor—in part because of how central small businesses are to his political identity—have all loomed large over the story of attempting to balance the power of workers relative to their employers. 

Employer power across the three cases

In each of the cities, concessions to employers during the legislative process informed the speed and nature of implementation. Employers and their advocacy organizations secured concessions in implementation, such as the soft launch of policies—a reduction in fines and penalties and a focus on education and training for a period after the ordinance took effect—and the allocation of resources to employer outreach instead of enforcement. Seattle, where political support for minimum wage policy was overwhelming, ironically settled on the longest phase-in period for small businesses (seven years) and the highest threshold for the number of employees that counted a firm as a small business (500 or fewer employees worldwide). In contrast, the cutoff for small businesses in Los Angeles was 25 employees, and for paid sick leave in New York it was four. In each city, employers secured various exemptions, carve-outs, and phase-ins from certain provisions of the laws.

Ultimately, the impact of employer influence over the implementation of these laws interacted with the focus and relative influence of advocates, other relevant government institutions, and city bureaucratic processes to shape what enforcement of these employment standards looks like in practice. In Seattle, enforcement is supported by extremely strong statutory authority, an attention to the relationship between enforcement and the building of worker power, and creative enforcement practices, while at the same time enforcement practices are focused on and pay heed to the impact on small business, and many agency resources are directed toward building relationships with businesses. In Los Angeles, statutory enforcement authority is strong, but enforcement practices are severely constrained by civil service hiring rules, which create high turnover in the Office of Wage Standards; by the very hands-on, legally conservative guidance from the city attorney’s office; and by an agencywide sense of the importance of balancing the needs of employees and employers. The extremely positive reputation among elected officials and advocates of the leader of the Bureau of Contract Administration has led to less pressure from officials who might otherwise encourage and pressure OWS to engage in more robust enforcement strategies. And in New York City, despite incredibly strong agency leadership and commitment to robust enforcement, and despite relatively strong statutory enforcement authority, the agency is under-resourced relative to the size of the city, its parent agency has not been equipped for the kind of enforcement practices needed for proactive enforcement, and both have been legally constrained by rulings from administrative tribunal judges.

While there were some instances of employers explicitly threatening to use their structural power to move away and thus withdraw capital from the city, and while political leaders often expressed concerns about the economic consequences of businesses exercising this power if they were unhappy with the policies being considered, there was also something else important happening. In all of the cities, there is a strong ideational influence favoring business. It is particularly manifest in narratives about small businesses and in mayoral calculations about the impact on their political fortunes of business reactions to robust enforcement; these impacted both the legislative process and the enforcement of employment standards. Big business knows that it can reap rewards from letting small business stand for the whole and taking advantage of the narrative of small business valor.

We observe four common mechanisms by which employer influence functions. First, in all three cities, powerful unions and extensive campaign finance reform have meant that employers win legislative concessions not due to greater resources, which might enable them to put favorable candidates into office and secure favorable votes through campaign contributions. Instead, they gain concessions through being repeat players in the process of policymaking, either by representing (in Seattle and Los Angeles) an enduring interest group that legislators feel they must be responsive to as part of the everyday functioning of local government, or by representing (in New York) a powerful constituency (large businesses) or a constituency in need of protection (small businesses). In Seattle, this occurred both through behind-the-scenes appeals to the mayor and through advisory councils—a longstanding institution in Washington State’s political culture for involving stakeholders in decision-making. In the Seattle case, we observe that worker and labor advocates who have substantial political and economic power may have little to gain, and much to lose, by participating in a deliberative process with employers. In Los Angeles, the degree of access that business lobbyists have to elected officials, and city officials working to accommodate “reasonable requests” from repeat political actors in order to facilitate future policymaking, has meant that some business advocates receive outsized attention. In New York City under Bloomberg, who was ideologically opposed to these kinds of employment standards policies, employers and employer advocates succeeded in whittling away at proposed paid sick leave protections, leaving the final bill a shadow of its former self. Most provisions were restored in the version introduced by de Blasio after he became mayor. 

Second, in these three cities, even when minimum wage and paid sick laws passed with lopsided majorities, mayors and city councilors, and sometimes agency leaders, were nevertheless strongly attuned and responsive to the ideational structural power of business, in the more expansive sense that we outlined above. “Better business climate” concerns were present and accommodated48 through choices about policy details, administration, and enforcement practices. We see evidence of the ideational structural power of employers being transmitted through arguments that legislation will chill business opportunities. The economies of these three deep-blue progressive cities are characterized by strong competitive advantages and high levels of profitability, thus making businesses less inclined to move (Dreier, Mollenkopf, and Swanstrom 2014). Additionally, each of the cities has important place-based economies such that capital mobility is far less common for the largest employers and often not economically feasible for the smallest ones. We observe most frequently that the form of structural power (realized or perceived) that most worries politicians is not fear of divestment and capital moving to other jurisdictions, but rather a fear of a different form of capital withdrawal from the city economy—businesses and business organizations claiming they will be bankrupted and have to close in response to employment standards reforms. As mayoral and city council staff as well as labor advocates repeatedly pointed out, this has become the automatic response by business to any proposed employment policy improvement, and it is automatically taken seriously as a legitimate threat without employers even having to provide much evidence in support of their claims. Ultimately, ringing the bell about threats to the “business climate” sets in motion a Pavlovian-like response on the part of elected officials such that the bell no longer needs to be rung at all for them to be concerned about hurting business or to be perceived as hurting business. The widespread incorporation of neoclassical economic assumptions and principles into policymaking (Hirschman and Berman 2014) also contributes to this dynamic.

Third, in all three cities, politicians have a sincere concern for small businesses that is reflected in widely circulating narratives. As Waterhouse (2015) has documented, the political uses of small business narratives are legion in 20th century U.S. history. Beginning in the 1970s, small business narratives were incorporated into a larger pro-business, anti-regulation narrative. We observed strong ideational influence of these small business narratives, and we think of the invocation of small business in these cities as a “spanning concept” (Hackworth 2007)—a concept with multiple meanings that are politically useful because different constituencies hear what they want to hear. We can identify four distinct narratives of small business in the three cities: as representative of core moral values of self-sufficiency and hard work; as engines of growth, entrepreneurship, economic vibrancy, and community; as vehicles for economic mobility for immigrants and people of color; and as quintessential victims of government overregulation. In some of these cities, big business wants small business to stand for the whole of employers because of the sympathies it evokes. But while these narratives are certainly deployed strategically, that is not the whole story. They also speak to deeply held beliefs on the part of politicians in each of the cities. The source and nature of the resulting acquiescence to business concerns varies by city; the struggle over the dividing line between what constitutes a small versus a large employer exemplifies this issue.

Finally, in all three cities, in addition to sincere concern for the fates of small businesses, mayors were also concerned with how robust enforcement of employment standards might impact their future political careers. In Seattle, Murray’s attention to the requests—both explicit and presumed—of business was part of how he preserved his public profile as a moderate. In L.A., some worker and labor advocates suggested that the political aspirations of city mayors to higher office make them particularly attuned to avoiding a reputation as “anti-business” and to preserving their ability to secure future campaign contributions from business. In New York, de Blasio’s previous championing of small businesses created conflict with some aspects of robust enforcement practices.

Thus, the structural power of employers shapes the way policies are perceived, and instrumental power shapes how specific policy changes come to be made in legislation—as Hacker and Pierson (2002) observe in the case of welfare reform at the federal level. While we see some evidence of instrumental power in the process of enforcement, the invocation of structural power—especially the dimensions of ideational influence—is an important barrier to robust implementation. In these cities, enforcement powers are granted statutorily in the legislation itself, through administrative rulemaking and also through organizational practices. The structural power of business is evident in shaping enforcement in all three arenas, largely through decisions made by the mayor and agency staff regarding whether and how to use their enforcement authority.

The extent of structural and instrumental power of employers and the relative distribution of structural versus instrumental power vary across time and place. We see variation in the dynamics of employer power among the cities based on two key dimensions and the interaction between them: the structure of city government (Table 5) and the organization of business interests (Table 6). The institutional arrangements of the cities—in particular the relative balance of power between the mayor and the city council and the relative influence of different government institutions in the process of legislation and enforcement, shape the degree to which the mechanism of employer influence over enforcement was largely through structural or instrumental means. Additionally, in all three cities, employers vary in their degree of involvement in legislation and implementation (e.g., by industry, size, net worth, public profile, and, most of all, the degree to which they believe they will be impacted by a particular policy) and in the extent to which they were organized in their opposition to (or support for) legislation and enforcement approaches. These differences informed the degree of involvement of different types of employers and employer organizations in the process, the stage in the process at which they engaged, and the various forms of engagement their involvement took.

In our three cases, political contributions, an important aspect of instrumental power, are relatively balanced between labor and business; in some years in some cities, they favor labor. Instrumental power plays some role in these cases, but not nearly the role it might play in other cities with different demographics, ideological compositions, and less organizing capacity. Despite this relatively unique balance in the resources of business and labor, we observe legislative concessions and significant implementation barriers, many of which can be traced to the structural power of business. Given the economic conditions of cities due to fallout from the Covid-19 pandemic, we already see even more political defaulting to the preferences and needs of business, especially small business.

Recommendations for worker advocates

We close this paper with a set of recommendations for worker advocates based on what these cases illustrate about the actions of employers, local government officials, and labor and worker advocates. We suggest four key areas for worker advocates to attend to: business community cleavages; ideational power using narratives and frames; the fundamentally conflicted role of small businesses; and the pressuring of elected officials specifically on enforcement.

1. Attention to cleavage within the business community

In each city, we see that business is not a monolith. Different sectors, companies, and individuals may have some common interests but also divergent ones. Divisions inside of business associations and boards are important to understand and exploit. Likewise, businesses and business associations have varying levels of interest in specific policies, and this must be carefully parsed by worker advocates. Many of the largest employers in some of these cities did not see the policies as a threat and did not become deeply involved in opposing them. Some were nominally involved through their participation in business associations but did not heavily invest in the fight. In the case of minimum wage and paid sick time policies, it was seldom the largest companies that were leading the opposition. Sometimes this role was a pragmatic choice, in the sense that they were already paying above the minimum wage and providing paid sick days, and sometimes it was strategic, in the sense that they knew their involvement would make them good targets for worker advocates—better to leave the arena to the more sympathetic spokespersons of small businesses, local chains, and beloved restaurants. Although beyond the scope of this paper, we note that predictive scheduling policies in these cities brought some larger employers more fully into the scrum, as did business tax proposals. In all three cities, there was consensus that the most powerful business players were real estate developers, and they tended not to become involved in debates about employment standards. Also, their instrumental power had been reduced by campaign finance reforms.

In every city, business associations engaged to varying degrees. Some engaged during the policy process but did not remain involved over the fine details of enforcement powers, while others were involved throughout. Mayoral staff and policy insiders in the cities pointed most often to the restaurant associations as the ones that stayed engaged in the minutia throughout the rulemaking and implementation processes. (Indeed, we did observe an important role of the National Restaurant Association and similar state or local associations, suggesting that worker advocates should pay particular attention to these organizations.) The interests of repeat players were more likely to be recognized and accommodated in some way.

For worker and community advocates, before beginning a campaign, it is important to disaggregate the business community and do a thorough power analysis of each of the players. This analysis must not be based solely or even primarily on what one thinks one knows; advocates must formulate clear questions and identify multiple sources for seeking answers. Power is often hard to see. As Pierson (2015) has argued, in many situations we are only able to see the tip of the iceberg; mechanisms of power are even harder to pin down. It is important to have clear criteria for evaluating power and to triangulate one’s way through incomplete information to what will most often be correlation, not causality. Business influence is not always easy to track because sometimes businesses are intentionally trying to stay off the record, not testifying at hearings but instead communicating directly to mayors or their political consultants or other private intermediaries. In all three cities, we heard accounts of specific carve-outs that were accomplished this way.

2. Attention to ideational power using narratives and frames

The cases we have presented here make clear that there are instrumental and structural elements to business power, and that the ideational aspects of structural power are extremely powerful in shaping the enforcement of employment standards. Along with institutional strategies like employment policy reforms coupled with strategic enforcement and co-enforcement, narrative and cultural strategies are essential to challenging the hegemonic power of business and the laissez faire narrative. As we have seen, liberal and progressive elected officials in deep-blue cities favor employment reforms but still worry about policy impacts on business and feel a need to be open to concessions.

The ideational structural power of small business takes different forms in different cities, and the sources of these narratives are diverse. For the Seattle and New York mayors, the power was explicitly connected to narratives of immigrant and Black and brown entrepreneurship. This form of power operates in large measure through the admiration of elected officials for the work of the entrepreneurs and “makers” who make the city special as well as through personal relationships with the businesses themselves. Local elected officials, including progressive local officials, look at small business sympathetically and very differently than they do big corporations. Being “pro-small business” is not just a pragmatic stance; it is a deeply held sentiment. Seattle progressives understood the appeal of small business for elected officials and organized well-known small businesses into the Main Street Alliance; the tactic helped progressives project a counter message that not all small businesses opposed higher minimum wage and paid sick time policies and that a “high road” path was available for small businesses. In fact, there is growing interest in some progressive circles in understanding the interests of small business as compatible with the economic justice agenda and in organizing small business back into the progressive community (Mitchell and Holmberg). While some small businesses are already active on LGBTQ+ rights, immigrant rights, environmental policy, and racial justice, small business participation around economic justice and worker rights policy is still marginal. But co-opting existing narratives about the importance of small businesses is not sufficient, as it might further reinforce the structural power of business. Progressives must develop their own small business narratives and decouple the narrative about small business viability from labor costs and connect it instead to, say, the cost of rent. Such a strategy could provide pathways to a broader political terrain that includes the financialization of the urban economy, absentee investors, and corporate landlords.

Advocating for business outreach and education has been effective framing for employee advocacy organizations to win the creation of employment standards offices and co-enforcement. This framing has been successful because it implies that businesses would comply if they understood their obligations—what is needed is education rather than deregulation. Framing the job of these enforcement agencies as one of ensuring compliance has also proved to be effective. It is hard for business to argue that it should not follow the law, and the frame is supported by good governance advocates and city auditors. It places business in a tough spot if the problem of wage theft has been documented and agency policies and procedures are viewed as reasonable. Just as the “unfair competition” frame—that those businesses that compete on underpaying their employees have an unfair advantage—is hard for business to argue with, so too is the frame that businesses want to comply and just need information about their obligations. In most instances, whether they liked it or not, most business organizations ended up accepting the framing and settling for dedicated outreach and education staff rather than putting forward a straight-up anti-regulation argument.

3. Attention to the fundamentally conflicted role of small businesses

In each of these cities, small businesses play a fundamentally contradictory role. Many of the elected officials involved in passing these policies and establishing these offices and the agency leaders who staff them feel badly that the majority of violations coming in are against small business, many of which are in immigrant ethnic enclaves and are often owned by immigrants and people of color. On the one hand, officials and staff feel strongly that all businesses should follow the law. On the other hand, they feel that these laws are complicated and that many small businesses lack human resources capacity and make honest mistakes. Likewise, the organizations that mobilized to pass these policies and to establish these offices are themselves more interested in going after the big corporations that drive the economy and are responsible for some of the worst elements of employment relations today. They do not believe that they are going to drive structural change in these industries by going after small businesses, but they also know that small businesses are frequent sources of violations for their constituents (indeed, some advocates in these cities represent both employees and small business owners). There is room for progressive organizations to enter the policy arena in support of high-road small businesses—reinforcing the message about unfair competition and rental costs. Cities could be much more creative in their strategies for promoting and supporting small businesses, including by providing them common back-office accounting and human resources support.

4. Pressuring of elected officials specifically on enforcement

An additional caution: In each city examined here and in many other cases with which we are familiar, there is a tendency on the part of worker advocacy organizations to trade off enforcement and funding in order to get a policy on the books. Likewise, soft launches may be good for messaging and negotiations, but if allowed to become long-term enforcement practices they can end up undermining the actual implementation of the policies organizations fought so hard to pass. While we understand the political calculus, we have observed that organizations do not always have the same political conditions, power resources, or focus to circle back and later win the necessary enforcement powers through statutes, administrative rulemaking, or funding. Worker advocates should budget and design campaigns around enforcement rules, practices, and budgets, in addition to waging the legislative battles over policy. Many worker advocates we spoke to were extremely familiar with the shortcomings of each of the enforcement offices, and they noted that there was not enough organized pressure on elected officials to support strategic enforcement practices. As one worker advocate in New York City put it, fairly sheepishly, because of resource shortages “we organize to win but we never organize to sustain the victory and make it as strong as possible.” Continuing oversight over the enforcement process is instrumental to realizing the full policy victory.

Acknowledgments

This research has been funded by a Russell Sage Foundation grant, number 85-18-01, to Shepherd and Fine. Lexi Gervis and Jacob Barnes, our talented Ph.D. students, provided invaluable research assistance for this research project and Jenn Round—expert in all things enforcement-related—provided extraordinary legal expertise, advice, and editorial support (including constructing Table 4). Although they are anonymous in the paper, we owe a huge debt of gratitude to the elected officials, mayoral and city council staffers, agency leaders and staff, labor and community leaders, organizers, worker advocates, and business lobbyists who have taught us so much and who have connected us to others. We could not have written this paper without their help. We owe a special thanks to the leaders and staff of all of the labor enforcement offices for their generosity with their time and insights over many years. We are also grateful to Daniel Galvin and Alex Hertel-Fernandez for their excellent advice and suggestions on this paper.

About the authors

Janice Fine is a professor of labor studies and employment relations at the School of Management and Labor Relations, Rutgers University, and director of the Workplace Justice Lab. Fine researches worker organizations, historical and contemporary debates within labor movements regarding immigration, labor standards enforcement, privatization, and government oversight. She works across the country with government agencies and organizations to research labor violations in their jurisdictions and implement innovative labor standards enforcement strategies, including partnerships between government agencies and organizations. Prior to becoming a professor at Rutgers, she worked as a community, labor, coalition, and political organizer for more than 20 years.

Hana Shepherd is an associate professor of sociology at Rutgers University. Her work focuses on realizing employment protections for low-wage workers and employee power in low-wage workplaces. She asks how social networks, social norms and culture, and organizational practices shape behavior, and thus facilitate or impede social change. She is working on projects on how local government agencies enforce employment protections; how to create supportive online communities for retail workers; and how organizational practices shape networks in low-wage jobs, with implications for collective action. Her work appears in outlets such as the Proceedings of the National Academy of Sciences, Social Psychology Quarterly, Social Science Research, and Sociological Science.

Appendix A. A roadmap to the main policy and implementation issues

In order to orient the reader to some of the technical nuances involved in the debates over employment standards legislation and implementation, we provide the following list of the main issues businesses and business associations raised during the legislative debates. A detailed account of the specific changes to the ordinances for each city is provided in Tables 1 and 3.

1. Size and phase-in: The single most important policy detail for business interests regarding both the paid sick and minimum wage ordinances was the specific cut-off number for what counted as a small versus a large business. Business size dictated the number of years a firm had to phase in both the paid sick leave and minimum wage ordinances and the number of hours a worker could accrue under the paid sick leave ordinance (as well as how many hours could be carried over per year). Additional issues connected to size included whether individual franchisees would be considered small businesses or part of larger integrated enterprises.
2. Joint employer and integrated enterprise: Widespread subcontracting in many low-wage sectors has led to situations in which the direct employer of record has extremely limited financial resources or has gone out of business or cannot be found, making it difficult for agencies to prosecute violations and collect wages owed to workers. Thus, there is an imperative to be able to go beyond the employer of record and hold other entities liable for wages owed. Businesses were concerned about whether city statutes would include joint employer liability and thus give the agency the ability to hold more than one entity liable for violations based upon a finding that two separate entities exercised some control over the work or working conditions of the employee. Businesses were also concerned about how city statutes defined when two or more separate entities would be considered an integrated enterprise and considered a single employer for purposes of liability; such a definition was relevant to establishing the size of the businesses and thus whether a business counted as a small or large business.
3. Who is covered? There were debates in all three cities over whether paid sick leave and minimum wage ordinances would cover part-time, temporary, and exempt employees, with businesses trying to limit coverage to full-time employees.
4. What counts toward meeting the minimum wage? Business interests in both cities with a local minimum wage law (Seattle and Los Angeles) tried to have as many sources of nonwage income count toward their wage obligation as possible, including tips, spending on health care benefits, commissions, and bonuses. In some cases, they succeeded in having some of these count for a prescribed period of time (another phase in). They also lobbied hard for the right to levy service charges on customers to cover some of their obligation under the minimum wage.
5. Private right of action: A private right of action allows workers, in addition to filing complaints with a government agency for violations of the law, to be able to take their employers to court to sue for violations under that law. The threat of a class action suit can also be leveraged in the settlement of an agency investigation, as the employer may agree to better terms to avoid additional litigation costs. Business strongly opposed it in every ordinance in all three cities.

Additionally, employers were concerned with a number of issues regarding administration and enforcement authority and practices. Details about the final statutory enforcement authority of each office—one dimension of the outcomes we are interested in—can be found in Table 4.

1. Location within the bureaucracy: In each city there were debates about which existing agency should house the new employment standards enforcement functions. Some business associations strongly expressed their preferences, weighing in against agencies they charged with having been overly zealous in enforcement—issuing citations for minor infractions either as a means of burnishing their reputations or generating income, or both. Worker advocates favored certain agencies over others as potential homes for administration and enforcement of these new policies, and others preferred agencies to be independent.
2. Onsite investigations and inspection of company records: Agencies must be accorded the statutory or administrative power to carry out onsite investigations. In some cases, the law specifies whether there must be prior notification of the employer, and in other cases the law is silent. Business associations usually prefer to limit investigatory powers and require prior notification. Worker advocates object to prior notification because they want to avoid companies altering the workplace or coaching employees to say or do certain things.
3. Power to compel information and mandatory deadlines: When an agency receives a complaint against an employer, the process usually begins with notification and a request for information. This power can be accorded through statute, administrative rulemaking, or agency practice. Businesses object to short turnaround times and advocate for longer periods to produce information. Agencies have had their investigations slowed when companies produce incomplete information or take a long time to provide it. Worker advocates try to require faster production so that agencies can carry out their investigations more efficiently and companies do not have time to falsify records.
4. Directed and complaint-based companywide investigations: Many jurisdictions require statutory language or administrative rules that give permission to extend an investigation beyond an individual complainant to the entire workforce (companywide) or initiate an investigation without a complaint (directed). Some business associations object to these practices because, in the case of companywide investigations, they require time-consuming production of records; in the case of directed investigations, they give agencies too much power. Worker advocates support them for three reasons: There is a strong likelihood that more than one worker has experienced the violation; companywide investigation protects the identity of the complainant; and higher costs are more likely to deter employers from committing future violations.
5. Statute of limitations: Businesses generally push for shorter periods of time during which an employee is able to come forward with a complaint. Worker advocates generally push for longer periods of time because many vulnerable workers who fear retaliation wait until they leave the job to file wage theft claims.
6. Assessing penalties: The power to impose damages, fines, and civil penalties on an employer that violates the law, repeatedly misses deadlines to provide information, interferes in an investigation, or makes no attempt to correct violations identified during an investigation is considered by many agencies to be essential to effective enforcement and to the deterrence of future violations. Not all agencies have these powers: Fines and penalties must be set through statute or administrative rulemaking. Businesses often try to confine their obligation to back pay alone and to minimize fines and penalties.

Tables

Table 2

Table 5

Table 6

Notes

1. Authorship is equal.

2. Economic Policy Institute, Minimum Wage Tracker.

3. National Partnership for Women and Families.

4. Personal interview with director of community organization, October 23, 2020.

5. Personal interview with mayoral aide, October 22, 2020.

6. Personal interview with mayoral aide, October 22, 2020. Although beyond the scope of this article, some of Seattle’s most prominent employers who had remained on the sidelines during the Fight for $15 and Paid Sick and Safe Time policy fights (and a few who supported these policies) were extremely exercised about the Secure Scheduling Bill proposed in 2016, and they wrote detailed letters to the council and the mayor. These employers included the Seattle Mariners and Costco.

7. Personal interview with mayoral aide, October 27, 2020.

8. Personal interview with labor advocate, September 16, 2020.

9. Seattle Ethics and Elections Commission.

10. Personal interview with mayoral aide, October 22, 2020.

11. Interviews with enforcement staff, May 30, 2017.

12. Mayoral talking points, untitled, from senior mayoral aide files.

13. 2015–2016 Seattle Office of Civil Rights Budget.

14. Overview and Initial Issues Identification, Office of Labor Standards and Minimum Wage staff Patricia Lee and Dan Eder, date prepared October 22, 2014.

15. Office of City Auditor, “Seattle’s Paid Sick and Safe Time Ordinance Enforcement Audit.” The independent office of the city auditor was established in 1991 through a voter initiative that amended the city charter. The auditor is appointed by the city council to four-year terms.

16. Interviews with enforcement staff, May 30, 2017.

17. Interview with OLS official, October 30, 2019.

18. Personal interview with former employer organization lobbyist, November 30, 2020.

19. Personal interview with senior staff of worker advocacy organization, August 20, 2020.

20. Personal interview with senior staff of worker advocacy organization, December 21, 2020.

21. Personal interview with senior city council staffer, December 22, 2020.

22. Personal interview with senior staff of worker advocacy organization, August 20, 2020.

23. Personal interview with former mayoral staffer, December 22, 2020.

24. Personal interview with senior city council staffer, December 22, 2020.

25. Los Angeles City Ethics Commission.

26. Report from Bureau of Contract Administration, October 2015.

27. Personal interview with former employer organization lobbyist, November 30, 2020.

28. Personal interview with senior staff of labor advocacy organization, November 30, 2020.

29. Personal interview with OWS staff member, August 15, 2018.

30. Personal interview with mayoral staff members, August 16, 2018.

31. Personal interview with OWS staff member, August 15, 2018.

32. Personal interview with senior staff of worker advocacy organization, August 20, 2020.

33. Personal interview with senior staff of labor advocacy organization, November 30, 2020.

34. Personal interview with senior staff of worker advocacy organization, December 8, 2020.

35. Personal interview with staff of BCA, August 15, 2018.

36. Manhattan Chamber of Commerce press release, September 10, 2009.

37. Committee on Civil Service and Labor hearing transcript, March 22, 2013, p. 56.

38. Committee on Civil Service and Labor hearing transcript, March 22, 2013, pp. 220–21.

39. Committee on Civil Service and Labor hearing transcript, February 14, 2014, pp. 41–2.

40. Committee on Civil Service and Labor hearing transcript, February 14, 2014, p. 45.

41. Personal interview with OLPS staff member, June 4, 2019.

42. Committee on Civil Service and Labor hearing transcript, February 14, 2014, pp. 56–7.

43. Personal interview with former senior staff of union, November 18, 2020.

44. Personal interview with OLPS staff member, June 4, 2019.

45. Executive Order 18 in 2016.

46. Personal interview with city government employee, November 2020.

47. Personal interview with leader of labor advocacy organization, August 13, 2020.

48. While beyond the scope of this article, it is worth noting that from their earliest days, business elites played a central role in city administration. As Judd and Swanstrom (1998, 38) argue, “Local boosters assumed the lead in organizing public services when the absence threatened the economic vitality of the city….In the early 19th century, when confronted with a problem, the city’s aristocratic and merchant class would typically organize a committee to decide what to do.”

References

Abbott, Carl. 1992. “Regional City and Network City: Portland and Seattle in the Twentieth Century.” Western Historical Quarterly: 293–322.

American Immigration Council. 2020. “Fact Sheet: Immigrants in California.” August 6.

Appelbaum, Eileen, and John Schmitt. 2009. “Low-Wage Work in High-Income Countries: Labor-Market Institutions and Business Strategy in the U.S. and Europe.” Human Relations 62, no. 12: 1907–34.

Avery, Beth, and Han Lu. 2020. “Ban the Box: U.S. Cities, Counties, and States Adopt Fair Hiring Policies.” National Employment Law Project, September 30.

Beekman, Daniel, and Jim Brunner. 2019. “Amazon Drops Additional $1 Million-Plus into Seattle City Council Races, with Ballots Out This Week.” Seattle Times, October 15.

Bell, Stephen. 2012. “The Power of Ideas: The Ideational Shaping of the Structural Power of Business.” International Studies Quarterly 56, no. 4: 661–73.

Bernhardt, Annette, Ruth Milkman, Nik Theodore, Douglas D. Heckathorn, Mirabai Auer, James DeFilippis, Ana Luz González, Victor Narro, and Jason Perelshteyn. 2009. “Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities.” Center for Urban Economic Development, National Employment Law Project, and UCLA Institute for Research on Labor and Employment.

Bernhardt, Annette, Michael W. Spiller, and Diana Polson. 2013. “All Work and No Pay: Violations of Employment and Labor Laws in Chicago, Los Angeles, and New York City.” Social Forces 91, no. 3: 725–46.

Block, Fred L. 1987. The Mean Season: The Attack on the Welfare State. Pantheon.

Brunner, Jim. 2017. “Seattle Mayoral Aide Sees Conflict of Interest in Lobbying by Political Consultants.” Seattle Times, October 23.

DeMause, Neil. 2010. “Diagnosing A Defeat: Why the Sick Leave Bill Failed.” City Limits, December 21.

Doussard, Marc. 2013. Degraded Work: The Struggle at the Bottom of the Labor Market. University of Minnesota Press.

Dreier, Peter, John Mollenkopf, and Todd Swanstrom. 2014. Place Matters: Metropolitics for the Twenty-First Century (Third Edition, Revised). University Press of Kansas.

Eastern Research Group. 2014. “The Social and Economic Effects of Wage Violations: Estimates for California and New York.” Final report prepared for the U.S. Department of Labor. Eastern Research Group.

Fernández Campbell, Alexia. 2019. “Kamala Harris Just Introduced a Bill to Give Housekeepers Overtime Pay and Meal Breaks.” Vox, July 15, 2019.

Fine, Janice. 2017. “Enforcing Labor Standards in Partnership with Civil Society: Can Co-Enforcement Succeed Where the State Alone Has Failed?” Politics & Society 45, no. 3: 359–88.

Fine, Janice, Daniel Galvin, Jenn Round, and Hana Shepherd. 2020. “Maintaining Effective U.S. Labor Standards Enforcement Through the Coronavirus Recession.” Washington Center for Equitable Growth.

Fine, Janice, Gregory Lyon, and Jenn Round. 2020. “The Individual or the System: Regulation and the State of Subnational Labor Standards Enforcement in the U.S.” Unpublished manuscript.

Galvin, Daniel J. 2019. “From Labor Law to Employment Law: The Changing Politics of Workers’ Rights,” Studies in American Political Development 33: 50–86.

Gautié, Jérôme, and John Schmitt, eds. 2010. Low-Wage Work in the Wealthy World. Russell Sage Foundation.

Gaventa, John. 1982. Power and Powerlessness: Quiescence and Rebellion in an Appalachian Valley. University of Illinois Press.

Gleeson, Shannon. 2016. Precarious Claims: The Promise and Failure of Workplace Protections in the United States. University of California Press.

Gonzalez, Juan. 2013. “Exclusive: Secret Consumer Affairs Quota System for Violations Slaps Business Owners with Sky-High Fines: ‘It’s Shameful,’” New York Daily News, June 17.

Gonzalez, Dalia, Sabrina Kim, Cynthia Moreno, and Edward-Michael Muña. 2020. State of Immigrants in LA County. California Community Foundation and USC Center for the Study of Immigrant Integration.

Hacker, Jacob S., and Paul Pierson. 2002. “Business Power and Social Policy: Employers and the Formation of the American Welfare State.” Politics & Society 30, no. 2: 277–325.

Hackworth, Jason. 2007. The Neoliberal City: Governance, Ideology, and Development in American Urbanism. Cornell University Press.

Hansen, John M. 1991. Gaining Access: Congress and the Farm Lobby, 1919–1981. University of Chicago Press.

Hirschman, Daniel, and Elizabeth Popp Berman. 2014. “Do Economists Make Policies? On the Political Effects of Economics.” Socio-Economic Review 12, no. 4: 779–811.

Holmes, Aaron. 2019. “The 2010s Were the Decade Amazon Took Over the World. Here’s How the Company Grew Its Business Tenfold in the Past 10 Years.” Business Insider, December 16.

Johnson, Matthew S. 2020. “Regulation by Shaming: Deterrence Effects of Publicizing Violations of Workplace Safety and Health Laws.” American Economic Review 110, no. 6: 1866–1904.

Jonas, Jillian. 2014. “City’s Small Business Crisis Continues.” Gotham Gazette, July 24.

Judd, Dennis R., and Todd Swanstrom. 1998. City Politics: Private Power and Public Policy. Addison-Wesley.

Kalleberg, Arne L. 2009. “Precarious Work, Insecure Workers: Employment Relations in Transition.” American Sociological Review 74, no. 1: 1–22.

Knauf, Ana Sofia. 2017. “Are Those New Surcharges on Your Receipts Politically Motivated?” The Stranger, March 1.

Luce, Stephanie. 2004. Fighting for a Living Wage. Cornell University Press.

Lukes, Steven. 2004. Power: A Radical View. Macmillan International Higher Education.

Manhattan Chamber of Commerce. 2009. “5 Boro Chamber Alliance Formed to Oppose Mandated Paid Sick Time.” Manhattan Chamber of Commerce, September 10.

Mayor’s Office of Immigrant Affairs. 2020. State of Our Immigrant City: Mayor’s Office of Immigrant Affairs (MOIA) Annual Report.

Mitchell, Stacy, and Susan R. Holmberg. 2020. “Why the Left Should Ally with Small Business,” The Nation, November 18.

Murray, Mayor Ed. 2014. “Mayor Proposes New Office of Labor Standards for Education, Enforcement on City Wage and Benefit Rules.” Office of the Mayor, September 15.

Murray, Mayor Ed. 2015. “Murray Announces Recipients of $1 Million Community Fund to Support Seattle Workers.” Office of the Mayor, September 30.

Office of the Mayor. 2014a. “Mayor de Blasio Appoints Julie Menin as Commissioner of Department of Consumer Affairs.” Office of the Mayor (New York City), April 24.

Office of the Mayor. 2014b. “Fact Sheet: Mayor de Blasio Issues Executive Budget for Fiscal Year 2015, Updates the City’s Financial Plan for 2014–18.” Office of the Mayor (New York City), May 8.

Office of the Mayor. 2016. “Mayor Murray Proposes Expansion of Labor Standards Outreach, Enforcement.” Office of the Mayor (Seattle), April 25.

Peterson, Paul E. 2012. The Price of Federalism. Brookings Institution Press.

Pierson, Paul. 2015. “Power and Path Dependence.” In James Mahoney and Kathleen Thelen, eds., Advances in Comparative-Historical Analysis. Cambridge University Press.

Reich, Michael, Ken Jacobs, Annette Bernhardt, and Ian Eve Perry. 2014. “The Mayor of Los Angeles’ Proposed City Minimum Wage Policy: A Prospective Impact Study.” UC Berkeley Labor Center.

Rolf, David. 2016. The Fight for Fifteen: The Right Wage for a Working America. New Press.

Round, Jenn. 2018. “Tool 1: Complaints, Intake, and Triage.” In Janice Fine and Tanya L. Goldman, eds., The Labor Standards Enforcement Toolbox. Rutgers Center for Innovation in Worker Organization.

Stiles, Marc. 2016. “Seattle Businesses Would Face More Scrutiny Under Mayor’s Latest Proposal.” Puget Sound Business Journal, April 26.

Waterhouse, Benjamin C. 2015. Lobbying America: The Politics of Business from Nixon to NAFTA. Vol. 99. Princeton University Press.

Weil, David. 2012. “Examining the Underpinnings of Labor Standards Compliance in Low Wage Industries.” Report to the Russell Sage Foundation.

Weil, David. 2014. The Fissured Workplace. Harvard University Press.

Weil, David. 2018. “Creating a Strategic Enforcement Approach to Address Wage Theft: One Academic’s Journey in Organizational Change.” Journal of Industrial Relations 60 (3): 437–60.

Weil, David, and Amanda Pyles. 2005. “Why Complain? Complaints, Compliance, and the Problem of Enforcement in the U.S. Workplace.” Comparative Labor Law & Policy Journal 27: 34.

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?).

With regard to labor market barriers, we assess each step in the job search and job match process and find that worker mobility is greatly limited by the availability of jobs to which workers can move; the time it takes to search for and secure another job, if it’s available; and the quality of the available jobs and quality of the new job, if secured. Moreover, limitations in labor market mobility are often dependent on the current job: Does it have hours or working conditions that make on-the-job search difficult? Does it have the scheduling or time-off policy that supports interviewing? Does it provide a positive or negative signal about the worker? The existence of these kinds of constraints suggests that worker immobility can be a reinforcing process. Finally, mobility is contingent on the degree of labor market discrimination. We illustrate, in a stylized model, how a Black worker would need to devote nearly four times the effort to receive the same number of offers as a similar white worker.

With regard to financial barriers to mobility, we find that, even in a job-to-job transfer—the best-case scenario for worker mobility because unpaid time off is minimized—workers can experience gaps in benefit coverage or compensation. Even noncompensation aspects of a new job can carry financial costs, such as commuting, and a change in job location can require a new child care arrangement. Workers facing unemployment spells between jobs must usually finance the spells on their own, a major hurdle for the huge share of U.S. households whose savings add up to just several hundred dollars. Workers willing to enhance their labor market prospects by moving must not only pay the costs of the move but also have access to considerable savings to cover advance rent and security deposits or to cover expenses while awaiting the sale of a home. And much like in the labor market, there is persistent and well-documented discrimination in the housing market that raises these costs for people of color. Finally, access to credit can smooth out job transition costs, but it is not universal and reflects clear racial differences. Black and Hispanic Americans also have considerably less wealth to tap into than white Americans.  

Our assessment of these and other labor market and financial considerations illustrates the extent to which barriers to mobility can make moving jobs a luxury, rather than a right. The theoretical context of these findings is dynamic monopsony: the harder it is for a worker to leave, the more power an employer has over that worker’s wages.

I. Introduction

How easy is it for a worker to leave a job and look for another? In the “at-will” employment framework, an employer cannot legally prevent a worker from leaving a job, but what does the concept say about the right, or even the ability, to find a new one?

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?). With regard to labor market barriers, we assess each step in the job search and job match process and find:

• Worker mobility is greatly limited by the availability of jobs to which workers can move; the time it takes to search for and secure another job, if it’s available; and the quality of the available jobs and quality of the new job, if secured.

• Limitations in labor market mobility are often dependent on the current job: Does it have hours or working conditions that make on-the-job search difficult? Does it have the scheduling or time-off policy that supports interviewing? Does it provide a positive or negative signal about the worker? The existence of these kinds of constraints suggests that worker immobility can be a reinforcing process.

• Mobility is contingent on the degree of labor market discrimination. We illustrate, in a stylized model, how a Black worker would need to devote nearly four times the effort to receive the same number of offers as a similar white worker.

With regard to financial barriers to mobility, we find:

• Even in a job-to-job transfer—the best-case scenario for worker mobility because unpaid time off is minimized—workers can experience gaps in benefit coverage or compensation. Even noncompensation aspects of a new job can carry financial costs, such as commuting, and a change in job location can require a new child care arrangement.

• Workers facing unemployment spells between jobs must usually finance the spells on their own, a major hurdle for the huge share of U.S. households whose savings add up to just several hundred dollars.

• Workers willing to enhance their labor market prospects by moving must not only pay the costs of the move but also have access to considerable savings to cover advance rent and security deposits or to cover expenses while awaiting the sale of a home. And much like in the labor market, there is persistent and well-documented discrimination in the housing market that raises these costs for people of color.

• Access to credit can smooth out job transition costs, but it is not universal and reflects clear racial differences. Black and Hispanic Americans also have considerably less wealth to tap into than white Americans.

Our assessment of these and other labor market and financial considerations illustrates the extent to which barriers to mobility can make moving jobs a luxury, rather than a right. The ability, or inability, to find new employment has both practical and theoretical implications. Workers would likely call a lack of job options a real hardship and a barrier to higher wages, better living standards, and basic economic security. Economists would call an inability to search for or find a new job an example of a search friction and trace its origins and effects in a theoretical framework. Indeed, worker mobility is at the core of worker power, and, conversely, worker immobility is at the core of employer power. Hence, we start with a discussion of monopsony and how researchers define and identify the concentration of employer power.

II. Monopsony in practice

Worker mobility—the ability to find and take another job—exists on a spectrum, from those who can easily move to those who cannot. What explains the variation? One could ascribe the reason to the worker and his or her education, experience, occupation, or industry. But that is just another way of saying that workers with different educations, experience, occupations, or industries face different labor markets, and, again, some labor markets have more mobility than others. Hence, the real question is, what explains the variation in mobility in labor markets?

Perfect monopsony is defined as the presence of a single buyer in a market (the inverse of a perfect monopoly, in which there is a single seller). In labor markets, monopsony, or monopsonistic power, is the term given to describe a market-disrupting concentration of employer power that allows the employer to pay workers less than a competitive wage. A competitive wage is a worker’s marginal productivity; paying less than a competitive wage means paying a worker less than what the worker contributes to the firm. We often conceptualize monopsony in a static framework, in which a single dominant employer—a mining company or a manufacturing plant in a rural area—controls the labor market. But researchers have found diffuse and pervasive evidence of monopsony beyond this static framework; workers are paid below a competitive wage in many geographies, markets, and industries (Ashenfelter, Farber, and Ransom 2010; Dube, Manning, and Naidu 2018; Sokolova and Sorensen 2021; Stansbury and Summers 2020; Webber 2015). Instead, concentration of employer power today is conceptualized as dynamic monopsony (Manning 2003, 2021; Naidu and Carr 2022), in which the difficulty or inability to leave a position that pays less than a competitive wage gives an employer monopsonistic power to lower wages.

There are many potential contributors to dynamic monopsony. Card (2022) discusses the concentration of employers in labor markets, collusive “no poaching” agreements between firms, and noncompete clauses attached to hiring contracts. The latter two can be interpreted as evidence of monopsony in addition to contributors to monopsony. Moreover, all of these contributors have a common theme of restricting worker movement, either through the reduced number of alternative employers, reduced access to those employers, or restricted movement to those employers. Hence, the crux of monopsony is the limitation of a worker’s outside options and the ability to exercise them (Schubert, Stansbury, and Taska 2021). Worker mobility, then, can be seen as a study of search friction—anything that prevents a worker from immediately starting a new job, from the time needed to find another position to the ability to accept it. Because it is hard for workers to leave, and employers know this, they can exercise monopsonistic power and pay lower than competitive wages.

Often, researchers look for evidence of monopsony in observed wages and the distribution of wages across firms, time, industries, or geographies that reflect rising employer power or the decline in worker power. The proof of monopsonistic power is found in the resulting wages. In this paper, we take the reverse approach. Rather than look for evidence of the result, we assess evidence of the cause, namely, search frictions. Are workers mobile? Are they able to move jobs? We take a practical approach to this question and discuss the many barriers and difficulties workers face in leaving a job.

III. Labor market constraints

The primary component of worker mobility is whether the worker can find a job. The job-finding process is conceptually straightforward: workers decide to look for a job, perform the job search, and, if another job is found, decide whether to accept it. However, each of these steps carries its own assumption: that there is a job available, that the worker has the ability to dedicate time to search for it, and that a new job will be of sufficient quality and not result in disruptions to the worker’s income or standard of living. As we will show, these assumptions are not trivial.

A. Available jobs

To start, we consider the first step in the job-finding process and its associated assumption: workers decide to look for a job, which assumes that another job is available. The primary barometer of job availability is the unemployment rate, which measures the share of workers who are not employed but actively looking for a job. There are numerous means of assessing job availability, but most derive from, or incorporate in some way, the number of unemployed workers. Unemployment itself, or a positive rate of unemployment, is not an indication of no available jobs; it can take time to look for and decide on a position. Even in a market with many available jobs, some unemployment would be expected. However, elevated unemployment rates, or prolonged unemployment durations, are stronger indicators of job unavailability.

Figure A shows the job seeker ratio—the number of unemployed workers in a given month as a share of the number of job openings—from 2000 to 2021. A ratio greater than 1 indicates there are more unemployed workers than available jobs. The ratio spikes during recessions (peaking here at 6.5 in July 2009) and falls during recoveries.

Figure A

Job availability is not a fixed feature of the labor market and instead fluctuates with the business cycle. In the 252 months of available data since December 2000, there have been just 33 in which jobs outnumbered searching workers, or just 13% of the time. Indeed, periods of full employment are rare. When unemployment is higher, workers are less likely to quit their jobs, transitions to new jobs are fewer, and wage growth is lower (Mishel 2022). At the same time, employers can fill vacancies with less effort and even raise expected education and experience requirements for new hires (Modestino, Shoag, and Ballance 2020). Varying job availability means worker mobility is dependent on the broader economy, which is far beyond the control or influence of a single worker.

Trends in the broader economy, though relevant, may matter less than a worker’s local labor market. Although the U.S. is an expansive labor market of over 150 million workers and boasts nearly every combination of industry and occupation, workers are mostly confined to their local labor markets, which comprise the jobs they are qualified for within the geographical boundary of where they are willing to work. (Workers could move across labor markets for a job, but, as we will discuss, that is not financially feasible for many). Local labor markets should not be conflated with a city or locality; rather, a local labor market is defined by where a worker can commute on a daily basis. An individual in a rural area might spend an hour commuting 50 miles to a job, across many towns, while an individual in an urban area might commute for an hour by bus within the same city or borough. For reference, 12% of workers in 2019 had a commute time of less than 10 minutes, and 10% had a commute time of over an hour (Burd, Burrows, and McKenzie 2021).

Two examples illustrate some of the constraints of local labor markets and how they can exhibit monopsonistic features, regardless of size. In Janesville, journalist Amy Goldstein wrote about the 2008 closing of the General Motors manufacturing plant in Janesville, Wis., a town of around 60,000 (Goldstein 2018). The plant employed about 1,200 workers when it closed, and it was not the largest employer in Janesville and the workers did not represent a majority or even a large share of the total labor force. Yet, for the GM workers there were no alternative employers in the city who paid a similar wage for workers with their education and experience levels. Few of the laid-off workers returned to manufacturing in Janesville after the plant closed. Some took retirement buyouts; some commuted weekly to another GM plant hundreds of miles away, returning home to Janesville each weekend; and others pursued retraining at the local community college. Those different jobs, however, did not pay wages at the GM level.

In No Shame in My Game, anthropologist Katherine Newman studied the employees of a fast-food restaurant in Harlem over a two-year period (Newman 2000). Though New York City is one of the largest and wealthiest cities in the world, with millions of jobs, the job options for the Harlem workers were not as vast as the city itself. Most walked to work and could not afford daily subway fare, most had no education beyond a high school degree, and most had little prior job experience. Thus, the fast-food restaurants within their neighborhood were one of their only employment options. With low wages and long hours (at least in the time in which Newman was studying), the workers struggled to find the time or money to finance a job search outside their neighborhood.

The narratives of the laid-off auto workers in Janesville and the fast-food workers in Harlem illustrate what research has found to be the case: worker outcomes are conditioned on the local labor market, and one’s labor market does not have the same geographic boundaries that demarcate cities or counties (Enrico 2011; Manning and Petrongolo 2017). Further, the determinants that make a labor market more or less favorable to workers in terms of availability of jobs or level of pay are vast and outside of the worker’s control. For example, a Walmart opening up in a county is associated with a reduction in both retail employment and retail earnings (Neumark, Zhang, and Ciccarella 2008; Wilshire 2022). Comparing across local labor markets, researchers have found differences in employer concentration and market power, and those differences are associated with differences in worker outcomes: markets with more employer power have lower wages and more wage inequality (Azar et al. 2020; Benmelech, Bergman, and Kim 2020; Rinz 2018). An individual worker would have little influence on these and other features of the local labor market, but those features would greatly influence the worker’s own earnings and mobility.

It is possible that the importance of local labor markets will erode in the future as more workers work remotely and are therefore not tethered to the labor market in which they reside. In the beginning of the COVID-19 pandemic in May 2020, efforts to contain community spread via social distancing resulted in 35.4% of workers in the U.S. working from home (Bureau of Labor Statistics 2020). Researchers estimate that 37% of jobs in the U.S. economy could be performed at home (Dingel and Neiman 2020). Before the pandemic, in January 2020, just 2.5% of job postings were for remote work; that share increased to roughly 7% by the end of 2021 (Judes, Adrjan, and Sinclair 2021; Kolko 2021). However, the ability to work remotely is associated with workers who have higher educational attainment and higher earnings (Desilver 2020; Dingel and Neiman 2020; Kolko 2021). While some workers may see fewer constraints from local labor markets as a result of working remotely, that will not be the case for all or even most workers.

B. Ability to search for jobs

Aside from the availability of jobs, a worker must dedicate time to search for a new position. This is not a trivial undertaking, nor is job searching equally accessible or successful for all workers. We can see this immediately if we think of three contexts for job searching: searching on-the-job during work hours, searching on-the-job after work hours, and searching while unemployed. Each context supports a different level of effort and has a different cost for the searching worker.

Workers who want to change jobs without having a gap in income maintain their current employment while searching. Practically speaking, some workers, particularly those with access to the internet and with low levels of active supervision or monitoring, will be able to search during the workday. A paralegal at a law firm, for example, uses a computer all day, and, though he or she may need to be available for calls or emails, it is unlikely a lawyer is constantly or even frequently examining the paralegal’s screen. But workers without computers or phones on hand who are actively engaged in a task would find search during the workday difficult to impossible. A child care worker, for example, has little access to a computer or internet at work, and is occupied with a physical task of minding children.

Employed workers who cannot sufficiently search on the job must search outside of work hours, but they face logistical challenges. Most job postings and applications are completed over the internet, yet according to the American Community Survey 15% of individuals do not have an internet subscription (Martin 2018). But the limiting factor for most workers is time. People with jobs work on average 8.1 hours a day, and people who are job searching search on average 2.8 hours a day (Bureau of Labor Statistics 2019). It would not be appropriate to add those estimates together, as they vary too much across individuals and work statuses or situations, but they illustrate the considerable time commitment job search requires and how difficult that can be to accommodate when one has a full-time job.

Securing an interview request takes considerable effort. According to a 2018 survey, nearly 40% of seekers who submitted 1–10 applications failed to receive any interview requests, compared with 26% who submitted 11–20 applications and 19% who submitted 21–80 (Dalton and Groen 2020). A separate survey of employed workers found that, of workers who received an offer over the prior four months (whether they were searching or not), the majority received only one (Federal Reserve Bank of New York 2022).

Compared with employed workers, unemployed workers have fewer time commitments that might interfere with their job search, but also no earned income to support themselves until a job is found. Workers can become unemployed through layoffs or firm closings or by newly entering or reentering the labor market. Unemployment in a discussion of at-will work arrangements, however, refers to those who voluntarily quit in order to find a new job. The only workers who can exercise this option, then, are those who can afford a period without earned income. 

Each of these contexts of job search imply significant disparities in income. Occupations that support search during the workday are higher paid, on average, than those that do not. A reasonable approximation for the share of occupations that can be performed primarily on a computer with access to the internet is the share of occupations that can be performed remotely, and, according to Dingel and Neiman (2020), discussed above, that share is 37%—and those jobs pay more than jobs that can’t be performed remotely. A separate study estimated that a higher share, around 44% of jobs, could be performed remotely, yet the share was much higher (67–70%) among those with a bachelor’s degree than among those without a high school diploma (11–17%). It is safe to assume, then, that search during the workday is a luxury and more likely an option for the highest earning and the highest educated.

Job searching outside of work hours is more time consuming, a fact that disadvantages mothers who already work a “second shift” of child care and housekeeping (Hochschild and Machung 2012). Even in 2019, full-time employed married mothers spent an average of 75 minutes more per day on household activities, purchasing goods and services, and caring for children than full-time employed married fathers (Bureau of Labor Statistics 2019). In addition, job searching requires a computer and an internet connection, and the 15% of households without broadband skews with income: only 3% of households with annual incomes of more than $150,000 lacked broadband, compared with 25% with income less than $25,000. And taking time off for a job search requires significant savings, which we discuss in the next section.

Further, a significant share of job matches comes through an individual’s network (Granovetter 1973). Researchers have investigated many aspects of networks and how they relate to the probability of being hired, wages, and tenure in the job, and whether the importance of networks is found across the wage distribution (Simon and Warner 1992; Ioannides and Datcher Loury 2004; McDonald 2015; Schmutte 2015, 2016; Brown, Setren, and Topa 2016). A key finding relevant to the investigation of worker mobility is that networks are often a channel of labor market inequality. The more white men there are in someone’s network, for example, the more job leads an individual can be expected to have (McDonald 2011). Jobs found through friends tend to pay more, but the premium is higher if the friend is white rather than Black (Tenev 2020). In terms of worker mobility, the interpretation of these findings is that networks aid in mobility, but the extent of the assistance varies along key dimensions of inequality. It is not clear whether new forms of networking via social platforms such as LinkedIn or Indeed augment or diffuse the inequality aspects of network connections or create new ones. LinkedIn’s own research claims that 85% of jobs are filled via networking (Adler 2016), but the use of social networking sites has various implications for success, ranging from whether the person is an extrovert (Davis et al. 2020) to how old they are and how they look in their profile photo (Krings et al. 2021).

Applications, moreover, are just the beginning. The vast majority of job offers come only after an interview (Dalton and Groen 2020). Again, employed workers are not equally able to accommodate a job interview, given that most interviews occur during the workday and that not all workers have paid time off. In 2021, 23% of private-sector workers did not have paid sick leave, 21% did not have paid vacations, and 54% did not have paid personal leave (Bureau of Labor Statistics 2021). Workers without paid leave would have to take a pay cut if the interview fell during the workday. Yet even workers with paid leave may need permission to miss work. Interviews can also be difficult to schedule if workers do not have control over their shifts. Only about 45% of workers know their work schedule less than a month in advance, and about 20% know their work schedule less than one week in advance (Reeves 2020). Hourly retail and food service workers face even more unpredictability: one-third had less than one week’s notice of their schedules, and their schedules varied in total hours week-to-week (Schneider and Harknett 2019). Even a single interview can be difficult to arrange, but many jobs require multiple interviews.

In conclusion, the tasks, pay, scheduling, and benefits of certain jobs make it difficult to find another one. The exigencies of job search are not equally accommodated by every job, and thus worker mobility is highly varied based on the current job and whether it affords search, how the work schedule is set, and whether it offers time off.

One could argue that as long as the worker has some ability to move to another position, potentially with features that enable easier mobility, limits to worker mobility are short term or job specific. However, workers of color are discriminated against in the hiring process, a barrier that is neither short term nor job specific.

Researchers test for labor market discrimination through audit studies, in which resumes are generated and sent in response to job postings and callback rates are measured. Critically, the resumes feature some intentional but specific variation, and the callback rate for interviews is a test of that feature’s labor market penalty. One prominent audit study, for example, changed the names on resumes to Black-sounding names (such as Lakisha and Jamal) or white-sounding names (such as Emily and Greg); white names received 50% more callbacks (Bertrand and Mullainathan 2004). Audit studies have been tested in numerous settings and iterations, but the findings are remarkably consistent and have not changed in the past 30 years: Black and Hispanic workers are called back less for job interviews than white workers (Quillian et al. 2017). Discrimination applies to both the high-wage and low-wage segments of the labor market. Audit studies have found that Black Harvard graduates have callback rates on par with white public university graduates (Gaddis 2015), and Black and Hispanic workers with clean records have similar callback rates as white workers with felony records (Pager, Western, and Bonikowski 2009). A recent study, which sent out 83,000 applications to the largest 108 employers in the U.S., found that discrimination against Black applicants was present and driven by highly discriminatory firms representing about a quarter of the firm sample (Kline, Rose, and Walters 2021).

The differential difficulty in job finding contributes to the persistent differences in Black and white economic outcomes. The differences in hiring rates can explain half of the unemployment rate differences between Black and white workers (Forsythe and Wu 2021), and these differences, along with wealth disparities and others, push down wages (Stelzner and Bahn 2021).

Figure B uses a stylized, hypothetical model of job search results to illustrate how prolonged a search can be. We assume two success rates—17.5% and 35%—of each application securing an interview and securing an offer, and map out how many applications are necessary to receive five job offers. The climbing lines, scaled on the left axis, show the number of interviews per application. The bars, scaled on the right axis, show the number of job offers per application. For example, at 25 applications at a 35% success rate, the applicant has garnered nine interviews and three offers, compared with just four interviews and one offer at a 17.5% success rate. The relative steepness of the lines shows how quickly applications are converted to interviews, and the differential height of the bars shows how many offers are associated with application rates. At a 35% success rate, an individual would need to apply for 40 jobs in order to get 14 interviews that yielded five job offers. To get those five offers at a 17.5% success rate, an individual would need to apply for 150 jobs in order to get 26 interviews. These differences are not trivial—being half as likely to be called back results in a job search process three times longer. Assuming two hours per application and four hours per interview, this is the difference between 136 hours and 404.

Figure B

Job search is not equally or easily accomplished for workers in different occupations, but discrimination in the labor market adds a pernicious and permanent disparity in the success of that search.

C. Match of job and worker

The final step and the accompanying assumption in worker mobility is that the worker find and can find a job of sufficient quality. That is, conditional on jobs being available and conditional on workers being able to search for those available jobs, the offered job must match the worker.

Match is multidimensional. It encompasses skill, pay, benefits, location, schedule, working conditions, on-the-job growth, and earnings potential, among other factors. It is not the case that there is a consistent ranking across workers of which attribute is most important. Working mothers who manage child care responsibilities, for example, have been found to be very sensitive to commute times in assessing employment opportunities, even turning down higher-paying offers that might disrupt the commute, and by extension child pickup and drop-off (Manning and Petrongolo 2017). The nonwage attributes of a job, whether they are the working conditions or other amenities, are key determinants of job preferences (Maestas et al. 2018) and job satisfaction (Sockin 2021).

Hence, the quality of the match is determined by the worker, workers are not uniform in what they value in a match and how they assess a match, and, as a result, it is difficult for a researcher to determine the quality of matches in assessing barriers to worker mobility. How large an assumption it is that a worker can find a suitable job and, similarly, how limiting match quality is in worker mobility are difficult to measure. We could, for example, look to the rejection rate of job offers to get a sense of match quality and mobility. Glassdoor, a job search website, finds that the rejection rate of job offers varies with broader macroeconomic conditions, but generally is in the range of 15–19% (Sockin and Zhao 2020). This rejection rate would suggest that match quality is an issue but not a large one—the majority of job offers are accepted. However, individuals presumably limit their search to jobs that they would want, so the acceptance rate is conditional on the application rate, and we do not observe both. The details of the job, and the wage and nonwage features, may be withheld until an offer is made. As noted previously, the majority of workers receive only one job offer, making rejection less likely, and individuals who feel that there are few suitable jobs available may be discouraged from searching at all.

Observing workers who move from one job to another—job switchers—does not necessarily yield information on job match either, because workers with limited mobility may move to a worse, low-quality job. Earnings are a fundamental indicator of job quality and likely an important aspect of job match. Models of lifetime earnings have found that switching to higher-paying jobs is a key contributor to total earnings growth over a worker’s career (Topel and Ward 1992). But in fact, only about half of job switchers between 1996 and 2010 went into a higher-paying job (Wiczer 2016). The average wage increase between jobs was 2.6%, and a fair share of switchers lost half of their earnings from the prior job. Part of the reason is that a voluntary job switch is not free of negative aspects. Workers could switch because they were warned that they would be fired, they could have had a negative experience with a colleague, or they could have experienced sexual harassment (Nyström and Zhetibaeva Elvung 2015; Willness, Steel, and Lee 2007).

Indeed, interpreting switching to lower-quality jobs (at least measured by earnings) introduces the question of whether quality is a limiting condition to mobility at all. That is, does switching into a lower-paying job support the conclusion that pay (or other measures of quality) does not always inform a worker’s assessment of a match or that pay (or other measures of quality) does not limit mobility? Workers either do not care about quality or they do care about quality, but do not let it function as a limit to mobility. Both could be, and likely are, true to an extent. A key aspect of this question, though, is how well a searching worker would be able to assess quality before starting the job.

As a theoretical aside, the requirements of match in job search could be interpreted as a search friction and evidence of dynamic monopsony (as we present it here) or, as an alternative, could be interpreted as product differentiation, a separate channel for monopsony. As Naidu, Posner, and Weyl (2018) explain, employers have preferences over workers regarding such factors as their skills, education, and experience but also their personality and work style. At the same time, workers have preferences over jobs, as noted above. The labor market’s two-sided preferences mean that it is “doubly differentiated” and therefore naturally thinner than a single-differentiated market would be. For example, a person shopping for clothing, like a pair of jeans, can have many different preferences: cut, fit, style, material, and even sourcing and sustainability. The store selling the jeans, on the other hand, only cares that any potential buyer pay the posted price, and it does not discern between buyers based on their age, height, hair color, commitment to fashion, or even their intention to actually wear the clothes. If stores had to meet those preferences before selling, it would be much harder to buy clothing. Two-sided preferences make matching more difficult.

Critically, in the labor market’s two-sided preference match, workers know less than employers and thus there is information asymmetry in job search, a factor that tilts labor markets toward monopsony. Learning about a job’s features, especially the culture of the workplace, during the search process can be difficult. Research has found that an employer’s reputation is important to worker’s preferences (Benson, Sojourner, and Umyarov 2020), yet employers actively try to discourage transparency about working conditions via nondisclosure agreements (Sockin, Sojourner, and Starr 2022), and fear of retaliation can be a deterrent to workers commenting at sites like Glassdoor about former employers (Sockin and Sojourner 2020). Even while employed, workers often have little information about their wages relative to those of their coworkers, and learning that they are paid less decreases job satisfaction (Card et al. 2012). Observed job switches into lower-quality jobs, therefore, cannot be assumed to be a worker’s specific intention: the worker may not know that the job is of lower quality.

Some would argue that match is not a barrier to leaving jobs. In theory, so long as any job is available, worker mobility is not limited. The first half of that statement is certainly true: a worker may not prefer to move from being a teacher to, say, a cashier, but the worker can move. The latter half is problematic: moves have consequences, for both future mobility and trajectories, as well as for the power of monopsony. These consequences are illustrated by the low-wage labor market, where there is often an available job.

Analysis of the employment and earnings trajectories of workers in the low-wage labor market suggests that low-wage employment can be a trap. For one thing, low-wage jobs have a much higher likelihood of leading to unemployment than do high-wage jobs, creating a “low-pay/no-pay” cycle of employment (Fok, Scutella, and Wilkins 2015; Mosthaf, Schank, and Schnabel 2014). Second, low-wage jobs don’t pay sufficient wages to support savings, so if workers becomes unemployed they can’t afford a nonworking break and must take the next available job, which is also low wage. Third, many low-wage jobs offer little on-the-job training or investment, so that unemployed low-wage workers are less qualified for different, better jobs (Cuesta and Salverda 2009). Finally, and particularly important to downward mobility, low-wage employment has a scarring effect, similar to unemployment or resume gaps, that reduces future employment prospects (Stewart 2007).

Taken together, low-wage employment greatly increases the chance of future unemployment and decreases the chance of future high-wage employment (Mosthaf, Schank, and Schnabel 2014). Critically, mobility out of low-wage employment into high-wage employment has declined over the last 30 years (Schultz 2019), and research consistently finds that the trap is particularly deep for women (Mosthaf, Schnabel, and Stephani 2011). The ability to move down the job ladder is not proof of worker mobility unless there is demonstrated ability to move back up.

Further, having access to any available job versus a suitable job can augment employer power and decrease wages. Being in an occupation in a labor market with more outside options—defined as the full set of jobs that workers in that occupation move from or to—is associated with higher wages than being in the same occupation in a labor market with fewer outside options (Schubert, Stansbury, and Taska 2021). This finding helps delineate between movement and mobility; even monopsonistic labor markets will feature movement across jobs, but that movement is not the same as competitive mobility. Hence, match quality may limit some movement and will limit mobility.

D. Immobility and labor policy

Our approach so far in demonstrating that worker mobility is limited in practice has been to examine how difficult it is to leave a current situation. A complementary approach to interrogating the feasibility of leaving an employment situation is to assess if workers do not leave when there is reason they should.

Consider a perfectly competitive labor market. Not only are workers competing for jobs, but employers are competing for workers. If a job has features that workers do not like, employers must either raise wages to compensate for that feature or eliminate it. If they do not, workers—perfectly mobile in this perfectly competitive market—will leave. The ability to leave any employment situation freely would thus force employers to improve working conditions and wages or lose their workers. It also follows that in a perfectly competitive labor market there is no need for labor regulation; competition is the regulation that marries working conditions to workers’ standards.

The introduction of labor regulations and their effect is one kind of indication of worker mobility: the greater the lack of mobility, the less power workers have to improve working conditions and the more regulatory intervention is necessary (Stelzner and Paul 2020). The U.S. labor regulatory regime spans multiple pieces of legislation, including the Fair Labor Standards Act, the Occupational Safety and Health Act, the Civil Rights Act, and the Equal Pay Act. In a sense, the existence of these laws is an explicit acknowledgment of lack of worker power in improving working conditions and an implicit acknowledgment of lack of worker mobility.

Not everyone agrees with the need for or use of regulation in labor or other markets, and not everyone would interpret its existence and application as proof of shortcomings in the market. However, the continued use of regulation and enforcement is fresh evidence that leaving for a similar or better job is not always a feasible option. For example, since the passage of the Occupational Safety and Health Act (OSHA) of 1970, the rate of workplace injury has decreased fivefold (Brown 2020). Some of this decrease is attributed to the changing industrial composition of the workforce in the past five decades, but research into the effect of OSHA inspections on safety finds that they reduce the incidence of on-the-job injuries and days away from work (Levine, Toffel, and Johnson 2012; Li and Singleton 2019).

Further, employer power is a key moderator of regulatory effectiveness. Researchers have found that where employer power is stronger, such as in workplaces with high numbers of Hispanic workers in areas where immigration enforcement has increased (Grittner and Johnson 2021), regulation is less effective. Conversely, where employer power is weaker, such as in union-organized workplaces (Sojourner and Yang 2022), regulation is more effective. Worker mobility drives the effectiveness of labor regulations as well. A study of sexual harassment reporting found that reports decreased in number, but increased in severity, based on the unemployment rate at the time and the value of unemployment insurance benefits. The authors concluded that workers with fewer outside options are less likely to report sexual harassment (Dahl and Knepper 2021). Thus, the need for regulations and the struggle to enforce them are indicators of limits to worker mobility.

IV. Financial constraints

The corollary to the labor market constraints that limit worker mobility are the financial constraints. The former concerns the availability of alternative jobs and the difficulty in finding them, the latter concerns the cost of finding and taking them.

Job mobility for established workers (excluding here job search and finding by new entrants or re-entrants to the labor market who have not worked for a considerable period and those who were laid off) occurs under two circumstances. Either they move job-to-job (JTJ) or they quit, have a period of unemployment dedicated to search, and find a new job, i.e., move job-to-unemployment-to-job (JUJ). A worker can take time off between positions in a JTJ move, but that time off is not dedicated to, or motivated by, the search for work because the worker already has a position. The period of time off in a JUJ move is to support job search. We have discussed previously the practical needs of both JTJ and JUJ in terms of job search. Here we discuss the financial costs of job transitions.

A. Job-to-job transitions

Financially the best-case scenario for worker mobility is to transition between jobs without needing to finance time off between paid employment. However, even this type of transition can entail costs for a worker, aside from a potentially negative difference in wages.

As long as a firm is not violating federal nondiscrimination standards, nonwage compensation like retirement contributions, health insurance, and transportation benefits are not required to be offered uniformly to all employees. And a new employee does not have to be offered the same benefits as more tenured employees; for example, a worker might not be able to enroll in the firm’s retirement plan until after 12 months of tenure, or a worker might have to restart accrual of paid time off for sick days or vacation days. So workers can experience gaps in coverage or compensation, and this transition cost is greater if the moving worker also lost benefits from leaving, left during an early step in the vesting schedule, or was not paid unused time off.

Nonwage benefits, or losses associated with transitioning from one job to another, might seem marginal, especially relative to potential wage gains. However, benefits constrain worker mobility. Job lock refers to workers who do not leave their firms because doing so would disrupt or cause a loss in their health insurance coverage. Early estimates of job lock suggested that it reduced voluntary departures by 25% (Madrian 1994) and affected workers who had, or whose spouses or children had, preexisting conditions (Gruber and Madrian 1994; Madrian 1994). The inverse is also true; easier access to health insurance is associated with moves to higher-paying jobs (Farooq and Kugler 2022). Of course, the health insurance landscape has evolved since job lock was first estimated, but even after the preexisting coverage mandate of the Affordable Care Act of 2010, job lock continues to affect certain workers who are concerned with switching out a doctor’s network with a new insurer (Kent et al. 2020).

Finally, even noncompensation aspects of a new job can carry financial costs, such as commuting. Three-fourths of American workers drive alone to work, and the daily cost of a driving commute is $8-13 (U.S. Census Bureau 2018, 2020). Over a full-time work year, that equates to $2,080-3,380; moving could increase that cost. Similarly, longer shifts or longer commutes could incur a need for additional child care. If work extends beyond the hours a licensed home care provider or center-based care is open, a worker might have to find different care, pay for extended care, or hire a part-time caregiver like a nanny or babysitter to fill in the hours before the parent’s work ends. In addition, a change in job location could require a new child care situation if the worker previously had an arrangement at or near the former employer; note that 7% of employers offer onsite child care (Matos, Galinsky, and Bond 2017). Disruption of care is stressful. Surveys of parents have long established that finding affordable child care for their preschool children is difficult, the options are limited, and, even when found, the cost is burdensome (Care.com 2021; Harvard T.H. Chan School of Public Health 2016; Pew Research Center 2015). Up to half of all spending on children goes toward child care (Hubener, Rojas, and Tseng 2018); affording child care is a key stressor among parents of young children and reduces maternal mental health (Lyons-Ruth et al. 2002; Mistry et al. 2007). Hence, any job change that requires a corresponding change in care can be financially costly and mentally difficult.

For high-income workers, job-to-job costs such as health insurance, transportation, or child care could be larger in number but smaller in relative financial burden, greatly diminishing the inhibitions on their mobility in the labor market. Yet, for certain workers—low-income workers, those with preexisting conditions, mothers—those costs can be prohibitive. Health insurance job lock is not only an example of this type of constraint to worker mobility but also an excellent way to conceptualize it: there is a financial component of a job that is not guaranteed or maintained with a new employer, and some components are valued by the worker above their strict monetary value.

B. Job-to-unemployment-to-job transitions

Workers can quit their jobs and search while unemployed, but it’s a risky move without earnings and no definitive timeframe. Studies of unemployed workers find that the more financial cushion one has in unemployment, the better the job upon reemployment (Farooq, Kugler, and Muratori 2020; McCall and Chi 2008).

Though workers who voluntarily quit their jobs are generally not eligible for unemployment insurance benefits, some states make exceptions for quits for medical reasons that are related to the job; quits related to domestic violence; quits to care for an ill family member; quits for a job that did not pan out (because of, say, a rescinded offer); quits by a worker who had to quit to relocate for a spouse’s job; and quits made under “constructive discharge,” i.e., a situation in which a worker enduring harassment or unsafe working conditions cannot continue in the position. Applying for unemployment for any of these reasons requires appealing an initially denied claim, which can be a difficult-to-prove and protracted process. In 2021, an average of 26.4% of claimant appeals were awarded by lower authorities, ranging from 10.7% in Texas to 58.3% in California; at the end of that year, 75% of all pending appeals cases were 41–360 days old, and 9% were more than 360 days old (U.S. Department of Labor 2021).

Without help from unemployment insurance, workers must finance the spell on their own (though it is important to note that unemployment insurance benefits are not generous, and beneficiaries would not likely be able to cover all expenses without additional financial resources). Most workers would likely seek help from their families (Edwards 2020; Edwards and Wenger 2019), and some might move in with a family member during the process (Wiemers 2014). But not every worker has a family relationship that includes financial support, and not every spouse earns enough to support two workers. Family support is a privilege, not a given.

The median duration of unemployment in the U.S. ranges from nine to 20 weeks, depending on the overall unemployment rate (Bureau of Labor Statistics 2021). Even assuming the shortest duration of nine weeks, a worker must cover two months of living expenses: rent or a mortgage, utilities, food, health insurance, and perhaps child care. In 2019, the median family had $5,300 across savings accounts, checking accounts, prepaid cards, and money market funds. However, the median family income was also $58,000, and those with lower incomes would have much less or even nothing saved (Bhutta, Bricker, et al. 2020). Also in 2019, 37% of families did not have enough cash on hand to cover a $400 emergency expense, a proximate indication of having less than $400 in savings (Federal Reserve 2021).

Having two months of living expenses saved can be difficult for cash-strapped households, even with assistance. The JP Morgan Chase Institute analyzed the balances of its account holders in the months after the U.S. government, in response to the COVID-19 pandemic, sent economic impact payments to American households in April 2020 and January 2021. Account balances grew after the payments, with the largest increases occurring in the accounts of the lowest-income households. But within six months, balances were steadily declining, with larger increases and steeper falls for the lowest income (Farrell et al. 2020; Greig, Deadman, and Noel 2021). The advanced child tax credit payments in place from July to December 2021 further buoyed account balances, particularly for low-income households (Greig, Deadman, and Sonthalia 2022), but throughout this period balances for the lowest-income households (with incomes from $12,000 to $26,000) ranged from $1,000 to $2,000.

Of course, the expenses arising from deciding to become unemployed are not unexpected. A worker could save for that goal, but how reasonable is it to assume that a worker is able to do so? Lower-income families are less likely to save and, if saving, save at lower rates, due not to a preference against saving but to practical limitations in doing so (Dynan, Skinner, and Zeldes 2004). For example, rent often rises much faster than incomes, presenting an acute challenge to accruing savings. The price for average rents in U.S. cities increased 73% between 2000 and 2019, while median income rose by just 10%. Just before the pandemic, 38% of renting households were rent burdened, meaning that they spent more than 30% of their income on rent, and 17% were severely rent burdened, spending more than 50%. Of these rent-burdened households, two-thirds did not have $400 in savings and half had functionally nothing in savings (Pew Research Center 2018). Rent is just one part of the household budget, but illustrative of the overall challenges in maintaining savings under the financial pressure of expenses and the often unpredictability of income (Morduch and Schneider 2019).

C. Moving

Many of the labor market constraints a worker faces could be lifted or lessened if the worker were willing to move.

Moving is not uncommon. Between 2015 and 2019, roughly 13% of Americans moved residence each year, though the vast majority of those moves (65%) were within the same county. For our purposes, that means they were likely (though not necessarily, as noted in the example of Harlem labor markets) within the same labor market. Within-state cross-county moves accounted for an additional 17% of moves, and cross-state moves accounted for 14% (Frost 2020). Together, that means only 2% of Americans move out of their county (in-state) and an additional 2% move out of their state in a year. Across all moves, just one in five are job related, and moving within the U.S. for job-related reasons has been declining (Jia et al. 2022; Molloy, Smith, and Wozniak 2011, 2017).

Moving is not costless, and it may not be feasible even if a higher-paying job awaits. Renters must often pay two months of rent upfront—one for the first month’s rent and one for a security deposit—and although a security-deposit refund may be due from their prior residence, states vary in how quickly a landlord is required to pay over the funds (some states allow as many as 60 days). For the 65% of Americans in households who own their primary home, the timing frictions are greater, since they often must sell their current home (which could incur risks, as it is often the largest component of total wealth (Bhutta, Bricker, et al. 2020; Bricker et al. 2020). Homeowners could be paying for housing in both locations for a long period.

Moving also entails material and time costs. According to recent data the cost to hire movers for an in-town move of a studio apartment can be $400 (Perry and Allen 2021), and though renting a truck could be as low as $20 plus mileage (U-Haul International n.d.), not all workers have the physical capability to move themselves. About 20.1 million Americans age 18–64 have disabilities, half of which are ambulatory disabilities (U.S. Census Bureau 2021). Moreover, moving may entail the loss of social or family networks.

And much like in the labor market, there is persistent and well-documented discrimination in the housing market. The Department of Housing and Urban Development, using paired testing in which two prospective renters or buyers are sent to find housing in a locality, has found that Black, Hispanic, and Asian renters are told about and shown fewer units than white renters, and Black and Asian home buyers are shown fewer homes (U.S. Department of Housing and Urban Development 2014; Urban Institute 2015). Discrimination also occurs in the home appraisal process, reducing the equity individuals receive from their homes (Gunderson 2021; Kamin 2021; McMullen 2021; Rothstein 2017). While this loss may not prevent a worker from moving to take a job, it can increase the opportunity cost of selling.

D. Borrowing and wealth

One strategy for dealing with financial constraints of job switching is borrowing. With access to credit, workers should be able to smooth out job transition costs.

Access to credit, however, is not universal: 5% of Americans are “unbanked,” meaning they do not have access to a bank account and must rely on alternative financial services, and 17% do not have access to a credit card. For individuals in households with less than $25,000 in income, 16% are unbanked and 44% do not have a credit card (Federal Reserve 2021). For reference, $25,000 of annual income for a full-time, full-year worker translates to an hourly wage of $12.02, or $4.77 higher than the federal minimum wage of $7.25 and higher than the minimum wage in 37 states as of January 1, 2022 (U.S. Department of Labor 2022).

Access to credit also reflects clear racial differences. Blacks and Hispanics are denied credit at roughly twice the rate of whites, even within the same income groups. As shown in Table 1, which summarizes findings from the Federal Reserve’s annual report on the economic well-being of U.S. households, the share of Black and Hispanic adults denied credit is nearly twice and in some cases three times as high as the denial rate for white adults, regardless of income. Among families with $100,000 or more in income, only 7% of white adults were denied credit compared with nearly one in four—23%—of Black adults.

Table 1

Black and Hispanic Americans also have considerably less wealth than white Americans. In 2019, the median wealth of white families was $188,200, about eight times higher than the median wealth of Black families, at $24,100, and five times higher than Hispanic wealth, at $36,100. Differences in average wealth are wide as well: $983,400 for white families, $142,500 for Black families, and $165,500 for Hispanic families (Bhutta, Chang, et al. 2020). Research has found that being Black is a stronger predictor of wealth than the type of job an individual has (Addo and Darity 2021).

Disparities in banking, credit, and wealth are directly related to a workers’ ability to smooth out financial constraints. For example, in an emergency, families can draw on their cash and their near-liquid equity assets such as stocks, mutual funds, and retirement accounts Among white families, virtually all (98.8%) hold cash, averaging $8,100, and 60.8% have equity holdings, averaging $50,600. Extremely high shares of Black and Hispanic families have cash (96.8% and 95.5%, respectively), but their average balances are much lower, at $1,500 and $2,000. Only 33.5% of Black families have equity holdings (average value $14,400), as do just 24.2% of Hispanic families (average value $14,900) (Bhutta, Chang, et al. 2020).

Access to credit, liquid assets, and equity is a key component of preventing financial hurdles from becoming financial constraints. Not all Americans have credit, cash, or equity, and those disparities are present by income and race. Translated to the financial hurdles of worker mobility, lower-wage earners and workers of color are less mobile that their higher-income or white peers.

V. Conclusion

The evidence presented here shows how worker mobility is limited in the U.S. Searching for and securing another job requires time and endurance, and switching to another job can be costly. The theoretical context of these findings is dynamic monopsony: the harder it is for a worker to leave, the more power an employer has over that worker’s wages.

About the author

Kathryn Anne Edwards (Kathryne@rand.org) is an economist at the RAND Corporation and a professor at the Pardee RAND Graduate School. Her research focuses on the intersection of labor markets and public policy, including unemployment and unemployment insurance, women’s labor supply after children, the challenge facing women in retirement, poverty alleviation, and Social Security.

References

Addo, Fenaba R., and William A. Darity. 2021. “Disparate Recoveries: Wealth, Race, and the Working Class after the Great Recession.” 695 Annals of the American Academy of Political and Social Science 173. doi: 10.1177/00027162211028822.

Adler, Lou. 2016. “New Survey Reveals 85% of All Jobs Are Filled via Networking.” LinkedIn. https://www.linkedin.com/pulse/new-survey-reveals-85-all-jobs-filled-via-networking-lou-adler/.

Ashenfelter, Orley C., Henry S. Farber, and Michael R. Ransom. 2010. “Modern Models of Monopsony in Labor Markets: A Brief Survey.” IZA Discussion Paper No. 4915. doi: 10.2139/ssrn.1599013.

Azar, José, Ioana Marinescu, Marshall Steinbaum, and Bledi Taska. 2020. “Concentration in U.S. Labor Markets: Evidence from Online Vacancy Data.” 66 Labour Economics 101886. doi: 10.1016/j.labeco.2020.101886.

Benmelech, Efraim, Nittai K. Bergman, and Hyunseob Kim. 2020. “Strong Employers and Weak Employees: How Does Employer Concentration Affect Wages?” Journal of Human Resources, December 14. doi: 10.3368/jhr.monopsony.0119-10007R1.

Benson, Alan, Aaron Sojourner, and Akhmed Umyarov. 2020. “Can Reputation Discipline the Gig Economy? Experimental Evidence from an Online Labor Market.” 66 Management Science 1802. doi: 10.1287/mnsc.2019.3303.

Bertrand, Marianne, and Sendhil Mullainathan. 2004. “Are Emily and Greg More Employable than Lakisha and Jamal? A Field Experiment on Labor Market Discrimination.” 99 American Economic Review 991. doi: 10.1257/0002828042002561.

Bhutta, Neil, Jesse Bricker, Andrew Change, Lisa Dettling, Serena Goodman, Joanne Hsu, Kevin Moore, Sarah Reber, Alice Henriques Volz, and Richard Windle. 2020. “Changes in U.S. Family Finances from 2016 to 2019: Evidence from the Survey of Consumer Finances.” 106 Federal Reserve Bulletin 1.

Bhutta, Neil, Andrew C. Chang, Lisa J. Dettling, and Joanne Hsu. 2020. “Disparities in Wealth by Race and Ethnicity in the 2019 Survey of Consumer Finances.” FEDS Notes, September 28.

Bricker, Jesse, Sarena Goodman, Kevin B. Moore, Alice Henriques Volz, and Dalton Ruh. 2020. “Wealth and Income Concentration in the SCF: 1989–2019.” FEDS Notes, September 28.

Brown, Jeff. 2020. “Nearly 50 Years of Occupational Safety and Health Data.” 9 Beyond the Numbers, n.p.

Brown, Meta, Elizabeth Setren, and Giorgio Topa. 2016. “Do Informal Referrals Lead to Better Matches? Evidence from a Firm’s Employee Referral System.” 34 Journal of Labor Economics 161. doi: 10.1086/682338.

Burd, Charlynn, Michael Burrows, and Brian McKenzie. 2021. Travel Time to Work in the United States: 2019. ACS-47. U.S. Census Bureau.

Bureau of Labor Statistics. 2019a. “Table A-1. Time Spent in Detailed Primary Activities and Percent of the Civilian Population Engaging in Each Activity.” https://www.bls.gov/tus/a1-2019.pdf.

Bureau of Labor Statistics. 2019b. “Table A-6A. Time Spent in Primary Activities and the Percent of Married Mothers and Fathers Who Did the Activities on an Average Day by Employment Status, Average for the Combined Years 2015-19.” https://www.bls.gov/tus/tables/a6-1519.htm.

Bureau of Labor Statistics. 2020. “Table 1. Employed Persons Who Teleworked or Worked at Home for Pay at Any Time in the Last 4 Weeks Because of the Coronavirus Pandemic by Selected Characteristics.” https://www.bls.gov/cps/effects-of-the-coronavirus-covid-19-pandemic.htm.

Bureau of Labor Statistics. 2021a. “National Compensation Survey: Employee Benefits in the United States, March 2021.” https://www.bls.gov/ncs/ebs/benefits/2021/home.htm.

Bureau of Labor Statistics. 2021b. “Table A-12. Unemployed Persons by Duration of Unemployment.” https://www.bls.gov/webapps/legacy/cpsatab12.htm/Table-A-12-Unemployed-persons-by-duration-of-unemployment.

Card, David. 2022. “Who Set Your Wage?” Presidential Address to the Annual Meetings of the American Economic Association, January 8. https://www.aeaweb.org/articles?id=10.1257/aer.112.4.1075.

Card, David, Alexandre Mas, Enrico Moretti, and Emmanuel Saez. 2012. “Inequality at Work: The Effect of Peer Salaries on Job Satisfaction.” 102 American Economic Review 2981. doi: 10.1257/aer.102.6.2981.

Care.com. 2021. “This Is How Much Child Care Costs in 2021.” Care.Com Resources. https://www.care.com/c/how-much-does-child-care-cost/.

Cuesta, Maite Blázquez, and Wiemer Salverda. 2009. “Low-Wage Employment and the Role of Education and On-the-Job Training.” 23 Labour 5. doi: 10.1111/j.1467-9914.2008.00431.x.

Dahl, Gordon B., and Matthew M. Knepper. 2021. Why Is Workplace Sexual Harassment Underreported? The Value of Outside Options amid the Threat of Retaliation. Working Paper No. 29248. National Bureau of Economic Research. doi: 10.3386/w29248.

Dalton, Michael, and Jeffrey Groen. 2020. “How Do Jobseekers Search for Jobs? New Data on Applications, Interviews, and Job Offers.” 9 Beyond the Numbers, n.p.

Davis, Joanna, Hans-Georg Wolff, Monica L. Forret, and Sherry E. Sullivan. 2020. “Networking via LinkedIn: An Examination of Usage and Career Benefits.” 118 Journal of Vocational Behavior 1. doi: 10.1016/j.jvb.2020.103396.

Desilver, Drew. 2020. Before the Coronavirus, Telework Was an Optional Benefit, Mostly for the Affluent Few. Pew Research Center. https://www.pewresearch.org/fact-tank/2020/03/20/before-the-coronavirus-telework-was-an-optional-benefit-mostly-for-the-affluent-few/.

Dingel, Jonathan I., and Brent Neiman. 2020. How Many Jobs Can Be Done at Home? Working Paper No. 26948. National Bureau of Economic Research. doi: 10.3386/w26948.

Dube, Arindrajit, Alan Manning, and Suresh Naidu. 2018. Monopsony and Employer Mis-Optimization Explain Why Wages Bunch at Round Numbers. Working Paper No. 24991. National Bureau of Economic Research. doi: 10.3386/w24991.

Dynan, Karen E., Jonathan Skinner, and Steve Zeldes. 2004. “Do the Rich Save More?” 112 Journal of Political Economy 397.

Edwards, Kathryn Anne. 2020. “Who Helps the Unemployed? Workers’ Receipt of Public and Private Transfers.” 9 IZA Journal of Labor Economics 1. doi: 10.2478/izajole-2020-0004.

Edwards, Kathryn Anne, and Jeffrey B. Wenger. 2019. “Parents with an Unemployed Adult Child: Consumption, Income, and Savings Effects.” 8 IZA Journal of Labor Economics 1. doi: 10.2478/izajole-2019-0001.

Enrico, Moretti. 2011. “Local Labor Markets.” In Handbook of Labor Economics, Vol. 4, edited by D. Card and O. Ashenfelter, 1237. Elsevier.

Farooq, Ammar, and Adriana Kugler. 2022. “Impacts of Public Health Insurance on Occupational Upgrading.” 75 ILR Review 225. doi: 10.1177/0019793920928066.

Farooq, Ammar, Adriana D. Kugler, and Umberto Muratori. 2020. Do Unemployment Insurance Benefits Improve Match Quality? Evidence from Recent U.S. Recessions. Working Paper No. 27574. National Bureau of Economic Research. doi: 10.3386/w27574.

Farrell, Diana, Erica Deadman, Fiona Greig, and Pascal Noel. 2020. Household Cash Balances during COVID-19: A Distributional Perspective. JP Morgan Chase Institute.

Federal Reserve. 2021. Report on the Economic Well-Being of U.S. Households in 2020. https://www.federalreserve.gov/publications/2021-economic-well-being-of-us-households-in-2020-overall-financial-well-being-in-2020.htm.

Federal Reserve Bank of New York. 2022. Survey of Consumer Expectations. https://www.newyorkfed.org/microeconomics/sce/labor#/.

Fok, Yin King, Rosanna Scutella, and Roger Wilkins. 2015. “The Low-Pay No-Pay Cycle: Are There Systematic Differences across Demographic Groups?” 77 Oxford Bulletin of Economics and Statistics 872. doi: 10.1111/obes.12084.

Forsythe, Eliza, and Jhih-Chian Wu. 2021. “Explaining Demographic Heterogeneity in Cyclical Unemployment.” 69 Labour Economics 1. doi: 10.1016/j.labeco.2020.101955.

Frost, Riordan. 2020. Who Is Moving and Why? Joint Center for Housing Studies.

Gaddis, S. Michael. 2015. “Discrimination in the Credential Society: An Audit Study of Race and College Selectivity in the Labor Market.” 93 Social Forces 1451. doi: 10.1093/sf/sou111.

Goldstein, Amy. 2018. Janesville. Simon and Schuster.

Granovetter, Mark S. 1973. “The Strength of Weak Ties.” 78 American Journal of Sociology 1360. doi: 10.1086/225469.

Greig, Fiona, Erica Deadman, and Pascal Noel. 2021. Family Cash Balances, Income, and Expenditures Trends through 2021. JP Morgan Chase Institute.

Greig, Fiona, Erica Deadman, and Tonya Sonthalia. 2022. Household Pulse: The State of Cash Balances at Year End. JP Morgan Chase Institute.

Grittner, Amanda, and Matthew S. Johnson. 2021. Deterring Worker Complaints Worsens Workplace Safety: Evidence from Immigration Enforcement. SSRN Scholarly Paper No. 3943441. Social Science Research Network. doi: 10.2139/ssrn.3943441.

Gruber, Jonathan, and Brigitte C. Madrian. 1994. “Health Insurance and Job Mobility: The Effects of Public Policy on Job-Lock.” 48 ILR Review 86. doi: 10.2307/2524628.

Gunderson, Erica. 2021. “Home Appraisal Discrimination Puts a Dent in Black Wealth.” WTTW News, October 16.

Guyot, Katherine, and Richard V. Reeves. 2020. “Unpredictable Work Hours and Volatile Incomes Are Long-Term Risks for American Workers.” Brookings. https://www.brookings.edu/blog/up-front/2020/08/18/unpredictable-work-hours-and-volatile-incomes-are-long-term-risks-for-american-workers/.

Harvard T.H. Chan School of Public Health. 2016. “Child Care and Health in America.” NPR/Robert Wood Johnson Foundation/Harvard School of Public Health. https://www.rwjf.org/en/library/research/2016/10/child-care-and-health-in-america.html.

Harvard T.H. Chan School of Public Health. 2021. “Household Experiences in America During the Delta Variant Outbreak.” NPR/Robert Wood Johnson Foundation/Harvard School of Public Health. https://www.rwjf.org/en/library/research/2016/10/child-care-and-health-in-america.html.

Hochschild, Arlie, and Anne Machung. 2012. The Second Shift: Working Families and the Revolution at Home. Penguin Random House.

Hubener, Evan, Arcenis Rojas, and Neil Tseng. 2018. “Tradeoffs in the Expenditure Patterns of Families with Children.” 7 Beyond the Numbers, n.p.

Ioannides, Yannis M., and Linda Datcher Loury. 2004. “Job Information Networks, Neighborhood Effects, and Inequality.” 42 Journal of Economic Literature 1056. doi: 10.1257/0022051043004595.

Jia, Ning, Raven Molloy, Christopher Smith, and Abigail Wozniak. 2022. “The Economics of Internal Migration: Advances and Policy Questions.” Finance and Economics Discussion Series (FEDS). https://www.aeaweb.org/articles?id=10.1257/jel.20211623&&from=f.

Judes, Alexandre, Pawel Adrjan, and Tara Sinclair. 2021. “Will Remote Work Persist after the Pandemic?” Indeed Hiring Lab. https://www.hiringlab.org/2021/12/16/will-remote-work-persist-after-the-pandemic/.

Kamin, Debra. 2021. “Black Homeowners Face Discrimination in Appraisals.” New York Times, August 25.

Kent, Erin E., Janet S. de Moor, Jingxuan Zhao, Donatus U. Ekwueme, Xuesong Han, and K. Robin Yabroff. 2020. “Staying at One’s Job to Maintain Employer-Based Health Insurance among Cancer Survivors and Their Spouses/Partners.” 6 JAMA Oncology 929. doi: 10.1001/jamaoncol.2020.0742.

Kline, Patrick, Evan K. Rose, and Christopher Walters. 2021. Systemic Discrimination among Large U.S. Employers. SSRN Scholarly Paper No. 3898669. Social Science Research Network. doi: 10.2139/ssrn.3898669.

Kolko, Jed. 2021. “Remote Job Postings Double During COVID-19.” Indeed Hiring Lab. https://www.hiringlab.org/2021/03/16/remote-job-postings-double/.

Krings, Franciska, Irina Gioaba, Michèle Kaufmann, Sabine Sczesny, and Leslie Zebrowitz. 2021. “Older and Younger Job Seekers’ Impression Management on LinkedIn.” 20 Journal of Personnel Psychology 61. doi: 10.1027/1866-5888/a000269.

Levine, David I., Michael W. Toffel, and Matthew S. Johnson. 2012. “Randomized Government Safety Inspections Reduce Worker Injuries with No Detectable Job Loss.” 336 Science 907. doi: 10.1126/science.1215191.

Li, Ling, and Perry Singleton. 2019. “The Effect of Workplace Inspections on Worker Safety.” 72 ILR Review 718. doi: 10.1177/0019793918801575.

Lyons-Ruth, Karlen, Rebecca Wolfe, Amy Lyubchik, and Ronald Steingard. 2002. “Depressive Symptoms in Parents of Children under Age 3: Sociodemographic Predictors, Current Correlates, and Associated Parenting Behaviors.” In Child Rearing in America: Challenges Facing Parents with Young Children, edited by Neal Halfon, Kathryn Taaffe McLearn, and Mark A. Schuster, 217. Cambridge University Press.

Madrian, Brigitte C. 1994. “Employment-Based Health Insurance and Job Mobility: Is There Evidence of Job-Lock?” 109 Quarterly Journal of Economics 27. doi: 10.2307/2118427.

Maestas, Nicole, Kathleen J. Mullen, David Powell, Till von Wachter, and Jeffrey B. Wenger. 2018. The Value of Working Conditions in the United States and Implications for the Structure of Wages. Working Paper No. 25204. National Bureau of Economic Research. doi: 10.3386/w25204.

Manning, Alan. 2003. Monopsony in Motion: Imperfect Competition in Labor Markets. Princeton University Press.

Manning, Alan. 2021. “Monopsony in Labor Markets: A Review.” 74 ILR Review 3. doi: 10.1177/0019793920922499.

Manning, Alan, and Barbara Petrongolo. 2017. “How Local Are Labor Markets? Evidence from a Spatial Job Search Model.” 107 American Economic Review 2877. doi: 10.1257/aer.20131026.

Martin, Michael. 2018. “Computer and Internet Use in the United States, 2018.” American Community Survey Reports. https://www.census.gov/content/dam/Census/library/publications/2021/acs/acs-49.pdf.

Matos, Kenneth, Ellen Galinsky, and James Bond. 2017. National Study of Employers. Families and Work Institute, Society for Human Resource Management.

McCall, Brian, and Wei Chi. 2008. “Unemployment Insurance, Unemployment Durations, and Re-Employment Wages.” 99 Economics Letters 115. doi: 10.1016/j.econlet.2007.06.006.

McDonald, Steve. 2011. “What’s in the ‘Old Boys’ Network? Accessing Social Capital in Gendered and Racialized Networks.” 33 Social Networks 317. doi: 10.1016/j.socnet.2011.10.002.

McDonald, Steve. 2015. “Network Effects across the Earnings Distribution: Payoffs to Visible and Invisible Job Finding Assistance.” 49 Social Science Research 299. doi: 10.1016/j.ssresearch.2014.08.016.

McMullen, Troy. 2021. “For Black Homeowners, a Common Conundrum with Appraisals.” Washington Post, January 21.

Mishel, Larry. 2022. The Missing Clause in ‘Freedom of Contract’: Full Employment. Economic Policy Institute.

Mistry, Ritesh, Gregory D. Stevens, Harvinder Sareen, Roberto De Vogli, and Neal Halfon. 2007. “Parenting-Related Stressors and Self-Reported Mental Health of Mothers with Young Children.” 97 American Journal of Public Health 1261. doi: 10.2105/AJPH.2006.088161.

Modestino, Alicia Sasser, Daniel Shoag, and Joshua Ballance. 2020. “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?” 102 Review of Economics and Statistics 793. doi: 10.1162/rest_a_00835.

Molloy, Raven, Christopher L. Smith, and Abigail Wozniak. 2011. “Internal Migration in the United States.” 25 Journal of Economic Perspectives 173. doi: 10.1257/jep.25.3.173.

Molloy, Raven, Christopher L. Smith, and Abigail Wozniak. 2017. “Job Changing and the Decline in Long-Distance Migration in the United States.” 54 Demography 631. doi: 10.1007/s13524-017-0551-9.

Mosthaf, Alexander, Thorsten Schank, and Claus Schnabel. 2014. “Low-Wage Employment versus Unemployment: Which One Provides Better Prospects for Women?” 3 IZA Journal of European Labor Studies 21. doi: 10.1186/2193-9012-3-21.

Mosthaf, Alexander, Claus Schnabel, and Jens Stephani. 2011. “Low-Wage Careers: Are There Dead-End Firms and Dead-End Jobs?” 43 Zeitschrift für ArbeitsmarktForschung 231. doi: 10.1007/s12651-010-0036-4.

Muhl, Charles J. 2001. “The Employment-at-Will Doctrine: Three Major Exceptions.” Monthly Labor Review (January) 3.

Naidu, Suresh, and Michael Carr. 2022. “If You Don’t Like Your Job, Can You Always Quit?” Economic Policy Institute.

Naidu, Suresh, Eric A. Posner, and Glen Weyl. 2018. “Antitrust Remedies for Labor Market Power.” 132 Harvard Law Review 536.

Neumark, David, Junfu Zhang, and Stephen Ciccarella. 2008. “The Effects of Wal-Mart on Local Labor Markets.” 63 Journal of Urban Economics 405. doi: 10.1016/j.jue.2007.07.004.

Newman, Katherine S. 2000. No Shame in My Game: The Working Poor in the Inner City. 3rd Edition. Vintage.

Nyström, Kristina, and Gulzat Zhetibaeva Elvung. 2015. “New Firms as Employers: The Wage Penalty for Voluntary and Involuntary Job Switchers.” 29 Labour 348. doi: 10.1111/labr.12055.

O’Connell, Ann. 2020. “Deadline for Returning Security Deposits, State-by-State.” Nolo. https://www.nolo.com/legal-encyclopedia/chart-deadline-returning-security-deposits-29018.html.

Pager, Devah, Bruce Western, and Bart Bonikowski. 2009. “Discrimination in a Low-Wage Labor Market: A Field Experiment.” 75 American Sociological Review 777. doi: 10.1177/000312240907400505.

Perry, Christin, and Samantha Allen. 2021. “How Much Do Movers Cost?” Forbes Advisor.

Pew Research Center. 2015. Parenting in America. https://www.pewresearch.org/social-trends/2015/12/17/parenting-in-america/.

Pew Research Center. 2018. American Families Face a Growing Rent Burden. https://www.pewtrusts.org/en/research-and-analysis/reports/2018/04/american-families-face-a-growing-rent-burden.

Quillian, Lincoln, Devah Pager, Ole Hexel, and Arnfinn H. Midtbøen. 2017. “Meta-Analysis of Field Experiments Shows No Change in Racial Discrimination in Hiring over Time.” 114 Proceedings of the National Academy of Sciences 10870. doi: 10.1073/pnas.1706255114.

Rinz, Kevin. 2018. “Labor Market Concentration, Earnings Inequality, and Earnings Mobility.” Working Paper No. 2018-10. U.S. Census Bureau.

Rothstein, Richard. 2017. The Color of Law. Liverlight.

Schmutte, Ian M. 2015. “Job Referral Networks and the Determination of Earnings in Local Labor Markets.” 33 Journal of Labor Economics 1. doi: 10.1086/677389.

Schmutte, Ian M. 2016. “Labor Markets with Endogenous Job Referral Networks: Theory and Empirical Evidence.” 42 Labour Economics 30. doi: 10.1016/j.labeco.2016.06.005.

Schneider, Daniel, and Kristen Harknett. 2019. “Consequences of Routine Work-Schedule Instability for Worker Health and Well-Being.” 84 American Sociological Review 82. doi: 10.1177/0003122418823184.

Schubert, Gregor, Anna Stansbury, and Bledi Taska. 2021. Employer Concentration and Outside Options. SSRN Scholarly Paper No. 3599454. Social Science Research Network. doi: 10.2139/ssrn.3599454.

Schultz, Michael A. 2019. “The Wage Mobility of Low-Wage Workers in a Changing Economy, 1968 to 2014.” 5 RSF: The Russell Sage Foundation Journal of the Social Sciences 159. doi: 10.7758/rsf.2019.5.4.06.

Simon, Curtis J., and John T. Warner. 1992. “Matchmaker, Matchmaker: The Effect of Old Boy Networks on Job Match Quality, Earnings, and Tenure.” 10 Journal of Labor Economics 306.

Sockin, Jason. 2021. Show Me the Amenity: Are Higher-Paying Firms Better All Around? SSRN Scholarly Paper No. 3957002. Social Science Research Network. doi: 10.2139/ssrn.3957002.

Sockin, Jason, and Aaron Sojourner. 2020. What’s the Inside Scoop? Challenges in the Supply and Demand for Information on Employers. SSRN Scholarly Paper No. 3596666. Social Science Research Network. doi: 10.2139/ssrn.3596666.

Sockin, Jason, Aaron Sojourner, and Evan Starr. 2022. Non-Disclosure Agreements and Externalities from Silence. SSRN Scholarly Paper No. 3900285. Social Science Research Network. doi: 10.2139/ssrn.3900285.

Sockin, Jason, and Daniel Zhao. 2020. Why Do Candidates Reject Job Offers? Glassdoor. https://www.glassdoor.com/research/app/uploads/sites/2/2020/02/20-02-27-Glassdoor-Econ-JobRejection-Report.pdf.

Sojourner, Aaron, and Jooyoung Yang. 2022. “Effects of Union Certification on Workplace-Safety Enforcement: Regression-Discontinuity Evidence.” 75 ILR Review 373. doi: 10.1177/0019793920953089.

Sokolova, Anna, and Todd Sorensen. 2021. “Monopsony in Labor Markets: A Meta-Analysis.” 74 ILR Review 27. doi: 10.1177/0019793920965562.

Stansbury, Anna, and Lawrence Summers. 2020. “The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy.” Brookings Papers on Economic Activity (Spring).

Stelzner, Mark, and Kate Bahn. 2021. “Discrimination and Monopsony Power.” Review of Black Political Economy, June 18, n.p. doi: 10.1177/00346446211025646.

Stelzner, Mark, and Mark Paul. 2020. “Monopsony and Collective Action in an Institutional Context.” Review of Social Economy, October 7, n.p. doi: 10.1080/00346764.2020.1829017.

Stewart, Mark B. 2007. “The Interrelated Dynamics of Unemployment and Low-Wage Employment.” 22 Journal of Applied Econometrics 511. doi: 10.1002/jae.922.

Tenev, Nicholas H. 2020. “Social Connections and Racial Wage Inequality.” SocArXiv, May 13. https://osf.io/preprints/socarxiv/vm82w/.

Topel, Robert H., and Michael P. Ward. 1992. “Job Mobility and the Careers of Young Men.” 107 Quarterly Journal of Economics 439. doi: 10.2307/2118478.

U-Haul International. n.d. “U-Haul Truck Rentals: Moving Trucks for Local and One Way Moves.” https://www.uhaul.com/Truck-Rentals/.

Urban Institute. 2015. “Exposing Housing Discrimination.” https://www.urban.org/features/exposing-housing-discrimination.

U.S. Census Bureau. 2018. “Commuting Costs.” https://www2.census.gov/programs-surveys/ahs/2017/infographs/2017%20Housing%20Profile%20Commuting%20Costs.pdf.

U.S. Census Bureau. 2020. “Mode of Transportation to Work.” Table S0801. https://www2.census.gov/programs-surveys/commuting/guidance/acs-1yr/DY2019-Percent-drove-alone.pdf.

U.S. Census Bureau. 2021. “National Disability Employment Awareness Month: October 2021.” Stats for Stories. https://www.census.gov/newsroom/stories/disability-employment-awareness-month.html.

U.S. Department of Housing and Urban Development. 2014. “Paired Testing and the Housing Discrimination Studies.” Evidence Matters. https://www.huduser.gov/portal/periodicals/em/spring14/highlight2.html.

U.S. Department of Labor. 2021. “Unemployment Insurance Appeals Time Lapse and Average Age of Appeals.” https://oui.doleta.gov/unemploy/ui_insurance_appeal.asp.

U.S. Department of Labor. 2022. “Consolidated Minimum Wage Table.” https://www.dol.gov/agencies/whd/mw-consolidated.

Webber, Douglas A. 2015. “Firm Market Power and the Earnings Distribution.” 35 Labour Economics 123. doi: 10.1016/j.labeco.2015.05.003.

Wiczer, David. 2016. Nearly Half of Job Switchers Earn Less in Their New Roles. Federal Reserve Bank of St. Louis.

Wiemers, Emily E. 2014. “The Effect of Unemployment on Household Composition and Doubling Up.” 51 Demography 2155. doi: 10.1007/s13524-014-0347-0.

Willness, Chelsea R., Piers Steel, and Kibeom Lee. 2007. “A Meta-Analysis of the Antecedents and Consequences of Workplace Sexual Harassment.” 60 Personnel Psychology 127. doi: 10.1111/j.1744-6570.2007.00067.x.

Wilshire, Justin. 2022. Walmart Supercenters and Monopsony Power: How a Large, Low-Wage Employer Impacts Local Labor Markets. Washington Center for Equitable Growth.

“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.  Among the bad or arbitrary reasons that employers sometimes fire workers: something the worker said, or something they didn’t say. Employees have been fired, often without legal recourse, for criticizing their companies on social media, for running for office, or even for having a bumper sticker supporting a political candidate whose election the boss opposes. The freedom of speech that so many Americans valorize is in practical effect illusory for many American workers.

This report traces the legal rules governing freedom of speech at work. Following a summary that emphasizes the scope of the problem and gives examples, it begins by discussing the background rules of at-will employment, which establish that employers may generally terminate workers for what they say. This rule has its limits—for example, employers may not fire workers in contravention of a state’s explicit public policy—but judges tend to apply these exceptions in a patchy and inconsistent fashion. Further, because the First Amendment does not constrain private actors, private-sector workers cannot fall back on the constitution at all; even public-sector employers are often free to fire or discipline workers for their speech.

Beyond common law rules, the report also discusses federal, state, and local statutes that protect certain types of employee speech. These laws tend to apply only to specific subjects and manners of expression. For example, the National Labor Relations Act protects employees’ conversations about their working conditions—but only as long as those conversations occur at the right time, in the right place, and in the right manner. For example, among other limits, the NLRA protects only those conversations or meetings that occur during “nonwork time,” and the Trump NLRB has recently held that the NLRA does not protect employees’ use of their work-issued email addresses. Likewise, some states and localities forbid employers from retaliating against employees for their political views. But each of those laws has serious limitations in coverage, enforcement, or both. Worse, employers sometimes challenge even limited protections for workers’ expression on the grounds that those protections violate the employer’s own rights under the First Amendment.

Finally, some workers have meaningful contractual protections that curb the effects of the at-will doctrine, including as it applies to their speech and expression. But workers cannot achieve these protections without either individual or collective power, both of which have eroded for many workers over the last 80 years. The result is that one real source of protection for workers who speak out—collective bargaining agreements in which employers agree to discipline or fire workers only for good cause—are increasingly out of reach, especially for private-sector workers.

This report aims to help readers understand the legal landscape that effectuates the “freedom of speech” at work. It shows how employers have come to monopolize that freedom for themselves, and why workers experience speech control instead of speech freedom.

I. Introduction

Americans are divided on any number of fundamental questions, but a recent poll shows broad support for free speech: “Seventy-one percent of Americans think that people should be able to say what they want without state or government censorship” (Gray 2016). But many U.S. workers are not really free to speak their minds, and it’s not the government censoring them but their bosses, even when the workers are off duty and even when they are outside of work. This paper discusses the reasons for—and limits of—employer control over employees’ expression.

In 49 U.S. states—every one except Montana—the default setting for private-sector, nonunion employment is “at-will,” which is often described as employment from which employees can be fired for a bad reason, an arbitrary reason, or no reason at all.1 One employment law casebook describes the at-will rule like this: “the employer [is] free to impose any conditions of employment, to discharge an employee at any time for any reason, and to effect the discharge in virtually any manner” (Rothstein, Liebman, and Yuracko 2015).2 The philosopher Elizabeth Anderson has emphasized the consequences of employers’ freedom under the at-will rule, characterizing private-sector employment as a form of “private government,” and a dictatorial one at that. Anderson rightly emphasizes that employers often have the power to fire employees because of their out-of-work speech and other off-duty activities—a reality of which many employees are unaware. Of course, private employers are not the same as government—Anderson points out that government can often impose much harsher penalties than employers can.3 Likewise, while workers often face practical barriers to changing jobs, it is still generally easier to change jobs than to immigrate to a new country. At the same time, “private governments impose a far more minute, exacting, and sweeping regulation of employees than democratic states do in any domain outside of prisons and the military” (Anderson 2017, 63). In other words, employers’ freedom to fire employees for bad or arbitrary reasons is in essence a freedom to control employees’ behavior in significant ways, even when they are off the clock.

The at-will default is nominally evenhanded, in the sense that employees are also free to quit their jobs for any reason, at any time, and in any manner. But, as other papers in the Unequal Power initiative show, workers operate under a host of constraints that limit their practical ability to quit. A weak social safety net, uncertainty about how easy it will be to find another job, and family obligations that prevent someone from moving for work can all leave employees stuck working for controlling or abusive employers—and the next employer might be just as bad (Edwards 2022). The rarity of full employment makes quitting and switching jobs problematic, especially for Blacks and workers lacking a college credential (Mishel 2022). And even when wages are cut workers do not quit to the extent that economic theory posits, indicating that employer power is pervasive (Naidu and Carr 2022).

Employees’ dependence on their employers for life’s necessities, coupled with the at-will default, means that employers can often exercise vast authority over their employees’ lives, including their speech and association. Consider the following examples:

• Unionized workers were compelled to choose between attending a Trump rally, using a day of paid time off, or staying home without pay; workers who chose to attend were apparently cautioned not to do or say anything that could be “viewed as resistance” (Allyn 2019). Of course, these choices might have been even tougher if the workers had not been protected by a union contract; in 2012, a group of nonunion mineworkers said they were ordered to “give up a day’s pay” in order to attend a Mitt Romney campaign event (Bradford 2017).

• Workers have been fired for expressing support for the political candidates not supported by their bosses. For example, a worker reported that she was fired because she had a Kerry-Edwards bumper sticker; her boss was a Bush supporter (Noah 2004). Juli Briskman, the marketing analyst who in 2017 communicated her disdain for Trump administration policies by flipping off a presidential motorcade, was fired, reportedly for violating a “company policy banning obscene content on social media” (Cassens Weiss 2018). Briskman sued, but her case was dismissed because Virginia, like nearly all states, is an at-will jurisdiction.

• Workers may also face pressure from their bosses to donate to or vote for a particular candidate. Mitt Romney famously encouraged this practice, telling business owners to “make it very clear to your employees what you believe is in the best interest of your enterprise and therefore their job and their future in the upcoming elections.” He noted that there was “nothing illegal about you talking to your employees about what you believe is best for the business, because I think that will figure into their election decision, their voting decision, and of course doing that with your family and your kids as well” (Phelan 2012). In fact, one in four private-sector employees said in a 2015 survey that they received political messages or requests from their bosses (Hertel-Fernandez 2018).

• A worker was required to take part in Bible study during working hours and was told he would be fired if he refused. This was likely illegal, but the worker, who had served time in prison, was “fearful that he wouldn’t be able to find other work,” so he “stuck with the weekly, hourlong Bible study sessions for six months” (Green 2018).

• During the COVID-19 pandemic, workers lost their jobs for raising questions about whether their workplaces were putting them (or members of the public) in danger (see, e.g., Stone 2020; Scheiber and Rosenthal 2020), and others were prohibited from revealing their own positive COVID diagnoses to their coworkers (Eidelson 2020).

On the other hand, there is some expression for which employers cannot legally fire their employees. For example, employers cannot fire employees for reporting discrimination to the Equal Employment Opportunity Commission (EEOC) or for discussing their respective salaries in the workplace breakroom; retaliating against employees in these situations would violate Title VII of the Civil Rights Act and the National Labor Relations Act, respectively. These examples reflect how the at-will default has been modified by federal, state, or local laws that protect from employer retaliation certain kinds of worker expression. Employees and employers can also modify the at-will default by contract, a reality reflected in most collective bargaining agreements—though only a small minority of American workers are covered by them.

These exceptions mean that whether an employer is constrained from firing an employee because of something the employee has said turns on three main questions. The first is whether the employee is protected by an individual contract or a collective bargaining agreement that overrides that at-will default, and instead sets out specific conditions that must exist before a worker can be disciplined or fired. The second is whether there is a legal rule that protects the employee by creating an exception to the at-will default and, if so, whether there is an enforcement mechanism that is available to the employee as a practical matter. And the third is whether individual workers have market leverage—for example, is the employee too difficult to replace, or will the employee’s coworkers go on strike?

Too often, employees will find that none of the answers to these questions works in their favor. Others will not even know which questions to ask and will instead simply decide to remain quiet, fearing that if they say something that angers the boss, they might lose their jobs. This course represents potentially a loss to workers themselves, as well as to their larger workplace and political communities (Eidelson 2020). Some of these larger losses are easy to recognize: workers who fear employer retaliation might not speak out about harassment they are experiencing; they might not learn that they have a shared workplace complaint that they could jointly raise with their boss; they might not blow the whistle about dangerous or illegal company practices; and they might not speak up about an idea that would make the workplace run more efficiently. Other harms can be harder to see; for example, Cynthia Estlund has persuasively argued that “the workplace is the location where people come together for purposive, cooperative activity and where they gain or lose much of their sense of community and of self-worth” (Estlund 1995, 108). That insight highlights the moral and political dimensions of workers’ freedom of speech.

A meaningful freedom of speech for workers could come from two places. First, workers could have enough individual or collective power to secure their employers’ commitments to discipline or fire workers only for good reasons—that is, only when the worker has meaningfully harmed the employer or the employee’s coworkers. And, as the next section of this paper discusses, some U.S. workers have done just that through unionization and collective bargaining, or even through individual negotiations. But the vast majority of workers do not have contractual protections and instead have to rely on a second pathway to freedom of speech: a combination of whatever power they can muster in the moment, their employers’ sense of propriety, and—importantly—a patchwork of legal rules that prohibit employers from taking action against employees in certain circumstances. The bulk of this paper is taken up with explaining some of these rules and illustrating why they do not add up to meaningful free speech for workers. That is, employers are often able to suppress their employees’ speech on and off the job in the private sector and, to a lesser extent, the public sector.

This paper begins by discussing workers who often do have meaningful protections against employment consequences for their speech, either because of contractual commitments or because they live in one of a small number of U.S. jurisdictions that have reversed the at-will presumption. Then, it turns to legal rules that take certain worker statuses and activities out of the at-will arena. It begins with the National Labor Relations Act (NLRA), which undergirds both unionized and nonunionized workers’ collective power by protecting private-sector employees’ “concerted activity,” including speech related to working conditions—though with significant limitations. Among those limits: the law protects only “concerted” activity involving multiple employees; it applies only to topics with a sufficient nexus to the workplace; and workers can lose protection if they pursue collective action outside approved pathways. In addition, the NLRA imposes few constraints on employers, who are free to require employees to listen to a near-constant barrage of anti-union messages as long as those messages do not rise to the level of coercion.

Next, the paper turns to particular topics that can place employees at heightened risk of employer retaliation, such as employee speech about their own working conditions, the employer’s misdeeds, or the employee’s religious, social, or political views and beliefs. Importantly, there exist legal protections that cover employees’ speech on these topics, though, as the paper discusses, these protections are full of holes. For example, a long list of statutes provides at least some protection for employee whistleblowing—provided employees tell the right audience about what they have discovered. Likewise, workplace protections such as those found in anti-discrimination law are typically coupled with protections against employer retaliation, though these protections also have limitations that can be counterintuitive.

This report focuses on types of employee speech that can have considerable social value in addition to reflecting employees’ own autonomy interests; often, that social value is reflected in the fact that Congress, state legislatures, or other government bodies have established at least a degree of protection from the harshness of the at-will default when workers engage in these types of speech. Conversely, this report does not discuss some other types of worker speech over which employers often exert significant control. For example, employees’ job duties often involve speech—for example, a fast-food restaurant might require its cashiers to attempt to upsell customers to a larger size meal. Additionally, some worker speech harms others; for example, harassing speech, which can trigger employer liability under some circumstances. But even when liability is not on the table, employees may sometimes find their coworkers’ speech to be upsetting or annoying, and employers may be called upon to mediate these disputes. This paper touches only briefly on these issues.

Some readers might be surprised that a report about workers’ freedom to speak without facing employment consequences has not yet mentioned the First Amendment. Because the First Amendment constrains only government, not private individuals or entities,4 the First Amendment is not implicated when a private employer fires employees for their speech. However, the paper does close with two observations about First Amendment law as it relates to worker speech. First, public employees have limited First Amendment protections against being fired by their government employers when they speak as citizens, though these protections rarely cover public employees’ speech about their working conditions. Second, private employers can invoke the First Amendment when the government regulates their speech, which means there is a risk that courts will strike down government regulation of employer speech even when the regulation is intended to promote employee freedom. For example, if Congress amended the NLRA to require employers to remain neutral about the possibility of employee unionization, courts might then conclude that the change violates employers’ First Amendment rights, even though it would also promote employees’ speech and association.5

For at-will employees, the threat of employment consequences for their speech is considerably greater than the threat of government censorship. There exists a list of legal rules intended to constrain employers, but a combination of employer-friendly exceptions and the difficulties of enforcing rights means that employers retain extensive practical ability to punish workers for speech of which employers disapprove. Freedoms that many Americans hold dear thus stop at the boss’s door.

II. Reversing the at-will default

What do the examples in the introduction to this report have in common? They each involve speech: an employer either pressured its employees to express or suppress certain views, or punished an employee after the fact because of something the employee said. But at a higher level of abstraction, we might say that these examples each reflect the “bad reason” prong of the standard at-will formulation.6 These employees either were fired for a bad reason, or they were told to comply with a capricious or unjust workplace rule on pain of being fired (for a bad reason). Put this way, employer control over employee speech is one manifestation of employers’ control over workers generally.

If employer control over employee speech is a symptom, and the at-will rule is the diagnosis, then the cure would be to change the at-will default to one in which workers can be disciplined or fired only for “just cause.” Or, as Cynthia Estlund put it, “[d]ue process, in the form of a ‘just cause’ requirement for discharge and a fair hearing, would both bolster the existing protections of highly valued employee speech and, incidentally, generate some protection for less exalted forms of speech that simply do not justify the extreme sanction of discharge” (Estlund 1995, 104; see also Estlund 1996).

What counts as just cause can be malleable, but two commentators described the concept like this: “Just cause…embodies the idea that the employee is entitled to continued employment, provided he attends work regularly, obeys work rules, performs at some reasonable level of quality and quantity, and refrains from interfering with his employer’s business by his activities on or off the job” (Abrams and Nolan 1985, 594). This standard does not equate to absolute protection for workers’ speech and association, but it does mean that workers cannot be disciplined or fired simply because they have expressed an opinion with which their boss disagrees. Instead, the employer will have to demonstrate that the employee has actually harmed the employers’ legitimate interests.7

For a relatively small number of private-sector workers in American workplaces, this concept is already a reality: they are covered by a contract that contains just-cause protections, or they work in one of the small number of U.S. jurisdictions that have legislatively changed the at-will default. This section briefly describes contractual and statutory just-cause protections. It offers several reasons that they can be a useful and durable source of employment protection for employees, especially when coupled with enforcement mechanisms that mean workers do not have to rely on expensive and uncertain litigation or individual arbitration to enforce their rights. This discussion will also provide a backdrop for the next section, which turns to legal protections that limit the extent to which employers can fire or discipline employees for specific categories of expression.

A. Contractual just-cause protections and employee speech

Some private-sector workers benefit from contractual protection against termination for arbitrary or bad reasons. Tenured college professors fall into this category,8 as do workers who have negotiated employment contracts that list specific grounds on which the employer can terminate the contract. But these are the exception rather than the norm; there is no requirement that an employment relationship be memorialized in a written contract, and most U.S. employees work without one. Other employees may benefit from “implied” contracts, which are created when the employer makes a unilateral promise regarding the employment relationship, but, again, these are relatively rare, especially because employers can draft employment documents to avoid making any contractual incursions on at-will employment.9 Finally some employees—though only about 6% of private-sector workers—are covered by collective bargaining agreements, which are the main focus of this section (BLS 2022).

Collective bargaining agreements commonly overturn the presumption of at-will employment by including just-cause protections from termination. These provisions can vary in their language but are often quite straightforward. For example, the United Auto Workers’ collective bargaining agreement with Ford Motor Company states simply that Ford “retains the sole right to discipline and discharge employees for cause, provided that in the exercise of this right it will not act wrongfully or unjustly or in violation of the terms of this Agreement” (UAW and Ford Motor Company 2019, 17). Further, collective bargaining agreements may require progressive discipline for lesser infractions and require that disciplinary infractions be wiped from an employee’s slate after a period of time. And they typically include procedural protections; for example, most collective bargaining agreements include a grievance process that a union or employee can use to challenge discipline imposed without justification, and labor law requires employers to allow unionized employees to have a union representative present during interviews that may lead to discipline.10

Two features make collectively bargained just-cause provisions especially meaningful. First, the employer typically has the burden to show that it had just cause. Second, primary responsibility for enforcing a collective-bargaining agreement rests with the union, rather than individual employees. Unions, unlike individual employee plaintiffs, then become repeat players with enforcement expertise developed over time. Moreover, they are usually considerably better resourced than individual employees, perhaps even employing an attorney who does nothing but handle grievances arising under the union’s collective bargaining agreements. Thus, whereas employers often violate statutory labor and employment law with impunity because of barriers to effective enforcement, the enforcement of just-cause collective bargaining agreements can and should be routine.

B. Statutory good-cause protections

A small number of U.S. jurisdictions have overturned the at-will presumption by statute. Montana is the only state to do so; in addition, Puerto Rico and the Virgin Islands have passed similar laws, as has New York City with respect to fast-food workers and Philadelphia with respect to parking attendants.11 While these laws are similar in that they restrict employers from terminating employees without a good reason, there are some important enforcement-related differences that bear on their effectiveness. This section briefly compares the Montana statute to the New York City one.

Montana’s law requires that private-sector employers have “good cause” to fire employees, with good cause defined as “any reasonable job-related grounds for an employee’s dismissal based on” the employees’ “failure to satisfactorily perform job duties”; “disruption of the employer’s operation”; “material or repeated violation of an express provision of the employer’s written policies”; or “other legitimate business reasons.”12 The law is enforced by employees through litigation in state courts or in arbitration,13 and employees can recover damages, subject to some important limits.14

New York City’s law prohibits fast-food employers from firing workers without just cause, which the statue defines as “the fast food employee’s failure to satisfactorily perform job duties or misconduct that is demonstrably and materially harmful to the fast food employer’s legitimate business interests.”15 Additionally, the law mimics many collective bargaining agreements by requiring employers to follow a written progressive discipline policy in non-“egregious” cases.16 Other provisions make it harder for employers to evade the law by, for example, using layoffs or hours reductions to disguise decisions to terminate without good cause.17 And, as to enforcement, “any person, including any organization, alleging a violation” may file a lawsuit or demand a specialized arbitration process,18 and the city’s law department can also undertake enforcement proceedings against repeat violators.19

Requiring that employers have good cause to terminate or discipline an employee can be a significant source of protection for workers. But not all good-cause provisions are created equal: as the preceding paragraphs describe, Montana’s law is weaker than New York City’s on substance, and it is also harder to enforce. In other words, New York City’s law comes closer to replicating the protections that usually come with effective union representation, which means it has the potential to do more than the Montana law to deter employers from treating employees arbitrarily or with bad cause.

The at-will default is a central reason that employers can fire workers because of their speech, even when that speech does not harm production. Contractual or statutory just-cause protections can be an effective way to get to the root of the problem, especially when their enforcement mechanism is well-designed.

III. Legal protections for (some categories of) worker speech

Another approach to protecting valuable speech by workers is for legislatures to enact (or state courts to recognize in their decisions) protections for specific categories of worker speech. For example, labor law protects workers’ rights to join together to speak out about labor conditions; employment discrimination law protects workers who oppose discrimination at work; and whistleblower laws protect workers who report corporate wrongdoing to the authorities. Where these statutes apply, employers may not leverage their economic power over employees to demand silence. However, as discussed below, there are pitfalls to this approach: these statutory protections can apply in unpredictable ways, and, even where they apply, enforcement can be difficult or ineffective.

This section is organized around several types of worker speech that have (or at least may have) social value but that many employers would like to suppress. The discussion that follows is not intended to be a comprehensive treatise on legal protections for employees but instead to illustrate two general ideas: first, that there exists tremendous variation in the extent to which law protects workers’ speech; and second, that even within protected categories of worker speech, it is easy for workers to fall through the cracks, losing statutory protection and reverting to the at-will default.

The section begins with a fairly detailed discussion of the NLRA and its protection for workers’ collective action, before moving on to other topics. The extended discussion of the NLRA is partially illustrative—an example of how even broadly drafted statutory protections can leave workers to navigate a confusing array of exceptions and qualifications. It is also intended to give readers a more complete sense of how the landmark federal statute that is aimed at increasing workers’ bargaining power functions to protect (or not) workers’ speech about their working conditions.

A. Workers’ rights to criticize their working conditions and organize for improvements in those conditions

While the COVID-19 pandemic has been disruptive for everyone, essential frontline service workers have had to cope with especially dangerous and challenging conditions, risking their health to ensure that essential services continued. While some employers moved quickly to make their workplaces safer, others took a more lackadaisical approach. Especially in the latter scenario, workers often responded by demanding that their employers do more to keep them safe and also to recognize the burdens of work during the pandemic by increasing pay, improving sick leave, and more.

But employers sometimes responded to these requests by firing the “troublemakers.” For example, when Ben Bonnema and one of his coworkers became concerned about ventilation and unmasked customers at the Trader Joe’s where they worked, they wrote a letter to the company’s chief executive officer (CEO) requesting specific improvements; Bonnema’s boss then fired him with a written termination notice that invoked Bonnema’s “at-will” status and claimed Bonnema’s suggestions were “not in line with company values” (Shammas and Knowles 2021).

Bonnema’s situation is not unique. Though particulars differ from case to case, it is distressingly common for employees who work together to try to improve their pay or other working conditions to be fired, disciplined, or reprimanded. In these scenarios, the employer’s response serves a double purpose: getting rid of a squeaky wheel, and sending a message to other employees about the costs of expressing discontent.

Bonnema’s situation had a happy ending: after he tweeted about being fired, a labor lawyer offered to help. Soon after, Trader Joe’s agreed to reinstate Bonnema and take other remedial steps. This remedy was available because the National Labor Relations Act guarantees workers, even nonunion workers, the right to act together to improve their wages and working conditions—exactly what Bonnema and his coworker did when they wrote to the CEO.

This section focuses on the NLRA and discusses statutory limits to the at-will rule that apply when private-sector workers try to improve their working conditions.20 However, there are also significant limitations to the NLRA’s protection, and workers are vulnerable to discipline or discharge when they act outside the boundaries of that protection.

One caveat: in discussing the boundaries of the NLRA protection for workers’ speech and association, this section tells only part of the story. Courts have also undermined the NLRA’s protection for workers’ collective action by limiting the remedies available when employers violate the NLRA,21 authorizing employers to counter employees’ collective action with solidarity-destroying tactics,22 and more.

1. Collective voice at work: The NLRA and its limits

The National Labor Relations Act is one of the most important protections for private-sector employees’ speech. The 1935 statute declares that “inequality of bargaining power between employees who do not possess full freedom of association or actual liberty of contract” burdens the economy, including by “depressing wage rates and the purchasing power of wage earners in industry.”23 The NLRA’s solution—employee organizing and collective bargaining—is rooted in employees’ abilities to communicate about their working conditions with each other, their employers, and the public. Thus, § 7 of the NLRA states that employees have the right to engage in “concerted activities” for “mutual aid or protection,”24 and § 8(a)(1) of the act makes it illegal for employers to “interfere with, restrain, or coerce”25 employees who are exercising their § 7 rights. Importantly, this provision applies to both union and nonunion employees, making the NLRA an important source of protection for covered employees’ organizing to improve their own working conditions.26

At the same time, the NLRA’s limitations are many and varied. The statutory language is limited to employees’ “concerted activities for…mutual aid or protection,” meaning that workers’ speech can fall through the cracks if it is not collective, if it is targeted at a concern that is not workplace-related, or if it is not action-oriented. And courts interpreting the NLRA have sided with employer interests on some critically important questions,27 blunting the statute’s potential to level the playing field between employers and employees. Taken together, these limitations also make it virtually impossible for workers to rely on their intuitions about when or how the NLRA might protect them.28

a. The ‘connectedness’ requirement

In general, the NLRA protects only “concerted activity,” that is, activity that involves at least two employees.29 This might look like Ben Bonnema and his coworker sending their letter, a strike or picket line, a petition expressing dissatisfaction with a new company policy, or two employees revealing their salaries to one another, perhaps because they suspect the employer is systematically underpaying workers of color. But an employee’s individual workplace advocacy usually will not qualify as collective action,30 though there are some exceptions.31

Surprisingly, some conversations between multiple employees also do not qualify as concerted if the board feels the employees were merely “griping.” This caveat might seem unimportant, but low-stakes workplace social interactions can set the stage for other forms of collective action. As Michael Oswalt put it, workers generally need to develop relationships and build trust before they will pursue collective action: “the subtle shift from ‘I hate this,’ to ‘We hate this’ [could] prompt a worker to think about starting a petition drive before barging into a supervisor’s office alone” (Oswalt 2017, 1002). And an employer who disciplines a worker for griping unmistakably sends a message about workplace control; it would take considerable bravery for a worker to engage in protective concerted activity after seeing a coworker fired for griping.32

b. The ‘for mutual aid or protection’ requirement

The NLRA’s second requirement focuses on employees’ goals, asking whether employees are trying to “improve terms and conditions of employment or otherwise improve their lot as employees.”33 Many topics obviously qualify—for example, collective action that relates to pay, workplace safety, or employer discrimination all meet this requirement.

Political issues that relate to working conditions are also in bounds: in the foundational decision Eastex v. NLRB,34 the Supreme Court agreed that the NLRA protected distribution of a union newsletter that urged workers to oppose a “right-to-work” amendment to the Texas Constitution, highlighted President Nixon’s recent veto of a minimum wage increase, and generally encouraged workers to “defeat our enemies and elect our friends” at the ballot box. The court deferred to the NLRB’s assessment that these political initiatives could have indirect effects on working conditions, writing that “[t]he Board was entitled to note the widely recognized impact that a rise in the minimum wage may have on the level of negotiated wages generally,” as well as that a constitutionally enshrined right-to-work law would be harder to change than a statutory one.35

This relatively broad approach to defining “mutual aid” means that employees’ collective action related to political topics can be protected by the NLRA as long as there is a tie between the topic and working conditions. Immigration law is a salient example, as illustrated by “Day Without Immigrants” protests that took place in 2006 and 2017.36 These protests were intended to highlight the importance of immigrant workers to the functioning of the U.S. economy; workers from all over the country missed work to participate, some with their employers’ permission and some without.

Following each protest, the NLRB’s general counsel (GC) analyzed whether employers had violated the NLRA when they fired workers for missing work to join the protests. (The board’s GC is its chief prosecutor; a GC’s views are important in part because they guide what cases the office will take and what arguments the GC’s office will make. However, the GC’s views do not bind the board or the public.) Importantly, both GCs (a Republican-appointed GC analyzing the 2006 protests and a Democratic GC analyzing those in 2017) agreed that workers’ advocacy on immigration policy did fall within the scope of the mutual aid or protection clause. But they disagreed about whether employers were nonetheless free to enforce their attendance rules when workers missed work to attend the protests. The first analysis (conducted by the Republican GC) concluded that employers could enforce their attendance rules because the demonstrations were not strikes over an issue that the employer could remedy.37 The second memo (issued by the Democratic GC) reached the opposite conclusion.38 Thus, while at least some forms of collective action related to immigration are protected by the NLRA, there is risk that that this protection will not extend to all tactics.39

While Eastex is relatively broad, some issues of great importance to workers can nonetheless fall outside the NLRA’s bounds. For example, the Fifth Circuit Court of Appeals held that workers who were members of an “outside” political advocacy group were not protected by the NLRA when they distributed the group’s literature at work, even though the group’s goals—ending mandatory workplace drug testing—related to a disputed issue at the workplace in question.40 And in another case, the NLRB decided that employees were not protected when they advocated for the employee stock option plan to acquire a majority share in the employer’s parent company, writing that the proposal did “not advance employees’ interests as employees but rather advances employees’ interests as entrepreneurs, owners, and managers.”41 This distinction between managerial interests and working conditions may also arise in a case against Google, which involves two worker-organizers who were fired after circulating a petition regarding the company’s potential collaboration with the U.S. Customs and Border Control agency.42 The case was pending as of this writing; it seems likely that the board will have to resolve whether the NLRA protects advocacy aimed at influencing an organization’s direction or choice of clients.

2. Concerted activity that loses NLRA protection

The discussion in the previous section illustrates how the NLRA provides meaningful-but-limited protection for workers’ collective action related to working conditions. But workers can lose NLRA protection if they choose the wrong place, the wrong time, or the wrong manner in which to express themselves. In particular, courts interpreting the NLRA have allowed employers to insist on loyalty, decorum, and productivity, reflecting what James Atelson has described as “deeply held judicial feelings about the contractual or status obligations of employees as well as the rights of property” (Atelson 1983, 5).

Because of these limitations, employees often have no recourse if they are fired for collective action that falls into any of the following categories:

• The message is deemed “disloyal, reckless, or maliciously untrue”
• The message is expressed using “opprobrious” language
• The employees use materials belonging to the employer, possibly even including the employer’s computer or email system, to express their message
• An employee solicits another employee to sign a union card during “working time”
• Employees picket in order to seek support from a “secondary” employer, that is, a company that does business with the workers’ employer.

This section briefly discusses these limitations, each of which can impede workers from effectively building solidarity with each other or with potential allies, such as consumers of the products the workers create. Despite the NLRA’s stated protections, there remain many situations in which courts defer to employer authority, allowing workers to be disciplined for their speech.

a. Disloyalty

The disloyalty doctrine comes from a case known as Jefferson Standard,43 which arose out of a breakdown in collective bargaining negotiations between the union representing a group of technicians and their employer, a television and radio broadcaster. The employees picketed (but did not strike) for about six weeks, and then began to circulate a new handbill, which the Supreme Court later characterized as a “vitriolic attack.”44 It read:

Is Charlotte A Second-Class City?

You might think so from the kind of Television programs being presented by the Jefferson Standard Broadcasting Co. over WBTV. Have you seen one of their television programs lately? Did you know that all the programs presented over WBTV are on film and may be from one day to five years old. There are no local programs presented by WBTV. You cannot receive the local baseball games, football games or other local events because WBTV does not have the proper equipment to make these pickups. Cities like New York, Boston, Philadelphia, Washington receive such programs nightly.

Why doesn’t the Jefferson Standard Broadcasting Company purchase the needed equipment to bring you the same type of programs enjoyed by other leading American cities? Could it be that they consider Charlotte a second-class community and only entitled to the pictures now being presented to them?

WBT Technicians

The company fired 10 technicians because of this handbill. In the letter of termination, the employer did not contest the handbill’s factual statements; instead, it took the view that “[c]ertainly we are not required by law or common sense to keep you in our employment and pay you a substantial salary while you thus do your best to tear down and bankrupt our business.”45

The NLRB acknowledged that the technicians’ statements in the handbill either were true or at least were not known to be false.46 But the board nonetheless decided that the technicians lost NLRA protection because their conduct was “indefensible,” analogizing to union tactics such as sit-down strikes, sabotage, and strike-related violence.47 The Supreme Court agreed, writing that the “company’s letter shows that it interpreted the handbill as a demonstration of such detrimental disloyalty as to provide ‘cause’ for its refusal to continue in its employ the perpetrators of the attack. We agree.”48

There is much to criticize about the court’s reasoning, but the bottom line is that the Jefferson Standard rule continues to leave workers engaged in collective action vulnerable to discipline or termination by their employers. The recent case Miklin Enterprises, Inc. v. NLRB shows how.49 The case began when a group of employees placed posters on “community bulletin boards” in the employer’s restaurants. These posters showed two identical pictures of Jimmy Johns sandwiches, indicating that one was made by a healthy worker and the other by a sick worker. The text at the bottom of the poster read:

CAN’T TELL THE DIFFERENCE? THAT’S TOO BAD BECAUSE JIMMY JOHN’S WORKERS DON’T GET PAID SICK DAYS. SHOOT, WE CAN’T EVEN CALL IN SICK. WE HOPE YOUR IMMUNE SYSTEM IS READY BECAUSE YOU’RE ABOUT TO TAKE THE SANDWICH TEST.50

Following that and other speech along similar lines, the company then fired six employees who, as the Eighth Circuit put it, “coordinated the attack,” and issued warnings to three others.51

While the NLRB concluded that the workers had engaged in protected concerted activity because they did not have a “malicious motive,” the Eighth Circuit disagreed. In an en banc ruling—that is, a decision issued by the full Eighth Circuit rather than a panel of three judges—the court concluded that employee speech was “disloyal” if it “indefensibly disparaged the quality of the employer’s product or services,”52 characterizing the workers’ health-related statements as “equivalent of a nuclear bomb.”53

This rule can get in the way of the kinds of worker-consumer coalitions that can be critical to workers achieving their goals. An important way to generate community support is to show how working conditions affect consumers’ experiences in a business.54 This was the gist of the Jimmy Johns campaign—that making it difficult or impossible for workers to take time off work when they were sick was bad for workers and consumers alike. Yet this kind of argument will often focus on the product or service that the workers make or provide, meaning that workers will run the risk that decisionmakers will ultimately find the criticism was “disloyal”—causing them to lose NLRA protection and allowing them to be fired.

b. Opprobrious speech

Collective action sometimes takes the form of a spontaneous, outraged response to something the employer has just said or done. But with emotions running high, employees might use profane or insulting language, in which case an employer might insist that it has a right to terminate the employee for breaching workplace civility rules. As with disloyalty, there is not a bright-line definition of what counts as opprobrious—there is no list of words that are out of bounds. Instead, until recently, the NLRB addressed these cases by focusing on the setting and the circumstances of employee speech. However, in 2020, the Trump NLRB announced a new approach that is more deferential to employers regardless of setting, permitting them to prioritize workplace civility over employees’ concerted activity. This case, known as General Motors, will likely be reversed by the Biden board. Still, it is worth further discussion for two reasons: first, it reflects the instability of even relatively well-established legal protections for employee speech; and second, it illustrates how employers can weaponize workplace civility rules when they create upsetting situations and then punish workers for becoming upset.

Up until 2020, the NLRB used rules developed in three different contexts: picket-line speech,55 speech on social media,56 and workplace conversations with management.57 The particulars differed, but these cases generally recognized both that fraught workplace situations can lead to heightened emotions and intemperate comments, and also that managers cannot always be trusted to act in good faith—for example, an employer looking to fire a strike organizer might feign offense at language usually tolerated in the particular workplace. Under this approach, employees would generally lose the protection of the NLRA only if their speech crossed the line from heated to threatening or abusive.

However, the Trump board’s General Motors decision replaced these three separate approaches with a test that is considerably less protective of employee speech and more deferential to employer concerns.58 The case involved three suspensions of an employee, Robinson, who also served as a union committeeperson. (There were some disputes about the underlying events that led to these suspensions; this discussion relies on the board’s statement of those events.) In the first incident, Robinson swore at a manager during a dispute about whether the manager had gone back on an agreement to pay overtime to a group of employees participating in a training. In the second, a manager told Robinson that he was speaking too loudly during a meeting about subcontracting out work; Robinson reportedly responded by saying “’Yes, Master, Your Master Anthony,’ ‘Yes, sir, Master Anthony,’ ‘Is that what you want me to do, Master Anthony?,’ and also stated that the supervisor wanted him ‘to be a good Black man.’” In the third incident, Robinson said he would “mess [a manager] up” during a disagreement that arose in a meeting about shift and staffing changes, and later in the meeting played loud music that the NLRB described as “profane, racially charged, and sexually offensive.”59

Rather than analyzing the circumstances surrounding each exchange, the NLRB asked whether Robinson was fired because his employer objected to his profanity or instead because of his union affiliation or workplace advocacy.60 The reasoning in support of this change relied in part on “tension” between labor and anti-discrimination law; the problem, according to the board, was that the board’s existing rules tied employers’ hands, preventing them from responding to speech that could ultimately result in a hostile workplace.61 But the General Motors rule goes beyond racist or sexist harassment, conflating harassment with uncivil speech and using the specter of anti-discrimination law to empower employers to police employees’ legitimate grievances that are expressed using rude, profane, or obnoxious language. 

Consider Robinson’s second suspension, which the company said was imposed because of Robinson’s response to a manager’s comment that Robinson should lower his voice. First, the context was apparently fraught. Robinson testified that management was proposing to subcontract work while also stonewalling Robinson’s requests for information about the subcontractors’ costs and “work hours and shifts for the bargaining unit employees.”62 And, to be sure, Robinson’s response to the request that he lower his voice was sarcastic—perhaps he thought the supervisor was “tone policing,” or perhaps he thought the supervisor would not have been so concerned about the volume of a white employee’s voice.63 Despite this, the NLRB used the phrases “racially offensive” and “racially charged” to characterize Robinson’s comments, obscuring the likelihood that Robinson was disciplined in part because he used sarcasm to indicate that he thought he was being treated poorly because of his race.

This chain of events reflects how deference to employers can disproportionately harm workers of color, notwithstanding the General Motors board’s stated concern for hostile work environments. First, workers of color are more likely that white workers to be subjected to bad treatment (including racist treatment) by their bosses, resulting in more occasions where an employee might (understandably) respond to a situation in anger. Second, managers are more likely to misperceive workers of color to be behaving aggressively as compared to white workers, and they may then impose discipline based on this misperception.64 And even managers who believe themselves to be enforcing civility rules in an even-handed manner may be acting on implicit biases. Thus, while workplace civility rules are sometimes justified based on workers’ rights to be free of abusive or harassing treatment while at work, they can also be weaponized against workers who are trying to respond to upsetting situations.

c. Collective action in the ‘wrong’ time or place

In addition to the substantive limitations on protected concerted activity, there are also limits on where and when that activity may occur. These limits fall into two general categories. The first category concerns employees who are trying to organize inside their own workplace: workers may engage in protected concerted activity during breaks and other downtime, but employers can also insist that “working time is for work.”65 The second category concerns workers who engage in collective action on the premises of a company that does not employ them, including labor organizers who work for unions, as well as “fissured” employees,”66 i.e., those who are not technically employed at the place where they spend their work days because of subcontracting and other contractual relationships. Both sets of rules reflect assumptions that prioritize employers’ property and managerial interests, leaving holes in the NLRA’s protections for worker speech.

i. Space and time limitations on organizing at work

It only makes sense for workplace organizing to take place at work. This organizing might take the shape of conversations between coworkers; handing out union cards and other written material; or wearing union buttons or T-shirts. The NLRA protects all of these activities—but with limitations. The rules consist primarily of a set of default presumptions that govern different types of activity. Under these defaults, workers can wear union T-shirts or insignia at any time;67 they can solicit their coworkers’ support for unionization and have other § 7-protected conversations only during nonwork time;68 and they can distribute union cards or other literature only during nonwork time and in nonwork areas of the workplace.69 But employers may impose more restrictive rules if they can prove “special circumstances” justifying them.70

Employers have even more freedom to control how workers use supplies that the employer owns. For example, employees generally have no right to use the office photocopier to produce flyers about an upcoming union rally, nor may they appropriate space on the office bulletin board to post one of these flyers. This rule might seem intuitive as applied to scarce or expensive supplies, but the board has also applied it to computers, servers, and even employees’ work-issued email addresses. (This is another issue on which the board has oscillated, with the Obama board holding that employees who had access to their employer’s email system had a presumptive right to use that system for concerted activity during nonwork time,71 only to be reversed by the Trump board in 2019.72)

There is a caveat that pertains to the solicitation and distribution presumptions as well as to the rule that employers can restrict the use of their own equipment: employers may not discriminate against union speech. At a minimum, this means that while an employer may broadly insist that “working time is for work,”73 it may not (for example) allow workers to express anti-union viewpoints while simultaneously prohibiting pro-union viewpoints. But the board has historically taken this nondiscrimination rule further, to reach employers who ban any union-related communication while allowing similar expression on other topics.74 Note, though, that even this broader nondiscrimination rule did not require parity between employers and employees: an employer that barred its employees from talking about unionization or any other cause over company email could still send its own anti-union message via email.

These space-and-time limitations have only become more significant during the coronavirus pandemic. For example, when the Trump board held that employees’ use of their work email addresses was not protected by § 7, it suggested that in-person communication would be “adequate” to allow workers to communicate with each other about their working conditions. That assumption was already flawed for workers who did not routinely share space with their coworkers; now, those consequences are multiplied because so many more employees work from home. Moreover, even workers who go into the office may find that in-person communication has become more difficult, especially where employers have closed breakrooms or changed schedules because of social-distancing concerns. Despite the NLRA’s broadly drafted protection for concerted activity, these employees may find themselves with few workable methods of communicating with each other about their working conditions.

ii. Workplace fissuring and NLRA protections for workers’ speech

The rules discussed in the previous subsection apply to workers whose collective action takes place on their own employers’ premises. But many people spend their working time at job sites with which they do not have an employment relationship. For example, consider janitors who clean a downtown building each night: the building’s management may employ the janitors directly, or it may have contracted for their services. If the latter is true, then another company formally employs the janitors and bears responsibility for paying wages and complying with employment law.75 “Fissured” arrangements like this one can contribute to worsening working conditions while also limiting employees’ recourse to NLRA-protected collective action to improve their situations.

Whether subcontracted employees have the same § 7 rights at their worksite as do traditional employees is another issue where the board has oscillated: the Obama board answered this question “yes”;76 the Trump board said the opposite,77 allowing property owners to exclude off-duty subcontracted employees from their worksite. The latter approach means that a property owner may bar subcontracted employees from coming to the worksite when they are not scheduled to work, effectively preventing them from talking to their coworkers on other shifts about working conditions.

Further, workers can be left unprotected when their collective action under § 8(b) of the NLRA counts as “secondary”—that is, picket lines or strikes aimed at influencing an entity other than the employer with whom there is a labor dispute. § 8(b) is mainly about restrictions on unions, but whereas unions that violate these provisions can face injunctions and money damages, participating workers can also lose the NLRA’s protection. Precisely what counts as prohibited secondary activity is beyond the scope of this paper, but it is worth noting that this prohibition can leave subcontracted employees with less protection than their peers in traditional employment relationships. For example, if hotel cleaners who technically work for a subcontractor become irate about harassment and low pay, they may want to picket in front of the hotel where they work, but if they run afoul of the byzantine secondary activity rules they could be fired without recourse. In contrast, housekeepers who are employed directly by the hotel would be on firmer footing. In other words, an employer’s decisions about how to structure its workforces have a direct bearing on workers’ rights to organize for better treatment.

The NLRA is a significant exception to the at-will default; it was intended to level the playing field between workers and employers by protecting workers’ ability to band together to demand better working conditions. But, as this section has discussed, there are significant gaps in the NLRA’s coverage, and employers can sometimes override the NLRA’s protections if employee speech is deemed too disruptive of employer interests. Thus, while of the various statutes discussed in this section the NLRA provides the most comprehensive protection for worker speech, it does not undo the effects of the at-will default: workers are still often vulnerable to employer domination when they advocate for better treatment from their employers.

B. Workers’ rights to report employer wrongdoing

One significant category of worker speech that employers might wish to suppress concerns the employer’s own wrongdoing. This wrongdoing might involve customers or regulators, as when a company suppresses information that its products might make people sick or that it is using dubious accounting practices to hide financial losses from investors. It could also involve employees’ complaints that the employer’s treatment of them is illegal—for example, that the workplace is unsafe, or that the employer has discriminated based on an employee’s race or gender, or that the employer has failed to pay required overtime.

The three subsections that follow discuss two main topics. The first two concern legal protections for employee whistleblowers and statutory anti-retaliation provisions that protect workers when they complain about their employer’s unlawful treatment of them or their coworkers. (This is not intended to suggest that these are the only legal protections that employees could invoke in these circumstances; for example, the NLRA will often protect workers who band together to report their employers’ unlawful treatment of them, and some state courts will treat retaliatory terminations of whistleblowers as wrongful discharges in violation of public policy.) The third subsection turns to employers’ ability to contract for employees’ future silence through nondisclosure agreements (NDAs). These agreements are an important reason that legal protections for some types of employee speech may not be enough to encourage employees to speak up. Even though NDAs are sometimes unenforceable—including when they purport to override nonwaivable rights to report corporate misconduct to relevant authorities—employees who believe their NDAs to be enforceable will be reluctant to breach them.

1. Whistleblower protections

There are dozens of whistleblower laws that apply to different kinds of employer conduct in different jurisdictions. These statutes usually protect employees under specifically defined circumstances, such as when they have reported a certain variety of corporate wrongdoing to the right audience, such as a government regulator. For example, the federal financial-fraud law known as Sarbanes-Oxley protects employees who provide information about suspected violations to law enforcement, members of Congress, or their own supervisors, as well as employees who participate in enforcement proceedings.78 Of course, Sarbanes-Oxley was drafted to guard against financial misdeeds, not to promote broader employee voice.79 Similarly, while state and federal law contains numerous anti-retaliation provisions—the Occupational Safety and Health Administration alone enforces 25 such provisions, which are found in statutes ranging from the Affordable Care Act to the Federal Water Pollution Control Act to the Taxpayer First Act80—it would be a mistake to think of them as mechanisms for general worker empowerment.

Still, whistleblower protections are useful where they apply, and their scope of application can be broad or narrow. For example, consider New Jersey’s whistleblower statute, the Conscientious Employee Protection Act. The specifics of the law are less important than a sense of its breadth: it reaches employer retaliation against employees who report a wide range of problematic or illegal practices by their employers to a list of listeners that includes the employee’s supervisor, the government, entities that contract with the employer, shareholders, and so on.81 In contrast, New York’s whistleblower statute was, until 2021, comparatively narrow; it covered only employees who reported violations of New York labor and employment law, substantial public health threats, and a few other specific categories of information. (New York recently amended its statutes to closely track the New Jersey statute.)

Whistleblowing is a category of speech where it is easy to see the connection between the employee’s interest and the public interest. However, whistleblower protections are inconsistent across jurisdictions and can turn on the subject of the report and the audience who receives it, making it hard for employees who are not advised by an attorney to know when they are on solid ground.

2. Anti-retaliation protections for employees who oppose workplace discrimination

Suppose an employee believes the employer has discriminated against a coworker based on that person’s race or gender. The employee might take action, for example, by filing a charge with the EEOC or a similar state agency. Alternatively, an employee might try to solve the problem internally, perhaps taking an employer up on its promise of an “open door policy.” What happens if the employer’s response is to retaliate?

If the employee takes action together with at least one coworker, then the NLRA likely protects them both. But employees who act without help from coworkers might still find protection. Anti-discrimination laws generally prohibit employers from retaliating against employees who report potential violations, either to the employer or an enforcement agency. Indeed, many federal, state, and local statutes intended to set baseline working conditions also prohibit employer retaliation against employees who report violations; the Fair Labor Standards Act, the NLRA, the Occupational Health and Safety Act, and their various state analogues are just a few examples. It would be impossible to canvas the various rules that apply to retaliation claims under all of these statutes; instead, this section uses Title VII as an example to illustrate how, even when they are backed by anti-retaliation protections, workers can still fall through the cracks.

Title VII prohibits employers from retaliating “because [an employee] has opposed any practice” that violates Title VII’s nondiscrimination provisions or “because [an employee] has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing” under Title VII.82 The first clause is referred to as the “opposition clause” and the second as the “participation clause.” (Near-identical provisions are found in the Americans with Disabilities Act and the Age Discrimination in Employment Act.83)

The participation clause protects employees who take part in EEOC proceedings (or those of a parallel state agency), including by filing a charge of discrimination or providing witness testimony. This protection is robust; the statute’s model of agency enforcement works only if employees are willing to come forward, and Congress and the courts have taken the view that when employees do come forward they should be protected (see Green 2014, 766). For example, the protection applies even if the agency ultimately decides not to take action based on a charge of discrimination.

But the opposition clause does not offer the same broad protection; instead, courts have interpreted the clause to cover only “reasonable” opposition. “Reasonableness” encompasses two important limitations: that the opposition be expressed in a reasonable manner, and that the complaining employee could reasonably believe the employer had violated Title VII.

With regard to the first limitation, many courts have held that employers may discipline or fire workers who express their opposition to workplace discrimination in a disruptive or insubordinate fashion, as well as those who merely “gripe” about discrimination;84 these cases have clear parallels to the Trump NLRB’s approach to protected concerted activity in General Motors—though perhaps with even more troubling effects on workers with marginalized identities. As Susan Carle points out, this rule gives employers an incentive to act badly, because they have “higher chances of prevailing in discrimination suits when their conduct is so infuriating that it causes employees to lose their temper” (Carle 2016, 186).

As to the second limitation, Title VII’s opposition clause protects employees only when they oppose employer conduct that they reasonably and in good faith believe violates Title VII. In evaluating whether an employee could reasonably believe that the employer’s conduct violates Title VII, courts assume that a “reasonable person” is aware of the vagaries of federal case law. In other words, it is not enough for an employee to have a genuine belief that an employer has discriminated in some fashion, because Title VII does not cover every incident of discrimination. The statute also fails to protect employees from retaliation when they advocate for their employers to do more than just refrain from violating Title VII: an employee who advocates for a workplace affirmative action policy or anti-bias training, for example, would not be protected from retaliation under the opposition clause (see Smith 2003, 555–56).

To see how the reasonableness requirement plays out, consider the Supreme Court’s decision in Clark County School District v. Breeden.85 The case arose out of a meeting between Shirley Breeden, her (male) supervisor, and another (male) employee, to review job applicants’ psychological evaluations. One evaluation revealed that an applicant had made a harassing remark to a coworker: “I hear making love to you is like making love to the Grand Canyon.”86 Breeden’s supervisor “read the comment aloud,” looked at Breeden, and said, “I don’t know what that means.”87 “The other employee then said, ‘Well, I’ll tell you later,’ and both men chuckled.”88 Breeden complained about this exchange to two school district assistant superintendents, after which she alleged she was punished by having her job duties revised and being transferred to a different job location.

The Supreme Court held that the district had not violated Title VII even if it did retaliate against Breeden for her complaint. It concluded that Breeden could not have reasonably believed that her coworkers’ discussion of the “Grand Canyon” remark violated Title VII, because Title VII prohibits only harassment that is so “severe or pervasive” that it “alter[s] the conditions of employment and create[s] an abusive working environment.”89 The exchange that prompted Breeden’s complaint, the court continued, was “at worst an ‘isolated inciden[t]’ that cannot remotely be considered ‘extremely serious,’ as our cases require.”90

In other words, it did not matter whether Breeden genuinely believed the conduct violated Title VII, whether she genuinely felt harassed because of the exchange, or whether the exchange that prompted her complaint was recognizable as harassment as that concept is colloquially understood. But most nonlawyers have little grasp of the vagaries of Title VII;91 they are more likely to have a very general sense of what that statute prohibits, gleaned from sources such as general news stories, representations in popular media, and the employer itself—and none of these sources is likely to provide detailed or accurate information about topics such as what conduct does and does not rise to the level of sexual harassment. In fact, one study of sexual harassment training materials that are supplied by employers to employees found that these materials “tend to suggest that relatively trivial slights could give rise to harassment-related liability” (Tippett 2018, 481)—precisely the type of belief that the Breeden court characterized as unreasonable, leaving the employee unprotected from employer retaliation.

Anti-retaliation provisions are an important source of protections for workers who invoke their rights under Title VII and other employment statutes. However, these protections are not absolute: workers who expect to be protected will sometimes find that they are not, either because they expressed themselves in a heated manner or because they opposed conduct that they saw as discriminatory but that was not actually covered by anti-discrimination law.

3. When may employers buy employees’ silence?

Much of this paper discusses statutory responses to employer power, that is, legal limits intended to prevent employers from exercising their leverage over employees in ways that harm the employees or society. But employers also contract for employee silence in advance, in the form of nondisclosure agreements. NDAs have legitimate uses, such as protecting company trade secrets, but their reach often extends far beyond this type of information, sometimes purporting to restrict employees from revealing anything learned in the course of their employment. These broad NDAs reflect employees’ unequal bargaining power but they can also perpetuate it in at least two ways: by making it harder for employees to criticize their current or former employers, and by limiting employees’ abilities to get new jobs in their fields (see Lobel 2018).

Nondisclosure agreements (and their close relatives, nondisparagement agreements) came to widespread public attention in the wake of the #MeToo movement, which is synonymous with disclosures of sexual assault and harassment by powerful—and often serial—offenders. By using a combination of industry influence and payoffs, numerous abusive bosses and their enablers were able to buy current and former employees’ silence, shielding sexual harassers and abusers from exposure and allowing them to go on to harm others. For example, consider Zelda Perkins, a former assistant of film producer Harvey Weinstein. Perkins signed a nondisclosure agreement when she left her job in 1998; she later explained that she had been harassed by Weinstein for years but quit after a colleague said Weinstein had sexually assaulted her (Garrahan 2017). In exchange for 125,000 pounds and other provisions aimed at preventing Weinstein from harming others, Perkins agreed to a very restrictive set of terms—remarkably, she was not even allowed to keep a copy of the agreement itself; nonetheless, Perkins broke the agreement in light of rape allegations made against Weinstein in 2017, but even then she feared “crushing legal and financial repercussions” (Perman 2018).

The NDA that Perkins signed was negotiated as she was leaving her job, and she was represented by counsel—but Perkins still felt acutely the imbalance between her power and Weinstein’s, later saying that she felt her credibility would be “destroy[ed]” if she rejected the agreement and reported Weinstein (Garrahan 2017).92 Other NDAs are imposed at the beginning of an employment relationship, before employees even know what information they might learn or whether or why they might want to disclose it. These agreements are often imposed as a condition of employment, and they can be drafted in exceedingly broad language. For example, one recent California case involved nondisclosure and nondisparagement agreements that collectively committed employees to keep confidential virtually all information about their work, including “information disclosed by the Company to Employee and information developed or learned by Employee during the course of employment with Company,” as well as “all information of which the unauthorized disclosure could be detrimental to the interests of the Company.”93 Signing these agreements, which were recently challenged in court, resulting in a settlement, was a mandatory condition of employment for all employees. Of course, when faced with the choice of signing or going elsewhere for work, many employees will simply sign without seeking legal advice or attempting to negotiate.

NDAs are not always enforceable. For example, an ex-employee alleged to have violated an NDA might later argue successfully that the agreement was signed under duress or that its enforcement would violate public policy. Further, agreements as broad as the one in the previous paragraph may violate state or federal law, either on their face or in specific applications. For example, whistleblower protections can override NDAs,94 and one court enjoined an NDA that purported to bar an employee from participating in an EEOC investigation.95 California courts have also treated very broad nondisclosure agreements as attempts to skirt legal limits on the use of noncompete agreements—the idea being that an NDA that makes it impossible for employees to bring their general knowledge and skills to a new employer will prevent an employee from landing a new job in the same field.96 And nondisclosure and nondisparagement agreements can violate the National Labor Relations Act,97 especially when they bar employees from criticizing their employer or disclosing information about their wages and working conditions either to each other or to “outsiders,” such as reporters. Finally, several states have responded to #MeToo disclosures by passing new laws limiting in various ways the use of nondisclosure agreements as they apply to allegations of sexual assault or harassment (see Spooner 2020, 355-63; Johnson 2019, discussing eight state statutes limiting the use of nondisclosure agreements in the context of harassment or assault). These laws cover not just NDAs that are imposed at the beginning of an employment relationship but also settlement or severance agreements like the one Perkins signed; other state laws take a similar approach to settlement agreements that conceal “public hazards.”98

Of course, even unenforceable NDAs can have effects on the employees who sign them. The legal reality that a given NDA is unenforceable may make little practical difference to employees who fear the repercussions if they break their word. Employees (and their potential future employers) may fear being sued by their previous employer, and employees may also fear repercussions from future employers. Thus, employees may have little power to resist agreeing to an NDA, and even an unenforceable NDA can be enough to silence employees.

C. Workers’ social media, political, and religious speech

What happens when workers disagree with the boss (or with each other) about sensitive topics, including politics and religion? Workplace conflicts over these issues can raise thorny problems, especially if one employee holds views that another finds hurtful or dehumanizing. But, as the introduction to this paper discusses, employers sometimes coerce employees’ political or religious speech in contexts that have nothing to do with maintaining workplace harmony; in these situations, the employer simply wishes to control employees’ views and beliefs for its own purposes. As the next two subsections discuss, there are some exceptions to the at-will rule that are sometimes relevant to these situations—but employees are often left unprotected.

1. Political expression

Several states protect employees from discrimination based on specific political activities such as voting or affiliating with a political party.99 Some of these statutes are of relatively recent vintage, but others date either to the 1700s or to Reconstruction, when they were passed in recognition of the likelihood that employers would use their control over workers’ livelihood to coerce their votes against anti-slavery Republicans.100 New York’s law is representative of many of these statutes in that it is limited to a specific set of activities—running for office, campaigning, or fundraising for a candidate, party, or political advocacy group101—and New York courts have dismissed cases involving employees who were fired for other types of political expression.102

A few other states, however, have statutory protections for “political activities” or “political opinions” more generally.103 California is one example; its labor code prohibits employers from threatening to fire employees in order to try to “coerce or influence” the employee into “adopting or following any particular course or line of political action or political activity.”104 Like many of the other state statutes discussed in this section, this law has not resulted in many reported decisions interpreting its meaning, but a 1979 decision by the California Supreme Court concluded that, in addition to partisan political activity, the statute covered political views and civil rights advocacy, including the plaintiffs’ participation in the gay liberation movement.105 Additionally, two states—New Jersey and Oregon—prohibit employers from compelling employees’ participation in meetings held for the purpose of allowing the employer to communicate its views about “religious or political matters.”106

In addition to laws specifically protecting employees from retaliation based on their political activity, a handful of states including California, Colorado, and North Dakota have broader protections for employees’ out-of-work “lawful activities” that could encompass politics. (New York has a more limited protection for off-duty “recreational activities.”)107 But even in those states, employees’ real-world protection is limited because of a combination of statutory exceptions and narrow interpretations by courts. For example, courts have narrowed nearly out of existence California’s law protecting employees’ off-duty activities.108

As with the NLRA and Title VII’s retaliation provision, courts may read an implied duty of loyalty into lawful activities statutes. Consider Colorado’s statue, which provides a damages remedy for employees who are fired for “engaging in any lawful activity off the premises of the employer during nonworking hours,” unless a statutory exception applies.109 Statutory exceptions include employment decisions that “relate . . . to a bona fide occupational requirement,” or that are “reasonably and rationally related to the employment activities and responsibilities of a particular employee or a particular group of employees,” or that are “necessary to avoid a conflict of interest with any responsibilities to the employer or the appearance of such a conflict of interest.”110 Echoing the Jefferson Standard decision from the NLRA context, courts have read these statutory exceptions to permit employers to fire employees whose lawful off-duty activities are “disloyal.” For example, a district court upheld an employer’s decision to terminate a baggage handler with 26 years of service because he published a letter to the editor that criticized his employer for replacing full-time employees with hourly contract workers.111 Writing a letter was plainly “lawful off-duty activity,” but the court went on to read an “implied duty of loyalty” into the statute, limiting its reach to off-duty activities that were “personally distasteful” to the employer but “legal and unrelated to an employee’s job duties.”112 Then the court concluded that the employee breached the duty of loyalty when he went straight to the public without first “attempt[ing] to solve his grievance through Delta’s grievance system.”113 Of course, in the context of a business decision affecting tens of thousands of Delta employees, making an individual internal complaint is obviously futile, and so no aggrieved employee would be likely to take that step.

Finally, there is the possibility that narrow, judge-made exceptions to the at-will rule will apply when employees are fired for their political speech. One of these exceptions, the tort of “wrongful discharge in violation of public policy,” reflects that “certain discharges that contravene well-established norms of public policy harm not only the specific employee but also third parties and society as a whole.” That means that employees can file a civil lawsuit when they are fired for a reason that is not just bad or arbitrary but also violates an established public policy. Given that description, one might envision broad protections for employee speech premised, for example, on the democratic ideal that each member of the polity should share equal footing to participate in public discourse on matters of shared concern.

The most well-known decision that reflects this sort of speech-protective approach to the wrongful discharge tort is Novosel v. Nationwide Insurance Co.114 In that case, the plaintiff alleged that he was fired from his job as a district claims manager because he refused to participate in his employer’s lobbying the Pennsylvania legislature to reform no-fault insurance law. The U.S. Court of Appeals for the Third Circuit agreed that the plaintiff stated a claim for wrongful discharge in light of “the importance of the political and associational freedoms of the federal and state Constitutions.”115

However, the Novosel decision has been criticized, and it reflects at best a minority approach. The main problem is that courts in wrongful termination cases generally require employees to point to “well-established” public policy, and most require a high level of specificity—for example, that the employee was discharged for refusing to violate a law or regulation or for invoking rights under a workers’ compensation program. But a list of courts have held that the First Amendment is not sufficient to demonstrate that there is a well-established public policy against political coercion by private-sector employers, because the First Amendment constrains only government actors.116 Edmondson v. Shearer Lumber Products reflects the dominant approach;117 there, the Supreme Court of Idaho upheld the termination of a 22-year employee because he opposed a political initiative spearheaded by the employer’s owner.

Freedom of political belief is at the core of the idea of freedom of speech. But when private-sector employees face political coercion, they can fall back on legal protections only to a limited extent. Statutory protections, where they exist, tend to focus on protecting employees from retaliation in connection with their own political activity—voting or running for office. These statutes generally do not speak to what is likely a more common scenario, in which employers simply push their own political views, and employees say nothing because they fear being fired if they express disagreement.

2. Religious expression at work

Conflicts over religious expression at work can arise both when religious employers try to impose their faiths on employees and when religious employees bring their faith to work in ways that offend their bosses or coworkers. For example, employees hired to work for a secular employer might be dismayed to be asked to participate in the boss’s Bible-study group. Conversely, a religious employee might want to take breaks at set times in order to pray or might want to put a religious message like “have a blessed day” into an email signature or keep an anti-abortion message in a designated workspace. Unsurprisingly, law has something to say about the extent to which employers can regulate religious expression at work. These rules seek to balance employers’ and employees’ interests—although the balance struck weighs heavily in favor of employers, especially when the issue involves accommodating an employee’s religious practice.

Employers’ legal obligations surrounding their own or their employees’ religious speech vary with the employer’s own mission and character. For example, an employer with a religious mission, like a church or a religious school, has a large amount of leeway to require employees to adhere to a set of religious views. Religious institutions have constitutionally protected “independence…in matters of ‘faith and doctrine,’” including “internal management decisions that are essential to the institution’s central mission.” Importantly, this independence reaches “the selection of the individuals who play certain key roles”118—that is, who will be hired to convey a religious message and who will be fired from such a role. This principle has resulted in a kind of supercharged at-will doctrine that applies to employees who qualify as “ministerial.”119 Ministerial employees generally cannot invoke the protections of anti-discrimination law,120 probably are not covered by the NLRA,121 and may be precluded from relying on other statutory employment protections as well.122 And even nonministerial employees who work for religious institutions can lawfully be required by their employers to remain a member in good standing of the employers’ faith—a rule that can effectively turn adherence to a religion’s rules for personal comportment into job requirements.123

Conversely, public employers are constrained by both the Establishment Clause and the Free Exercise Clause; they cannot require employees to participate in religious programs or to belong to a particular faith, nor can they discriminate against employees because of their religious exercise. However, public employers also must guard against employee religious expression that would give the impression that the government itself prefers some religious views over others. For example, a public employer cannot permit its librarians or groundskeepers to create public displays that give the impression of a religious endorsement,124 nor may it allow an employee addressing the public to use the opportunity to proselytize.125

For both public- and private-sector employers that have a secular mission, statutory law modifies the at-will default in two important ways.126 First, these employers may not discriminate based on religion or allow harassment of employees based on whether, where, or how they worship on their own time. Second, they must accommodate employees’ religious beliefs or practices, at least where doing so will not impose an undue hardship.127 A reasonable accommodation might involve an employer partially waiving a uniform requirement so that an employee can wear a religious head covering,128 allowing the employee to take breaks at set times to pray, or changing an employee’s work schedule to allow attendance at religious services. However, the catch is that employers can refuse to provide such accommodations if they would impose more than a “de minimis” cost.129

The reasonable accommodation requirement relates to employees’ bargaining power in several ways. First, it bars an employer from dismissing a request for a religious accommodation out of hand, which means that even employees who lack any form of individual bargaining power are supposed to be able to secure an employer’s agreement to no- or low-cost religious accommodations.

Second, an employee’s request for a religious accommodation might lead to a form of workplace bargaining. The EEOC and some courts have concluded that, when faced with an employee request for a religious accommodation, an employer must embark on an “interactive process”—a back-and-forth dialogue to determine whether there exists an accommodation that would meet the employee’s religious exercise needs without unduly burdening the employer.130 But, as Professor Shirley Lin has described in an analogous context, power imbalances between employers and employees can easily lead to a failure to accommodate, either because the employee does not ask for the accommodation in the first place or because the employer steamrolls the employee in the interactive process.131

Third, other employees may also be interested in the outcome of an accommodations process, including because they might be asked to bear some or all of the costs of the accommodation. For example, an employer might respond to an employee’s request to not be scheduled to work on the sabbath by requiring another employee to work every Saturday. Or an employee’s desire to display religious materials might be accommodated even though the display upsets a coworker.132 But the accommodation requirement does not require employees to take into account the views of the burden-bearing employees; whether they do anyway can depend on a host of factors including whether the prospective accommodation would conflict with a collective bargaining agreement,133 the employer’s own views about the desirability of the accommodation, the likelihood that either employee will quit, and so on. In other words, whether an employer agrees to an employee’s request for a religious accommodation depends to an extent on the scope of legal protections—but can also depend on the employee’s (and maybe coworkers’) bargaining power.

3. Employee speech on social media

As discussed briefly above, the NLRA reaches concerted activity that takes place over social media. This means that if two employees interact on social media about their working conditions (or even if one employee posts a workplace concern that is intended to be an overture to coworkers), the NLRA may protect them against employer retaliation. But in addition, several states prohibit employers from demanding access to an applicant’s or employee’s social media posting. These statutes are privacy protections rather than speech protections; they do not prohibit employers from acting on an employee’s social media content that they see because of the employee’s own privacy settings or because other employees show the employer their colleague’s posting. However, they prohibit employers from requesting an employee’s or applicant’s social media username or password, implicitly providing some protection for workers’ expression, at least for workers who have privacy protections in place on their accounts.134 In addition, some states also bar employers from requiring employees to promote the company on social media or to add the employer to a social media contact list.135

D. A note on the First Amendment and public employees

This paper focuses mainly on private-sector workers who cannot rely on the Constitution’s free speech guarantee. But what about public-sector workers? First, the good news: public employees are covered by many of the statues discussed above, such as the anti-retaliation provisions of Title VII and various whistleblower protections. Further, many public employees are covered by some version of just-cause, rather than at-will, employment. Just over one-third of public employees are covered by a union contract,136 and others may enjoy similar tenure or civil-service protections. These substantive protections are also backed up by constitutionally required procedural protections; public employees who have a reasonable expectation of continued employment are entitled to notice and an opportunity to respond before they can be fired, plus a more formal post-termination hearing.137 (These procedural protections do not apply to at-will public employees.)

The bad news is that public employees often cannot rely on the First Amendment to protect them against employment consequences levied in connection with on-the-job speech. Like private-sector employers, public-sector employers may want to control their at-will employees’ speech for reasons that range from plausible to capricious. One might expect that courts would engage in closer scrutiny of public-sector employers, but they often do not. Instead, the Supreme Court has concluded that “government has significantly greater leeway in its dealings with citizen employees than it does when it brings its sovereign power to bear on citizens at large.”138

Public-sector employers may exercise near-total control over how their employees do their jobs without violating the Constitution. This is true even when an employee’s job involves expression and even when the employer has previously delegated to the employee some degree of discretion to shape the message.139 Courts reach similar results when employees, speaking outside of their employment capacity, express views on matters that are not of “public concern.”140 Moreover, the court usually does not view public employees’ own working conditions as a matter of public concern, unless those working conditions touch directly on the provision of public service.141

Public-sector employees receive somewhat more First Amendment protection when they speak as citizens—at least when their speech involves a matter of public concern. In that event, the court balances the public employer’s First Amendment interests against the public employer’s need for “orderly . . . administration.”142 Though the burden of proof is on the employer, this standard is very deferential to the government as compared to how courts approach other kinds of First Amendment cases.143 Moreover, the court defines “disruption” broadly, allowing public employers to rely on predicted (not actual) disruption144 and treating even such nonevents as having to respond to a lawsuit as “disruptions.”145 Thus, even when the First Amendment applies to a public employee’s speech, courts will still often defer to public employers’ assertions that their reactions were justified by disruption.

This framework applies to public employees’ speech generally, but there are also two special contexts that are treated differently. First, the court has held in a series of cases that political patronage is mostly unconstitutional: as long as a job does not involve policymaking, public employers may not require membership in a political party or support for a particular candidate or incumbent as a condition of employment.146 Conversely, the court has upheld restrictions on public employees’ political campaigning established by the Hatch Act and similar state laws.147 In these cases, the court has deferred to legislative judgments that public employees’ overt support for a particular political party or candidate might undermine public faith in government.148

These two lines of cases are related to each other inasmuch as Congress passed the Hatch Act in part to prevent political coercion in the form of pressure exerted on public employees by their supervisors or coworkers to campaign on behalf of a particular candidate or party.149 But their mechanisms are quite different: whereas the political patronage cases constrain employers, the Hatch Act constrains employees. It also reflects a big difference between public and private employees: the state and local statutes discussed above—patchy and incomplete as they are—often protect private-sector employees’ rights to engage in some of the same activities that the Hatch Act forbids for public employees.

IV. How the Constitution can undermine legal protections for employees

This report mainly focuses on the limited extent to which law protects workers from speech coercion by their employers. But there is also another angle to consider: employers’ arguments that certain workplace regulations designed to protect employees unconstitutionally infringe employers’ own constitutional rights. These arguments have gained traction in recent decades, and our increasingly conservative federal judiciary has proven receptive to them. Thus, there is a real risk that the Constitution itself will become an effective tool to undermine statutory protections for workers’ speech.

For example, suppose Congress were to try to increase unionization, which would in turn likely increase the number of workers covered by just-cause provisions in collective bargaining agreements. Suppose further that Congress went about this by increasing unions’ access to employees while they are at work and by barring employers from making some of the borderline-threatening statements that are currently permitted. Both changes can be understood as speech- and association-enhancing; the first would give employees more information about unions, and the second would allow employees to make their choice in a less-constrained environment. However, a conservative federal judiciary might strike down both changes, the first as an uncompensated taking of employer property and the second as a violation of the employer’s First Amendment rights.

To see how employers’ constitutional litigation could undermine workers’ rights, it helps to have a grasp of the basic structure of a First Amendment claim. Recall that the rights contained in the Bill of Rights are protections against government intrusions, and not private intrusions. (This is also why private-sector employees cannot bring successful First Amendment claims against their employers.) But when employers are regulated by the government, they can argue that those regulations unconstitutionally infringe their liberty; likewise, public-sector employees can bring constitutional claims because their employer is the government.

It is not inevitable that the Constitution will undo worker-protective legislation, but our current conservative-leaning federal judiciary and Supreme Court are likely to be receptive to such arguments. For proof, one need look no further than the decisions in Janus v. AFSCME and Cedar Point Nursery v. Hassid.150 In Janus, the court held that public-sector employees had a First Amendment right to refuse to pay union representation fees, notwithstanding that the union had a duty to fairly represent them. And in Cedar Point Nursery, the court struck down as an uncompensated taking of property a California regulation giving union organizers access to growers’ property for three hours per day, 120 days per year, for the purpose of speaking with farmworkers. In both cases, the court adopted a formalistic approach to interpreting the Constitution that placed little value on workers’ interests in associating with unions.151

V. Conclusion

At-will employment leaves workers vulnerable to losing their livelihoods for arbitrary reasons, including that they have offended their employer. Workers have been fired because they criticized their working conditions; because their political views were different than their employer’s; and because they let off steam on social media. These workers can rely on legal protections that are intended to protect certain types of speech—sometimes. But legal protections are limited and patchy, making it impossible for workers to know when they will be protected and when they will not be, and this degree of uncertainty is only compounded by the difficulties of enforcing one’s rights in court, post-discipline or termination. Employees are left to speak up at their own peril, undoubtedly making silence seem the safer choice.

Notes

1. See Feinman 1976 for a discussion of the origins of the at-will rule.

2. See also Restatement (Third) of Employment Law § 2.01 (Am. Law Inst. 2015): “Either party may terminate an employment relationship with or without cause unless the right to do so is limited by a statute, other law or public policy, or an agreement between the parties, a binding employer promise, or a binding employer policy statement.”

3. At the same time, state power can become intertwined with employer power, such as when work is made a condition of parole or probation (Zatz 2020).

4. The principle that neither the Constitution’s Bill of Rights nor the 14th or 15th Amendments constrain private citizens is known as the “state-action” requirement. There are a limited number of situations in which courts will treat nominally private actors as government entities for constitutional purposes. For example, in Marsh v. Alabama, the U.S. Supreme Court held that the owner of a “company town” should be treated as a government actor for purposes of evaluating a religious proselytizer’s claim that she had a First Amendment right to stand on a sidewalk to distribute religious literature, just as she would in a regular town. 326 U.S. 501, 509 (1946). More recently, the court has construed exceptions to the state action requirement narrowly, meaning that there are few situations in which employees would be able to argue successfully that their private-sector employer should be required to comply with constitutional standards. For a discussion of the role that the state-action requirement has played in the development of U.S. work law, see generally Lee 2014.

5. In the early days of the NLRA, the National Labor Relations Board (NLRB) adopted a version of this rule. Then, in 1941, the Supreme Court addressed an employer’s contention that the First Amendment protected its right to express its views that its employees should not unionize. The court wrote that employers were free to express their “view[s] on labor policies or problems,” although it also wrote that “[t]he mere fact that language merges into a course of conduct does not put that whole course without the range of otherwise applicable administrative power. In determining whether the Company actually interfered with, restrained, and coerced its employees the Board has a right to look at what the Company has said as well as what it has done.” NLRB v. VA Elec. & Power Co., 314 U.S. 469, 478 (1941). Then, in the 1947 Taft-Hartley amendments, Congress adopted what is known as § 8(c) of the NLRA, which states that the “expressing of any views, argument, or opinion . . . shall not constitute or be evidence of an unfair labor practice under any of the provisions of this subchapter, if such expression contains no threat of reprisal or force or promise of benefit.” In 2013, the D.C. Circuit relied on § 8(c) to strike down a rule requiring employers to post a notice informing employees of their rights under the NLRA.

6. This section mainly focuses on situations in which the at-will rule is reversed because employees have statutory protections. However, there are also a small number of judge-made exceptions to the at-will rule. Professor Lea VanderVelde enumerated five common-law limitations on the at-will rule: “1) implied in fact [contract], 2) promissory estoppel, 3) covenant of good faith and fair dealing, 4) public policy considerations that override private orderings, and 5) torts of abusive or outrageous conduct, such as intentional infliction of emotional distress” (VanderVelde 2012, 374).

7. On the other hand, collective bargaining agreements (CBAs) also often waive workers’ rights to engage in collective action. For example, no strike clauses are commonly included in CBAs, so that employers are essentially trading better wages and working conditions for “labor peace.” See Emporium Capwell Co. v. Western Addition Cmty Org., 420 U.S. 50 (1975).

8. In private-sector colleges and universities, tenure is, at minimum, a contractual guarantee that a tenured professor will not be dismissed without cause; in the public sector, tenure is often backed by a statutory guarantee. In addition to the substantive aspect of just-cause protection, tenured faculty usually have a right to due process before they can be disciplined or terminated. See Neumann 2017.

9. Some courts have treated employee handbooks as establishing an employment contract. However, these claims are tenable only when a handbook promises continued employment; as employers (and their lawyers) realized that a handbook could be construed as a contract, they could and did redraft handbooks to include disclaimers and emphasize employment at will. See Porter 2008, 67, and Pincus and Gillman 1983, 1009.

10. NLRB v. J. Weingarten, Inc., 420 U.S. 251 (1975).

11. The New York law was seemingly passed at least in part in response to reports of fast-food employers firing workers for their expression or self-presentation. See Eidelson 2021 (discussing a Chipotle worker who reported being fired because she wasn’t smiling at work, who then worked “with union organizers and local officials” on New York’s law).

12. Mt. St. 39-2-903.

13. Montana courts have interpreted the good-cause statute to protect whistleblowers, though they have also expressed unwillingness to micromanage employers’ decisions and emphasized that employers retain discretion, especially when deciding whether to fire manager-level employees. See Krebs v. Ryan Oldsmobile, 843 P.2d 312, 316 (1992) (good-cause statute protects employees who report employer’s illegal activity to police); Moe v. Butte-Silver Bow Cty., 371 P.3d 414, 427 (Mont. 2016); Bird v. Cascade Cty., 386 P.3d 602, 609 (Mont. 2016). For a comprehensive discussion of Montana’s law, including its procedures and limitations, see generally Corbett 2005.

14. MT. Stat. § 39-20905 (allowing employees to recover up to four years of lost wages and benefits, subject to the employee’s obligation to mitigate damages, and allowing punitive damages if the employee can prove by clear and convincing evidence that the employer “engaged in actual fraud or actual malice” in firing the employee).

15. NYC Int. 1396-A.

16. Id.

17. Id.

18. Id.

19. Id.

20. Occasionally, state law will duplicate the NLRA’s protection for specific types of activity. For example, the NLRA protects workers who disclose their wages to each other in order to advocate for fairer pay policies—but in addition, a few states have adopted statutes that also protect workers’ pay disclosure. E.g., VT. Stat. Ann. Tit. 21 § 495(a)(8)(B).

21. E.g., Hoffman Plastic Compounds, Inc. v. NLRB, 535 U.S. 137 (2002) (holding that undocumented workers are covered by the NLRA but ineligible for backpay remedies).

22. E.g., NLRB v. Mackay Radio & Tel. Co., 304 U.S. 333 (1938).

23. 29 U.S.C. § 151.

24. 29 U.S.C. § 157. The full text of § 7 states that “[e]mployees shall have the right to self-organization, to form, join, or assist labor organizations, to bargain collectively through representatives of their own choosing, and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, and shall also have the right to refrain from any or all of such activities except to the extent that such right may be affected by an agreement requiring membership in a labor organization as a condition of employment as authorized in” § 8(a)(3).

25. 29 U.S.C. § 158(a).

26. The NLRA excludes some significant categories of workers, including agricultural workers, public-sector workers, some domestic workers, independent contractors, managers, and supervisors. Employees who are categorically excluded from the NLRA may be covered by another law; for example, many states have established collective bargaining rights for public-sector workers, and a few states have established collective bargaining rights for agricultural workers. In addition, railway and airline workers are covered by the Railway Labor Act.

27. This argument has been made forcefully by others. Key works in this vein include Klare 1978; Atelson 1983; Pope 2004; and Getman 2016.

28. Finkin (1985) evocatively illustrates how labor law can leave workers unprotected for arbitrary and unpredictable reasons.

29. See Fresh & Easy Neighborhood Market, Inc., 361 NLRB 151 *4 (2014) (concerted activity is “that which is ‘engaged in with or on the authority of other employees,’” including “’where individual employees seek to initiate or to induce or to prepare for group action’” (citing Meyers Indus., 268 NLRB 493 (1984) & Meyers Indus., 281 NLRB 882 (1986)).

30. Compare Alleluia Cushion Co., 221 NLRB 999 (1975) (employee engaged in protected concerted activity when he advocated for safety measures that would benefit all employees, even though he had not “discussed the safety problems with the other employees, solicited their support in remedying the problems, or requested assistance” in preparing a letter to regulators), with Meyers Indus., Inc., 268 NLRB 493 (1984) (overruling Alleluia Cushion, and holding that individual employee’s effort to address unsafe trucks was not protected concerted activity).

31. First, individual employees are acting concertedly when they make an appeal on behalf of a group, such as when workers discuss a problem together and then designate one member of the group to discuss the issue with the boss. Meyers Indus., 281 NLRB 882, 887 (1986) (“Meyers II”). Second, individual employees act concertedly when they attempt to initiate group activity or make a statement that implicitly seeks support from coworkers, even if the attempt falls flat. Id. Third, individual employees retain NLRA protection when they continue earlier concerted activity, as when one employee asserts rights under a collective bargaining agreement. NLRB v. City Disposal Systems, 465 U.S. 822 (1984) (holding that employee was engaged in concerted activity when he refused to drive a truck that he thought was unsafe, where he reasonably believed that the applicable collective bargaining agreement gave him the right to do so).

32. Even when single employees have not yet engaged in protected concerted activity—perhaps they have griped with their coworkers but have not yet moved toward action—an employer can still violate the NLRA if it fires or disciplines that employee in order to nip potential collective action in the bud. See Parexel Int’l, 356 NLRB 516 (2011).

33. Eastex, Inc. v. NLRB, 437 U.S. 556 (1978)

34. 437 U.S. 556 (1978).

35. Id. at 569–70.

36. Earlier examples also exist. In Kaiser Engineers, the NLRB agreed that a group of engineers was protected by the NLRA when the members wrote a letter to several legislators opposing a request by the company Bechtel that the Department of Labor authorize resident visas for engineers recruited outside the country. 213 NLRB 752 (1974) (enf’d Kaiser Engineers v. NLRB, 538 F.2d 1379 (9th Cir. 1976).

37. Ronald Meisburg, Memorandum GC 08-10, Office of the General Counsel NLRB, July 22, 2008.

38. Jayme Sophir, EZ Industrial Solutions, LLC, Case 07-CA-193475, Office of the General Counsel NLRB, Aug. 30, 2017.

39. For a thorough discussion of legal risks that confront workers and unions participating in Days Without Immigrants and similar protests, see Duff 2007.

40. NLRB v. Motorola, Inc., 991 F.2d 278, 285 (5th Cir. 1993) (“Employees acting as members of outside political organizations cannot demand the same § 7 rights as employees engaged in self-organization, collective bargaining, or in self-representation in disputes with management simply because the organization focuses on a workplace issue”).

41. Harrah’s Lake Tahoe Resort Casino, 325 NLRB 1244 (1992).

42. Second Amended Complaint and Notice of Hearing, Google & Communications Workers of Am., Case No. 20-CA-252802.

43. NLRB v. Local Union No. 1229, IBEW, 346 U.S. 464 (1953) (“Jefferson Standard”).

44. Id. at 468.

45. Id.

46. The board stated that the technicians “did not misrepresent, at least willfully, the facts they cited to support their disparaging report.” 94 NLRB 1507, 1511 (1951).

47. Id. at 1509–10.

48. NLRB v. Local Union No. 1229, supra, at 472.

49. 861 F.3d 812 (8th Cir. 2017).

50. Id. at 816.

51. Id. at 817.

52. Id. at 822.

53. Id. at 825 (quoting Diamond Walnut Growers, Inc. v. NLRB, 113 F.3d 1259 (D.C. Cir. 1997)).

54. The “bargaining for the common good” approach, for example, is based on the principle that unions can “use contract fights as an opportunity to organize with community partners around a set of demands that benefit not just the bargaining unit, but also the wider community as a whole.” This kind of approach looks beyond working conditions to consider how an employer affects the larger community in which it is situated, and therefore could involve criticism of the employer’s products or services.

55. In Clear Pine Mouldings, Inc., the board adopted an objective test that protects picketers’ speech unless “the misconduct is such that, under the circumstances existing, it may reasonably tend to coerce or intimidate employees in the exercise of rights protected under the Act.” 268 NLRB 1044, 1046 (1984) (citing NLRB v. W.C. McQuaide, Inc., 552 F.2d 519, 527 (3d Cir. 1977). “Coerce or intimidate” is a high bar: under this standard, the board had held that strikers do not lose the protection of the NLRA even when they use racist or sexist epithets, provided they do not overtly or impliedly threaten violence.

56. This line of caselaw is relatively new, and the board began by taking a flexible approach. Still, the board’s cases in this area tended to side with employers only where the employee’s speech was “egregious.” See, e.g., Pier Sixty LLC, 362 NLRB 505 (2015) (employee did not lose NLRA protection after venting on social media that his supervisor was “a nasty mother fucker,” in context of workplace where “vulgar language” was “rife”).

57. In Atlantic Steel, the board announced four factors to determine if an employee could be discharged for opprobrious speech in a conversation with management: “(1) the place of the discussion; (2) the subject matter of the discussion; (3) the nature of the employee’s outburst; and (4) whether the outburst was, in any way, provoked by an employer’s unfair labor practice.” 245 NLRB 814, 816 (1979). One might characterize the Atlantic Steel factors as a way of getting at whether the employee’s outburst was understandable under the circumstances: an employee’s profane outburst would be understandable in a workplace where profanity is common; or in response to an unfair labor practice; or because the employee believes the employer has made a consequential employment decision based on arbitrary or discriminatory criteria.

58. General Motors, 369 NLRB No. 127 (July 21, 2020).

59. Id. at *3.

60. Similar to the court’s reasoning in Jefferson Standard, the board relied on § 10(c) of the NLRA to conclude that the act did not change employers’ baseline “right” to fire employees for uncivil speech. The board held that it would apply the Wright Line standard, which is typically applied in “mixed motive” cases—those in which the employer argues that although it retaliated against an employee in part because of the employee’s § 7-protected activity, it would have made the same decision even in the absence of the activity. There are two important aspects to this change. First, under the new rule, the NLRB general counsel has to prove that the employer had “animus” against the § 7 activity, rather than simply proving that the employer took action against the employee because of protected concerted activity. Proving a mindset can be considerably more difficult than proving a sequence of events, making even strong cases harder to win. Second, the new standard gives employers more leeway to set rules governing employee speech—including speech that qualifies as protected concerted activity—although employers still may not apply stricter civility rules to § 7-protected speech than speech on other topics.

61. Id. at *10–11.

62. Id. This may have been a violation of the NLRA, which, as part of the duty of good faith bargaining, requires employers to provide economic information about subcontracting decisions that relate to labor costs.

63. “Tone policing” occurs when a listener dismisses the substance of a speaker’s questions or comments by focusing on the style of their delivery.

64. Studies show that people tend to perceive Black men as “larger, more threatening, and potentially more harmful in an altercation than a white person” (Lopez 2017). Although one cannot know for sure, this dynamic could have been present in the incident that led to Robinson’s first suspension. That incident began with a heated conversation in which Robinson accused a manager of going back on his word to pay overtime for certain employees. The manager testified that “Robinson’s behavior ‘was too aggressive not to allow…some sort of disciplinary action to occur,’” and that his “‘fight or flight mechanism kicked into high gear.’” A key question—though one without an answer—is whether the manager would have felt the same if Robinson had a different racial and/or gender identity.

65. This section focuses on the rights of an employer’s own employees, but other board- and court-constructed rules also impose strict limits on outside union organizers’ access to employer property. See, e.g., Lechmere, Inc. v. NLRB, 502 U.S. 527 (1992) (holding that in nearly all circumstances, employers may bar union organizers from the employer’s property). For further discussion of the relationship between property rights and the NLRA, see Pope 2004, 521–22.

66. Workplace “fissuring” occurs when “lead firms that collectively determine the product market conditions in which wages and conditions are set…become separated from the actual employment of the workers who provide goods or services,” and “the direct employers of low wage workers operate in far more competitive markets that create conditions for noncompliance” (Weil 2011, 34).

67. Republic Aviation v. NLRB, 324 U.S. 793 (1945).

68. Id. at 803; see also Peyton Packing Co., 49 NLRB 828, 843.

69. Stoddard-Quirk Mfg. Co., 138 NLRB 615, 619 (1962).

70. “Special circumstances” could relate to safety, business operations, or potentially other reasons. For example, the board accepted that special circumstances justified a rule prohibiting employees from wearing a union logo on a nonbreakaway lanyard that posed a safety risk. Sam’s Club, 349 NLRB 1007 (2007). Less plausibly, the Trump board accepted Wal-Mart’s explanation that it needed to ban employees from wearing large union buttons while they were on the selling floor for a combination of “customer satisfaction” and security reasons—specifically that the buttons might distract from the employee’s name badge. Wal-Mart Stores, Inc., 368 NLRB Bo. 146 *4 (Dec. 16, 2019). It is notable an employer’s public image can sometimes count as a “special circumstance” that justifies restricting employees from wearing union insignia; in one case, the board wrote that special circumstances exist where employees wearing union insignia or clothing would “unreasonably interfere with a public image that the employer has established as part of its business plan, through appearance rules for its employees.” Boch Imps., Inc., 362 NLRB No. 83 at *2 (2015), enf’d 826 F.3d 558 (1st Cir. 2016).

71. Purple Communications, 361 NLRB No. 126 (2014). This decision reversed an earlier decision that reached the same decision as Caesar’s Entertainment. Register Guard, 351 NLRB 1110 (2007). For an insightful discussion of the Purple Communications decision, see Hirsch 2015.

72. Caesar’s Entertainment d/b/a/ Rio All-Suites Hotel & Casino, 386 NLRB No. 143 (2019). The decision prioritized employer property rights over employees’ § 7 rights, reasoning that in-person solicitation and distribution were “adequate avenues of communication” and that employees could always supplement those avenues by using their personal email, phone, or social media accounts.

73. Republic Aviation, supra, at 803 n.10 (quoting Peyton Packing).

74. Compare Sandusky Mall Co., 329 NLRB 618 (1999), enforcement denied, Sandusky Mall Co. v. NLRB, 242 F.3d 682 (6th Cir. 2000) (board held employer could not prohibit union solicitation where it had allowed nonunion promotional activities on its premises), with Kroger Lt. P’Ship, 368 NLRB No. 64 (2019) (holding employer could eject union solicitors from premises while allowing “access for a wide range of charitable, civic, and commercial activities that are not similar in nature to protest activities). In First Amendment terms, the difference is that previous boards prohibited employers from engaging in content discrimination, whereas the Trump board viewed the nondiscrimination principle as reaching only viewpoint discrimination.

Even when the board took a broader view, circuit courts sometimes refused to enforce the board’s orders. For example, in 6 West Ltd. Corp. v. NLRB, 237 F.3d 767 (7th Cir. 2001), the court refused to enforce a board order finding that the employer had committed an unfair labor practice when it allowed employees to sell Girl Scout cookies and Christmas ornaments but barred employees from soliciting union membership. The court put its conclusion in terms of the employer’s freedom: “A restaurant in the United States of America should be free to prohibit solicitation on the premises that interfere with or bother employees or customers, and allow those solicitations which neither interfere with nor bother employees or customers.” Id. at 780.

75. It is possible for an employee to be “jointly employed”—for example, it can be appropriate to treat both an entity that signs employees’ paychecks and a client that directs their day-to-day work as employers of the employees.

76. New York New York Hotel & Casino, 356 NLRB 907, 916 (2011), enf’d. 676 F.3d 193 (D.C. Cir. 2012), cert. denied 133 S.Ct. 1580 (2013).

77. Bexar Cty. Performing Arts Ctr Fdn., 368 NLRB No. 46 (2019).

78. 18 U.S.C. § 1514A.

79. See generally Tippett 2007.

80. Those statutes are listed on the agency’s website.

81. Even here, though, there is a prerequisite: for the statute to protect employees who disclose to a public body, employees must first report the problem to their supervisor.

82. 42 U.S.C. § 2000e-3(a).

83. 42 U.S.C. § 12203(a) (“No person shall discriminate against any individual because such individual has opposed any act or practice made unlawful by [the ADA] or because such individual made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing under [[the ADA].”); 29 U.S.C. § 623(d) (“It shall be unlawful for an employer to discriminate against any of his employees or applicants for employment…because such individual…has opposed any practice made unlawful by this section, or because such individual…has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or litigation under [the ADEA].”)

84. For discussion and critique of this rule, see Carle 2016 and Eisenstadt and Geddes 2017.

85. 532 U.S. 268 (2001).

86. Id. at 269.

87. Id.

88. Id.

89. Id. at 270 (quoting Faragher v. Boca Raton, 524 U.S. 775, 786 (1998)).

90. Id. at 272 (alteration in original).

91. In a study that is now nearly 25 years old, Professor Pauline Kim surveyed “330 unemployed workers in the St. Louis metropolitan area,” and found that they “consistently overestimate the degree of job protection afforded by law, believing that employees have far greater rights not to be fired without good cause than they in fact have” (Kim 1997, 110).

92. Describing that Perkins’s lawyers told her that “he and his lawyers would try to destroy my credibility if I went to court. They told me he would try to destroy me and my family.”

93. Hamilton v. Juul Labs, Inc., No. 20-cv-03710, 2021 WL 5331451 (N.D. Cal. Nov. 16, 2021).

94. E.g., Cal. Labor Code § 1102.5. For a discussion of how nondisclosure agreements can potentially violate whistleblower laws, see Moberly, Thomas, and Zuckerman 2014; Rose and Rush 2020; and Lobel 2017 (discussing whistleblower protections under the Defend Trade Secrets Act).

95. EEOC v. Astra USA, Inc., 94 F.3d 738, 745 (1st Cir. 1996).

96. E.g., Brown v. TGS Management Co., 57 Cal.App. 5th 303 (Ct. App. 4th Div. 2020) (concluding that sweeping nondisclosure provision violated state restriction on noncompete agreements, because its breadth would “plainly bar Brown in perpetuity from doing any work in the securities filed, much less in his chosen profession of statistical arbitrage”).

97. E.g., Relco Locomotives, Inc., 358 NLRB 229 (2012) (affirming that nondisclosure agreement violated the NLRA because it “barred employees from disclosing to any third party information concerning ‘compensation, payments, correspondence, job history, reimbursements, and personnel records’” without authorization from “‘Relco’s Chief Legal Officer or Chief Administrative Officer,’” among other provisions).

98. Fla. Stat. § 69.081; see also Hemel 2017.

99. See generally Volokh 2012 (cataloging state laws protecting political activity).

100. Id. at 297–98.

101. NY Labor § 201-d(2).

102. See Wehlage v. Quinlan, 55 A.D.3d 1344 (N.Y. App. Div. 2008) (dismissing political discrimination claim where plaintiff alleged she was fired because of her political affiliation because plaintiff had not engaged in any of the activities enumerated in the definition of “political activities”); but see Richardson v. City of Saratoga Springs, 246 A.D.2d 900 (N.Y. App. Div. 1998) (stating, without discussion, that an employee had stated a claim for political discrimination when plaintiff alleged he was fired after wearing a sticker supporting a political candidate).

103. See Volokh 2012, 313–20.

104. Cal. Lab. Code § 1102.

105. Gay Law Students Ass’n v. Pacific Tel. & Tel. Co., 595 P.2d 592 (Cal. 1979).

106. N.J. Rev. Stat. § 34:19-10; Or. Rev. Stat. § 659.785.

107. “Lawful activities” statutes are offshoots of “lawful products” statutes. The latter protect employees’ consumption of products such as cigarettes and alcohol—though employees sometimes attempt to invoke these laws in new contexts, albeit generally without success. See, e.g., McGillen v. Plum Creek Timber Co., 964 P.2d 18 (Mont. 1998) (lawful products law did not protect employee who placed prank classified urging prospective buyers of a used truck to phone the employee’s boss at home late at night). For further discussion of these statutes, see Sprague 2008, 412–16; Melzer and Barth 2020; Bodie 2017; Finkin 2006; and Pagnattaro 2004.

108. § 96(k) of the state’s Labor Code allows the labor commissioner to take assignments of claims for “demotion, suspension, or discharge from employment for lawful conduct during nonworking hours away from the employer’s premises.” Cal. Lab. Code § 96(k). Then, § 98.6 of the Labor Code states that an employer “shall not discharge” or discriminate against employees because of “conduct described in” § 96(k). Taken together, one might read these provisions as establishing broad, unqualified protection for employees’ off-duty “lawful conduct” protection. But California courts have read this language to establish no new substantive right and instead to have only created an enforcement mechanism with respect to rights “otherwise protected by the Labor Code.” Grinzi v. San Diego Hospice Corp., 120 Cal.App.4th 72, 86–87 (Cal.App.Ct. 2004).

109. Colo. Rev. Stat. Ann. § 24-34-402-5.

110. Id.

111. Marsh v. Delta Air Lines, Inc., 952 F.Supp. 1458 (D. Colo. 1997); see also Oransky v. Martin Marietta Materials, Inc., 400 F.Supp. 3d 1143 (D. Colo. 2019) (employer did not violate the law by firing a sales employee who protested potential oil and gas exploration in her community because the oil and gas company that was the subject of the protest was also a client of the employer). In Watson v. Pub. Serv. Co. of CO, a Colorado court of appeals observed that “No Colorado appellate opinion has approved the Marsh court’s analysis.” 207 P.3d 860 (Colo.App. 2008).

112. Id. at 1462 (emphasis added).

113. Id. at 1463.

114. 721 F.2d 894 (3rd Cir. 1983).

115. Id. at 899.

116. See, e.g., Grinzi v. San Diego Hospice Corp., 120 Cal. App. 4th 72, 81-82 (2004) (citing cases from various jurisdictions); see also Restatement (Third) of Employment Law, supra, § 5.02 (“Most courts do not recognize wrongful-discharge claims against private employers based on free-speech rights because the federal and most state constitutional free-speech protections constrain governments, and thus do not apply to private-sector employers”).

117. 75 P.3d 733 (Idaho 2003).

118. Our Lady of Guadalupe Sch. v. Morrissey-Berru, 140 S.Ct. 2049, 2060 (2020).

119. The category of “ministerial employee” is broader than the phrase suggests; in addition to clergy, it includes other employees of religious institutions who play a role in shaping or communicating religious doctrine, including teachers in religious schools.

120. Id. (“Under [the ministerial exception] courts are bound to stay out of employment disputes involving those holding certain important positions with churches and other religious institutions.”)

121. See NLRB v. Catholic Bishop of Chicago, 40 U.S. 490, 504 (1979) (construing the NLRA to exclude parochial-school teachers from the act’s coverage).

122. See, e.g., Shaliehsabou v. Hebrew Home of Greater Wash., Inc., 363 F.3d 299 (4th Cir. 2004) (applying statutory ministerial exemption in wage-and-hour case and stating that the Fair Labor Standards Act’s ministerial exemption was coextensive with the constitutional ministerial exemption).

123. 42 U.S.C. § 2000e-1 (stating that Title VII does not apply to religious organizations “with respect to the employment of individuals of a particular religion to perform work” for the organization); Corp. of the Presiding Bishop v. Amos, 483 U.S. 327 (1987) (gymnasium run by religious entities associated with the Latter Day Saints church did not violate Title VII when it fired building engineer who “failed to qualify for…a certificate that he is a member of the Church and eligible to attend its temples”).

124. See McCreary Cty. v. ACLU, 545 U.S. 844 (2005) (upholding injunction requiring county to take down a courthouse display that included the Ten Commandments, where the surrounding context suggested an intent to promote a religious viewpoint).

125. Cf. Greece v. Galloway, 572 U.S. 565 (2014) (observing that government may not “proselytize or force truant constituents into the pews,” but upholding the legislative prayer practices at issue in the case because they were noncoercive).

126. This section discusses Title VII, but many states have analogous statutes, which may offer religious employees stronger protections.

127. 42 U.S.C. § 2000e(j).

128. See EEOC v. Abercrombie & Fitch Stores, Inc., 575 U.S. 768 (2015) (observing that while employers may have general “no headwear” policies, “when an applicant requires an accommodation as an ‘aspec[t] of religious…practice,’ it is no response that the subsequent ‘fail[ure]… to hire’ was due to an otherwise-neutral policy.”).

129. The statute requires employers to provide accommodations that do not impose “undue hardship,” but the Supreme Court interpreted that language to reach accommodations that would impose “more than a de minimis cost” on the employer. Trans World Airlines, Inc. v. Hardison, 432 U.S. 63, 77 (1977).

130. See Flake 2019, 83–87 (describing EEOC guidance and court decisions about whether employers must engage in an interactive process when responding to religious accommodation requests).

131. Lin 2021, 1828, 1836 (describing the “bargaining-based assumptions” embedded in the interactive process required under disability accommodations law and critiquing the model for failing to account for power imbalances between workers and employers). As Lin also points out, these problems with a bargaining-based approach to accommodations are likely to be especially serious where the employee lacks power for reasons including position in the workplace hierarchy, or marginalized personal identities.

132. See Wilson v. U.S. West Comm’ns, 58 F.3d 1337 (8th Cir. 1995) (holding employer satisfied its accommodation obligation when it allowed a worker to display religious materials at work but directed her to stop wearing (or cover up) an anti-abortion pin that included a color photograph of a fetus, which had been the subject of a complaint by another employee).

133. See Hardison, supra, at 79 (“we do not believe that the duty to accommodate requires TWA to take steps inconsistent with the otherwise valid [collective bargaining] agreement”).

134. See, e.g., MD Lab. & Empl. Code § 3-712; Cal. Lab. Code § 980; 820 Ill. Comp. Stat. 55/10.

135. See, e.g., Or. Rev. Stat. § 659A.330; Me. Rev. Stat. 26 § 616.

136. BLS 2022.

137. See Bd. of Regents v. Roth, 408 U.S. 564 (1972); Perry v. Sindermann, 408 U.S. 593 (1972).

138. Enquist v. Or. Dep’t of Agric., 553 U.S. 591, 599 (2008); see also NASA v. Nelson, 562 U.S. 134, 152 (2011) (“Like any employer, the Government is entitled to have its projects staffed by reliable, law-abiding persons who will efficiently and effectively discharge their duties” (internal quotations omitted).).

139. Garcetti v. Ceballos, 547 U.S. 410 (2006).

140. Connick v. Myers, 461 U.S. 138, 146 (1983) (“When employee expression cannot be fairly considered as relating to any matter of political, social, or other concern to the community, government officials should enjoy wide latitude in managing their offices, without intrusive oversight by the judiciary in the name of the First Amendment.”).

141. Id. at 148–49 (lawyer who distributed to her colleagues in the Orleans Parish District Attorney’s office a questionnaire about their shared working conditions was not speaking on matters of public concern when she asked about her coworkers’ confidence in supervisors, office morale, grievance procedures, and transfer policy; conversely, question about whether employees felt “pressured to work in political campaigns on behalf of office supported candidates” was of public concern); see also Waters v. Churchill, 511 U.S. 661, 665 & 680 (1994) (O’Connor, J.) (plurality opinion) (criticisms of hospital obstetrics department as a bad place to work would not qualify as a matter of public concern).

142. Pickering v. Bd. of Educ., 391 U.S. 563, 569 (1968).

143. For example, one way that speech could disrupt public service is if a lot of listeners assemble at a government building to protest. A standard that focuses on disruption thus allows for what the Supreme Court has called a “heckler’s veto”—a form of de facto viewpoint discrimination in which government gives in to listeners’ angry reactions and silences a speaker rather than incurring the costs necessary to protect an unpopular speaker, and which the court has said is not a basis to restrict speech in other contexts. See Forsyth Cty. v. Nationalist Movement, 505 U.S. 123 (1992) (striking down parade permit fee that varied based on expected costs of maintaining public order).

144. Waters v. Churchill, supra, at 674.

145. Borough of Duryea v. Guarnieri, 564 U.S. 379, 390 (2011).

146. Elrod v. Burns, 427 U.S. 347, 367-68 (Opinion of Brennan, J.) (patronage dismissals violate the First Amendment, except in the case of “policymaking positions”); Branti v. Finkel, 445 U.S. 507 (1980) (assistant public defenders could not be fired based on their political affiliations because “whatever policymaking occurs in the public defender’s office must relate to the needs of individual clients and not to any partisan political interests”). The court has also held that it violates the First Amendment for public employers to fire employees because of their perceived political affiliation. Heffernan v. City of Paterson, 16 S.Ct. 1412, 1416 (2016) (employer violated police officer’s First Amendment rights by firing him based on misperception that the officer supported a challenger to the incumbent mayor). Finally, the court has held that it violates the First Amendment for public employers to demand that employees take a “loyalty oath” indicating that the employee is not, and has not been within five years, a member of a communist or subversive organization. Wieman v. Updegraff, 344 U.S. 183 (1952).

147. United Public Workers of Am. v. Mitchell, 330 U.S. 75 (1947) (upholding Hatch Act’s prohibition on executive branch employees taking “any active part in political management or in political campaigns”); U.S. Civil Service Comm’n v. Nat’l Ass’n of Letter Carriers, 413 U.S. 548 (1973) (upholding Hatch Act, and stating that Congress may bar executive branch employees from a list of political activities, including “holding a party office, working at the polls, and acting as party paymaster for other party workers,” and also “organizing a political party or club; actively participating in fund-raising activities for a partisan candidate or political party; becoming a partisan candidate for, or campaigning for, an elective public office; actively managing the campaign of a partisan candidate for public office; initiating or circulating a partisan nominating petition or soliciting votes for a partisan candidate for public office; or serving as a delegate, alternate or proxy to a political party convention”).

148. Letter Carriers, supra, at 565–67 (Hatch Act prevents “machine politics” and promotes “confidence in the system of representative Government,” among other purposes).

149. Id. at 566–67.

150. 141 S.Ct. 2063 (2021).

151. A thorough criticism of these cases is beyond the scope of this report. However, there exists a substantial academic commentary on both cases, as well as on the deregulatory Constitution more generally. See, e.g., Bowie 2021 and Andrias 2018.

References

Abrams, Roger I., and Dennis R. Nolan. 1985. “Toward a Theory of ‘Just Cause’ in Employee Discipline Cases.” Duke Law Journal 1985: 594–623.

Allyn, Bobby. 2019. “Pa. Workers Forced to Choose Between Watching Trump, No Pay or Using Paid Time Off.” NPR, August 17.

Anderson, Elizabeth. 2017. Private Government: How Employers Rule Our Lives (and Why We Don’t Talk About It). Princeton University Press.

Andrias, Kate. 2018. “Janus’s Two Faces.” Supreme Court Review 2018: 21–58.

Atelson, James B. 1983. Values and Assumptions in American Labor Law. University of Massachusetts Press.

Bodie, Matthew T. 2017. “The Best Way Is Always Through: Changing the Employment At-Will Default Rule to Protect Personal Autonomy.” University of Illinois Law Review 2017: 223–69.

Bowie, Nikolas. 2021. “Antidemocracy.” Harvard Law Review 135: 160–219.

Bradford, Harry. 2017. “Murray Energy Miners Allege They Had to Give Up Pay to Attend ‘Mandatory’ Romney Rally.” HuffPost, December 6.

Bureau of Labor Statistics (BLS). 2022. “Union Members—2021.” Press release.

Carle, Susan D. 2016. “Angry Employees: Revisiting Insubordination in Title VII Cases.” Harvard Law & Policy Review 10, no. 1: 185–227.

Cassens Weiss, Debra. 2018. “Judge Tosses Wrongful Termination Claim by Woman Forced to Resign After Flipping Off Trump Motorcade.” ABA Journal, July 2.

Corbett, William L. 2005. “Resolving Employee Discharge Disputes under the Montana Wrongful Discharge Act (MWDA), Discharge Claims Arising Apart From the MWDA, and Practice and Procedure Issues in the Context of a Discharge Case.” Montana Law Review 66, no. 2: 329–404.

Duff, Michael C. 2007. “Days Without Immigrants: Analysis and Implications of the Treatment of Immigration Rallies Under the National Labor Relations Act.” Denver University Law Review 85, no. 1: 93–151.

Edwards, Kathryn Anne. 2022. Worker Mobility in Practice: Is Quitting a Right, or a Luxury? Economic Policy Institute.

Eidelson, Josh. 2020. “Covid Gag Rules at US Companies Are Putting Everyone at Risk.” Bloomberg BusinessWeek, August 27.

Eidelson, Josh. 2021. “Most Americans Can Be Fired for No Reason at Any Time but a New Law in New York Could Change That.” Bloomberg BusinessWeek, June 21.

Eisenstadt, Leora, and Deanna Geddes. 2017. “Suppressed Anger, Retaliation Doctrine, and Workplace Culture.” University of Pennsylvania Journal of Business Law 20, no. 1: 147–209.

Estlund, Cynthia L. 1995. “Free Speech and Due Process in the Workplace.” Indiana Law Journal 71, no. 1: 101–51.

Estlund, Cynthia L. 1996. “Wrongful Discharge Protections in an At-Will World.” Texas Law Review 74, no. 7: 1655–92.

Feinman, Jay M. 1976. “The Development of the Employment At Will Rule.” American Journal of Legal History 20, no. 2: 118-35.

Finkin, Matthew. 1985. “Labor Law by Boz—A Theory of Meyers Indus., Inc., Sears, Roebuck and Co., and Bird Engineering.” Iowa Law Review 71, no. 1: 155–98.

Finkin, Matthew W. 2006. “Life Away from Work.” Louisiana Law Review 66, no. 4: 945–74.

Flake, Dallan F. 2019. “Interactive Religious Accommodations.” Alabama Law Review 71: 67–114.

Garrahan, Matthew, 2017. “Harvey Weinstein: How Lawyers Kept a Lid on Sexual Harassment Claims.” Financial Times, October 23.

Getman, Julius G. 2016. The Supreme Court on Unions: Why Labor Law Is Failing American Workers. ILR Press.

Gray, Alex. 2016. “Freedom of Speech: Which Country Has the Most?” World Economic Forum.

Green, Aimee. 2019. “Lawsuit: Oregon Construction Worker Fired for Refusing to Attend Bible Study.” Oregon Live, January 29.

Green, Matthew W. Jr. 2014. “What’s So Reasonable About Reasonableness? Rejecting a Case Law-Centered Approach to Title VII’s Reasonable Belief Doctrine.” University of Kansas Law Review 62, no. 3: 759–812.

Hemel, Daniel. 2017. “How Nondisclosure Agreements Protect Sexual Predators.” Vox, October 13.

Hertel-Fernandez, Alex. 2018. Politics at Work: How Companies Turn Their Workers into Lobbyists. Oxford University Press.

Hirsch, Jeffrey M. 2015. “Worker Collective Action in the Digital Age.” West Virginia Law Review 117, no. 3: 921–59.

Kim, Pauline T. 1997. “Bargaining with Imperfect Information: A Study of Worker Perceptions of Legal Protection in an At-Will World.” Cornell Law Review 83, no. 1: 105–60.

Klare, Karl E. 1978. “Judicial Deradicalization of the Wagner Act and the Origins of Modern Legal Consciousness, 1937–1941.” Minnesota Law Review 62: 265–339.

Johnson, Jeffrey. 2019. “Non-Disclosure Agreements and Arbitration Clauses in the #MeToo Era.” JD Supra, August 29.

Lee, Sophia Z. 2014. The Workplace Constitution from the New Deal to the New Right. Cambridge University Press.

Lin, Shirley. 2021. “Bargaining for Integration.” New York University Law Review 96: 1826–1901.

Lobel, Orly. 2017. “The DTSA and the New Secrecy Ecology.” Business, Entrepreneurship, & Tax Law Review 1, no. 2: 369–82.

Lobel, Orly. 2018. “NDAs Are Out of Control. Here’s What Needs to Change.” Harvard Business Review, January 30.

Lopez, German. 2017. “Study: People See Black Men as Larger and More Threatening than Similarly Sized White Men.” Vox, March 17.

Melzer, Andrew, and Whittney Barth. 2020. “Whether Employees Can Be Fired for Participating in Peaceful Protests.” Illinois Law Review Online 2020: 221–34.

Mishel, Lawrence. 2022. The Legal “Freedom of Contract” Framework Is Flawed because It Ignores the Persistent Absence of Full Employment. Economic Policy Institute.

Moberly, Richard, Jordan A. Thomas, and Jason Zuckerman. 2014. “De Facto Gag Clauses: The Legality of Employment Agreements that Undermine Dodd-Frank’s Whistleblower Provisions.” ABA Journal of Labor & Employment Law 30, no. 1: 87–120.

Neumann, Richard K. Jr. 2017. “Academic Freedom, Job Security, and Costs.” Journal of Legal Education 66: 595–605.

Naidu, Suresh, and Michael Carr. 2022. If You Don’t Like Your Job, Can You Always Quit? Pervasive Monopsony Power and Freedom in the Labor Market. Economic Policy Institute.

Noah, Timothy. 2004. “Bumper Sticker Insubordination.” Slate, September 14.

Oswalt, Michael M. 2017. “The Right to Improvise in Low-Wage Work.” Cardozo Law Review 38, no. 3: 959–1040.

Pagnattaro, Marisa Anne. 2004. “What Do You Do When You Are Not at Work? Limiting the Use of Off-Duty Conduct as the Basis for Adverse Employment Decisions.” University of Pennsylvania Journal of Labor & Employment Law 6, no. 3: 625–84.

Perman, Stacy. 2018. “#MeToo Law Restricts Use of Nondisclosure Agreements in Sexual Misconduct Cases.” Los Angeles Times, December 31.

Phelan, Jessica. 2012. “Mitt Romney Tells Employers to ‘Make It Very Clear’ to Employees How to Vote.” The World, October 18.

Pincus, S. Richard, and Steven L. Gillman. 1983. “The Common Law Contract and Tort Rights of Union Employees: What Effect After the Demise of the At Will Doctrine.” Chicago-Kent Law Review 59, no. 4: 1007–39.

Pope, James Gray. 2004. “How American Workers Lost the Right to Strike, and Other Tales.” Michigan Law Review 103, no. 3: 518–53.

Porter, Nicole B. 2008. “The Perfect Compromise: Bridging the Gap Between At-Will Employment and Just Cause.” Nebraska Law Review 87, no. 1: 62–121.

Rose, Rachel V., and Joshua M. Russ. 2020. “Whistleblowing, Separation Agreements, and the Enforceability of Contractual Limitations.” Health Lawyer 32, no. 5: 61–6.

Rothstein, Mark A., Lance Liebman, and Kimberly A. Yuracko. 2015. Employment Law: Cases and Materials. 8th Edition. Foundation Press.

Scheiber, Noam, and Brian M. Rosenthal. 2020. “Nurses and Doctors Speaking Out on Safety Now Risk Their Job.” New York Times, April 9.

Shammas, Brittany, and Hanna Knowles. 2021. “A Trader Joe’s Employee Called for Stronger Coronavirus Measures. The Company Fired Him.” Washington Post, February 28.

Smith, Terry. 2003. “Everyday Indignities: Race, Retaliation, and the Promise of Title VII.” Columbia Human Rights Law Review 34, no. 3: 529–74.

Spooner, Rachel S. 2020. “The Goldilocks Approach: Finding the ‘Just Right’ Legal Limit on Nondisclosure Agreements.” Hofstra Labor & Employment Law Journal 37, no. 2: 331–78.

Sprague, Robert. 2008. “Rethinking Information Privacy in an Age of Online Transparency.” Hofstra Labor & Employment Law Journal 25, no. 2: 395–417.

Stone, Will. 2020. “An ER Doctor Lost His Job After Criticizing His Hospital on COVID-19. Now He’s Suing.” NPR, May 29.

Tippett, Elizabeth C. 2007. “The Promise of Compelled Whistleblowing: What the Corporate Governance Provisions of Sarbanes Oxley Mean for Employment Law.” Employee Rights and Employment Policy Journal 11, no. 1: 1–52.

Tippett, Elizabeth C. 2018. “Harassment Trainings: A Content Analysis.” Berkeley Journal of Employment & Labor Law 39, no. 2: 481–526.

United Auto Workers (UAW) and Ford Motor Company. 2019. Agreements Between UAW and the Ford Motor Company, Volume 1, Agreements Dated October 30, 2019 (Effective November 18, 2019).

VanderVelde, Lea. 2012. “The Proposed Restatement of Employment Law at Midpoint.” Employee Rights and Employment Policy Journal 16, no. 2: 359–93.

Volokh, Eugene. 2012. “Private Employees’ Speech and Political Activity: Statutory Protection Against Employer Retaliation.” Texas Review of Law & Policy 16, no. 2: 295–336.

Weil, David. 2011. “Enforcing Labour Standards in Fissured Workplaces: The U.S. Experience.” Economic and Labor Relations Review 22, no. 2: 3–54.

Zatz, Noah. 2020. “Get to Work or Go to Jail: State Violence and the Racialized Production of Precarious Work.” Law and Social Inquiry 45, no. 2: 304–38.

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, in combination with prohibitive conditions imposed by employer practices, public policy, incomplete information about job opportunities, and geographic immobility, 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. Attempts to explain the gap often cite observed average differences in human capital—particularly, education or skills—between black and white workers as a primary cause. But African Americans have made considerable gains in high school and college completion over the last four-and-a-half decades—both in absolute terms as well as relative to whites—and those gains have had virtually no effect on equalizing employment outcomes. Indeed, the significant racial disparities in unemployment that are observed at each level of education, across age cohorts, and among both men and women are the strongest evidence against the notion that education or skills differentials are responsible for the black-white unemployment gap.

Another defining feature of racial inequality in the labor market is the significant pay disparities between black and white workers. In 2019, the typical (median) black worker earned 24.4% less per hour than the typical white worker. This is an even larger wage gap than in 1979, when it was 16.4%. Controlling for racial differences in education, experience, and the fact that black workers are more likely to live in lower-wage Southern states leaves an unexplained gap of 14.9% in 2019 (out of a total average gap of 26.5%). This is up from an unexplained gap of 8.6% in 1979 (out of a total average gap of 17.3%). Any simple or rational explanation for this disparity is further complicated by the fact that racial wage gaps among men are significantly larger than among women.

Racial wage gaps also have widened amid the broader trend of growing wage inequality, as black workers have reaped even fewer gains from increased aggregate productivity than white workers. While net productivity per hour worked increased 69.6% (1.8% per year) between 1979 and 2019, median wages grew by only 14% (0.4% per year). Over this same time, the median wage of black workers grew at a meager 5.2% (0.1% per year) and the median wage of white workers grew 20.0% (0.5% per year).

The economic theories most often invoked to explain observed racial differentials in labor market outcomes are human capital theory, taste-based models of discrimination, and statistical models of discrimination. But each of these models falls short in its attempt to explain long-standing racial disparities in unemployment and pay while blatantly denying the persistence of discrimination. Despite compelling empirical evidence and a solid historical record that points to discrimination as a significant factor in the persistence of racial disparities in the labor market, the interpretation of those disparities is an ongoing debate in the field of economics.

When economists get a statistically significant coefficient on race after estimating a wage equation that controls for standard measures of individual productive capacity (e.g., education, experience) and macroeconomic conditions (e.g., state or regional fixed effects), as well as race and gender, what does that mean? Do we interpret that coefficient as evidence of racial discrimination, or does it reflect some unobserved or omitted variable? Devotees of the conventional economic theories described above tend to dismiss discrimination as a valid or significant explanation of the gaps in favor of the latter interpretation. But if there is some unobserved variable that would explain the statistically significant coefficient on race, it would also have to be strongly correlated with race. In its most basic form, race is nothing more than a socially constructed identifier, defined in the United States primarily by skin color—an arbitrary and superficial physical characteristic that has no relationship to one’s productive capacity. How then should we interpret that correlation?

Stratification economics was developed in response to the inadequacy of conventional economic theory to explain intergroup inequality in general and the persistence of racial disparities in particular. According to stratification economics, while discrimination is unjust, it also serves the functional role of preserving hierarchy. Therefore, persistent racial inequality arises when a dominant group seeks to maintain the hierarchy that affords it some degree of social or economic privilege. Under this framework, identity can be structured so that investing in, or associating with, a group identity can lead to economic returns and benefits. This treatment of identity as endogenous represents a major departure from more conventional economic models but is consistent with a set of alternative theories for explaining stubborn racial gaps in economic outcomes.

When we look at race and labor market discrimination in the context of workers’ bargaining power, it is important we recognize there are at least two complementary goals. With respect to wages, we want to shift the balance of power in a way that puts upward pressure on wages—particularly for wage earners at or below the median—and at the same time close racial wage gaps. We cannot rely on competitive markets alone to do this. Rather, interventions are required to address these inequalities. Appropriate design of those interventions requires that we expand the frameworks we use for understanding power, race, gender, and inequality so that we restructure systems and institutions to prevent discriminatory outcomes rather than enable them. 

Introduction 

The assumption of a perfectly competitive labor market is central to some of the most widely accepted theories in the field of labor economics. On the demand side of this market structure are many firms seeking to fill identical jobs. On the supply side are many workers who possess the same set of requisite skills for a given job opening, all of whom have perfect information about wages and job conditions and are able to move their labor freely, or without cost. The equilibrium price and quantity of labor—the market wage and level of employment, respectively—are those at which the amount of labor supplied by workers is equal to the amount of labor demanded by firms. Workers are paid the marginal product of their labor, and, in the long run, such a perfectly competitive labor market is theoretically at “full employment,” since all who are willing to work at the market wage can find a job that pays that wage.

Under these market conditions, employers are assumed to be wage takers: They are unable to hire or retain workers for less than the going market wage because no workers would willingly accept a job for less when they could easily transfer their labor to a competing firm that pays the market wage. In such markets, any differences in wages must be due to differences in productivity-related human capital.

In reality, however, labor market structures are far from perfectly competitive, and employers are rarely so powerless as to have no discretion in setting wages below marginal productivity or in paying different wages to equally productive and qualified workers. Since there is no absolute empirical standard of full employment—a condition implied by perfect competition—economists often disagree over what the “full employment” unemployment rate is or should be. Nevertheless, the nation’s actual unemployment rate has been above even the Congressional Budget Office’s far-too-conservative estimates of the “natural rate of unemployment”—i.e., the NAIRU, the nonaccelerating inflation rate of unemployment—more often than not during the last 40 years (Bivens and Zipperer 2018), a period characterized by rising inequality. Indeed, since 1979 the monthly unemployment rate has been below 6% only approximately half the time; for blacks the rate has fallen below 6% for only a brief five months preceding the Covid-19 pandemic, and it has remained nearly double the national rate as racial wage gaps have widened.

The threat of unemployment, in combination with prohibitive conditions imposed by employer practices, public policy, incomplete information about job opportunities, and geographic immobility, means that workers often cannot change jobs or employers easily and without cost. This imbalance of power between employers and employees disproportionately disadvantages black workers when racial identity is used to assign privilege or disadvantage in the labor market context.

This paper presents persistent racial inequality in unemployment and wages as outcomes that have been ignored or dismissed and remain unsatisfactorily explained by conventional economic theory. For instance:

• The significant racial disparities in unemployment that are observed at each level of education, across age cohorts, and among both men and women are the strongest evidence against the notion that education or skills differentials are responsible for the black-white unemployment gap.
• Less than half of the observed black-white difference in average hourly wages is explained by differences in education, experience, or region—the main factors presumed to determine pay. However, changes in the racial wage gap track closely with changes in policy, such as civil rights enforcement, and with structural trends contributing to greater wage inequality. 
• Black workers in the public sector face smaller unexplained wage gaps than their counterparts in the private sector. Historically, the appeal of better job opportunities and greater pay equity in the public than in the private sector has contributed to black workers’ disproportionate employment share in the public sector as well as higher average rates of union membership.
• The economic theories most often invoked to explain the observed racial differentials in labor market outcomes—human capital theory, taste-based models of discrimination, and statistical models of discrimination—are historically and empirically inconsistent with the persistence of black-white wage disparities. 

• In contrast to conventional economic models, stratification economics treats group identity (race) as a construct and acknowledges the persistence of racial inequality resulting from discrimination’s functional role in preserving a hierarchy that benefits the dominant group.

The paper proceeds as follows. Section I summarizes the data describing racial disparities in unemployment, and Section II looks at wages. In Section III we highlight examples of how disparities in bargaining power play out for black workers. In Section IV we review the prevailing economic theories used to interpret racial inequalities in labor market outcomes and present challenges to and shortcomings of those theories. In Section V we present stratification economics as a more appropriate framework for understanding the imbalance of power inherent in the social structures that perpetuate racial inequality in labor market outcomes. 

I. Racial disparities in unemployment

One of the most durable and defining features of the U.S. labor market is the large and persistent disparity in unemployment that exists between black and white workers. This disparity is well-documented in decades of publicly reported official estimates from the Bureau of Labor Statistics (BLS) dating back to 1954, when the agency first began reporting rates of unemployment by race (i.e., white and nonwhite1). In 1972, BLS began disaggregating the nonwhite unemployment rate and reporting an unemployment rate for blacks alone. According to this measure, black job seekers are about half as likely to secure employment during a consecutive four-week search period as are white job seekers. Figure A illustrates this pattern, showing that the ratio between the black and white unemployment rates has consistently been about 2-to-1 since 1972. The pattern has persisted across multiple periods of economic growth and contraction, including in 2019 when, after 10 years of job growth, the black unemployment rate fell to a historic low of 6.1% but was still twice as high as the white unemployment rate of 3.0%.

Figure A

Attempts to explain the black-white unemployment rate gap often cite observed average differences in human capital—particularly, education or skills—between black and white workers as a primary reason for the disparity. While conventional human capital theory does not explain the presence of unemployment apart from wage or price rigidities, patterns of unemployment by educational attainment and age are clearly documented in national statistics. According to these data, those with higher levels of education and more potential work experience, as indicated by their age, tend to have lower rates of unemployment than those with lower levels of education and less work experience.

However, observed racial differences in education fail to account for the 2-to-1 black-white unemployment rate disparity, and an exposition of trends in educational attainment and unemployment by race helps to clarify why this explanation falls short. African Americans have made considerable gains in high school and college completion over the last four-and-a-half decades—both in absolute terms as well as relative to whites—but those gains have had virtually no effect on equalizing employment outcomes between black and white workers.

Figure B shows that in 1972 fewer than four out of 10 (36.6%) African American adults age 25 or older had a high school diploma. By 2019 that share had grown to almost nine out of 10 (87.9%); among 25- to 29-year-old African Americans the share had grown to more than nine out of 10 (91.0%), indicating a continuation of the longer-term upward trend. This large increase in high school completion rates among black students helped to narrow the black-white difference in high school completion. In 1972, African Americans trailed whites by 23.8 percentage points (60.4% of whites, compared with 36.6% of blacks). In the most recent data, the difference is only 6.7 percentage points (94.6% for whites versus 87.9% for African Americans).2 

Figure B

College graduation rates have also increased for African Americans. Figure C shows that among those age 25 or older just 5.1% had a four-year college degree in 1972, but by 2019 that share had grown to 26.1%, a fivefold increase. Over the same period, college completion also expanded for whites, but the increase was just over threefold, from 12.6% in 1972 to 40.1% in 2019. As a result, the relative situation of African Americans also improved over this time: In 1972 blacks were just 40.5% as likely as whites to have a four-year college degree (12.6% for whites and 5.1% for blacks), compared to 71.9% today (40.1% for whites and 26.1% for blacks). 

Figure C

However, focusing only on the share of people with a four-year college degree obscures the broader shift to a more highly educated black workforce. Currently, a majority of black high school graduates (55.3%) go on to pursue some level of postsecondary education. More than one-fourth (29.2%) of African Americans age 25 or older have some college education, even if they are not bachelor’s degree holders. This includes 10.6% who earned a two-year associate degree.

Further, there is evidence that, compared to white youth from families with similar income levels, black students are actually more likely to seek higher levels of education, in part because they have fewer less-formal opportunities for economic advancement, such as social networks, family relationships, and institutional mechanisms (Mason 1997; Mangino 2010, 2012). But while these investments in higher education improve employment prospects for black college graduates relative to black noncollege graduates, on average they do not yield outcomes equivalent to those of similarly educated whites.

The significant racial disparities in unemployment that are observed at each level of education (Figure D) are the strongest evidence against the notion that education or skills differentials are responsible for the black-white unemployment gap. In terms of education, the black-white unemployment rate ratio has hovered around 2-to-1 at every level for most of the last 41 years. In that time, only black workers with advanced degrees have approached anything near parity with their white counterparts, as measured by the unemployment rate. In practical terms, this means that black workers are not just twice as likely to be unemployed as similarly educated white workers, but they are often more likely to be unemployed than less-educated whites.

Figure D

The 2-to-1 ratio is also remarkably consistent across age cohorts (Figure E) and among both men and women (Figure F). Older black workers have lower rates of unemployment than younger black workers, but in every age cohort black workers remain roughly twice as likely to be unemployed as white workers.

Figure E

Figure F

These empirical data are consistent with field experiments revealing that black job applicants with equivalent, and sometimes superior, credentials to white applicants are less likely to receive job callbacks (Turner, Fix, and Struyk 1991; Fix, Galster, and Struyk 1993; Bendick, Jackson, and Reinoso 1994). Among the starkest findings in this regard is the audit study of Pager (2003), demonstrating that employers treated whites with criminal records more favorably than blacks without criminal records. Agan and Starr (2018) find that failure to distinguish between applicants with criminal records and those without, as is done through Ban the Box policies, actually reduces outcomes for black applicants without a criminal record. Though research on the impact of Ban the Box policies yields mixed results, discrimination against black workers remains the central unresolved issue. 

While audit and correspondence studies have been criticized for not adequately capturing unobserved characteristics that might influence hiring decisions, Neumark (2012) has shown how robust these findings can be to such considerations. Quillian et al. (2017) show that subsequent field experiments reveal a pattern of discrimination experienced by blacks in particular that has remained constant over time.

Together, these patterns strongly suggest that racial discrimination—and not inadequate education or lack of skills on the part of black workers—is the most plausible explanation for persistent racial disparities in unemployment. Moreover, currently observed racial differences in employment and education have been shaped by the United States’ long history of racial oppression that outright denied or severely limited black American access to the same formal educational and employment opportunities available to whites.

II. Racial disparities in pay 

Another defining feature of racial inequality in the labor market is the significant pay disparities between black and white workers. Most empirical research on black-white wage inequality has taken one of two approaches to estimating and explaining observed differences in pay. Trend analysis has focused on understanding the causes behind the black-white wage gap’s four distinct periods of change: the gap’s dramatic narrowing during the latter part of the 1960s through the 1970s, the reversal of that pattern during the 1980s, the brief period of improvement during the late 1990s, and the post-2000 expansion of the gap.

The other common approach has been to examine how much of the observed pay gap between black and white workers can be attributed to differences in so-called “cognitive skills.” In this section, we focus primarily on presenting patterns and trends in black-white wage disparities between 1979 and 2019. We provide our review and critique of the cognitive skills and human capital literature in subsequent sections.

In 2019, the typical (median) black worker earned 24.4% less per hour than the typical white worker. This is an even larger wage gap than in 1979, when it was 16.4%. Black workers face these significant and growing pay penalties relative to white workers even after controlling for characteristics assumed to be related to productive capacity, like education and experience.

As shown in Figure G, controlling for racial differences in education, experience, and the fact that black workers are more likely to live in lower-wage Southern states leaves an unexplained gap of 14.9% in 2019 (out of a total average gap of 26.5%). This is up from an unexplained gap of 8.6% in 1979 (out of a total average gap of 17.3%).

Figure G

Any simple or rational explanation for this disparity is further complicated by the fact that racial wage gaps among men are significantly larger than among women. Over this same period, the unexplained black-white wage gap increased 7.3 percentage points among men (from 8.6% in 1979 to 14.9% in 2019) and 6.8 percentage points among women. Notably, the unexplained portion of the racial wage gap among women was minimal (1.4%) in 1979 but had expanded to 8.6% by 2019.

These patterns run counter to the notion that productive capacity, as measured by education specifically, is the prevailing determinant of wages. Less than half of the observed black-white difference in average hourly wages is explained by differences in education, experience, or region—some of the main factors presumed to determine pay. While black-white pay differentials are smaller among women than among men, the intersection of race and gender imposes much larger wage penalties for black women relative to white men. As shown in Figure H, in 2019 black women were paid 33.7% less than their white male counterparts, which was a much larger gap than that faced by either white women (25.7%) or black men (22.2%).

Figure H

The trend analysis research finds that changes in the racial wage gap track closely with changes in policy. The narrowing of the gap from the late 1960s through the 1970s can be attributed to the passage of important civil rights legislation (Bound and Freeman 1989; Card and Krueger 1992; Donohue and Heckman 1991), combined with the 1960s economic boom, active enforcement of anti-discrimination and affirmative action policy (Betsey 1994; Fosu 1992; Heckman and Payner 1989; Leonard 1990), and the narrowing of the educational attainment gap between blacks and whites (Carlson and Swartz 1988; Cunningham and Zalokar 1992; Zalokar 1990). On the other hand, the widening of the gap during the 1980s was the result of retrenchment on anti-discrimination policy (Leonard 1990), growing general wage inequality (Blau and Beller 1992), deterioration in the manufacturing sector, and a decline in union representation (Bound and Freeman 1989; Wilson and Rodgers 2016).

The expansion of the black-white wage gap since the 1980s, and certainly during the post-2000 period, is also consistent with the structural trends contributing to greater wage inequality. These include: (1) limited wage growth among middle- and low-wage workers (Gould 2020); (2) above-average growth among the highest-wage workers, particularly chief executive officers (CEOs) and the top 1% (Mishel and Kandra 2021); and (3) racial inequality in hiring, pay, and opportunities for promotion that results in overrepresentation of black workers among low- to middle-wage occupations and underrepresentation among high-wage occupations (Hamilton, Austin, and Darity 2011; Abayomi and Hawkins 2009).

The divergence of productivity growth and median hourly wage growth also points to growing wage inequality in a way that challenges assumptions about competitive labor markets. In competitive labor markets, where it is assumed that employers have no power to set wages below the market wage and workers are paid a wage equal to their marginal productivity, productivity and wages should move together. While this was generally true in the three decades following World War II, beginning around 1973 inflation-adjusted hourly compensation (including employer-provided benefits and wages) grew at a markedly slower rate than economywide productivity. This pattern is documented by Bivens and Mishel (2015), who estimate that over two-thirds of this productivity-pay gap can be explained by rising inequality, which is characterized by greater inequality in compensation and the fact that a smaller share of national income has been going to workers relative to capital owners.

The emergence of the productivity-pay gap calls into question the assumption of wage-taking behavior on the part of employers. An emerging literature on monopsony offers a broader interpretation of employers’ power that goes beyond the simple definition of labor market concentration (i.e., the proverbial one-company town). Rather, monopsony encompasses any power employers have that allows them to cut wages without fear of losing a large share of their workers. While there are several studies estimating employees’ likelihood to exit jobs in response to wage changes (Webber 2015, 2020; Dube, Giuliano, and Leonard 2019; Dube et al. 2020; Bassier, Dube, and Naidu 2020; Azar, Marinescu, and Steinbaum 2019; Langella and Manning 2020; Card et al. 2018; Sokolova and Sorensen 2020), Webber (2020, 18) succinctly concludes: 

The majority of firms compete for workers in labor markets where the typical employee is highly unlikely to move in response to small or even modest changes in their wage. This gives these firms considerable latitude to pay lower wages without worrying about a mass exodus of employees. 

Further, Bassier, Dube, and Naidu (2020) report that employers can “mark down” wages by anywhere from 20% to 50%. While evidence of rising monopsony power in the years since the late 1990s is mixed, studies consistently find that employers can exert more power over low-wage workers, affirming the link between employer power and wage inequalities. Among low-wage hourly workers, indirect wage cuts can also take place in the form of unstable work hours that are too low to qualify the worker for employer-provided benefits, such as health insurance or retirement savings. 

Racial wage gaps also have widened amid the broader trend of growing wage inequality, as black workers have reaped even fewer gains from increased aggregate productivity than white workers. Figure I shows that between 1979 and 2018 median hourly real wage growth fell far short of productivity growth. While net productivity per hour worked increased 69.6% (1.8% per year) during this period, median wages grew by only 14% (0.4% per year). Over this same time, the median wage of black workers grew at a meager 5.2% (0.1% per year) and the median wage of white workers grew 20.0% (0.5% per year).

Figure I

It is also clear from Figure I that the strongest period of wage growth during this time occurred between the mid-1990s and early 2000s. The period of low unemployment and strong wage growth between 1995 and 2000 has been cited as a key contributor to some brief narrowing of the black-white wage gap during this time (Wilson 2015), while others assert that the rise in mass incarceration during the 1990s is responsible for artificially increasing the average wage of black men by removing a disproportionate share of those who were “less skilled” or lower-wage earners from the labor force (Neal and Rick 2014).

Since 2000, the black-white wage gap has continued to widen (Wilson and Rodgers 2016; Gould 2020). One of the most troubling trends of the post-2000 period has been the fact that the black-white wage gap has grown most among workers with a bachelor’s degree, and discriminatory differentials are also higher among the more highly educated (Tomaskovic-Devy, Thomas, and Johnson 2005; Wilson and Rodgers 2016). In fact, while the tight labor market of the late 1990s delivered faster wage growth to black college graduates than white college graduates in the five-year period from 1996 to 2000, the wages of black college graduates fell between 2015 and 2019—corresponding to the last five years of the recovery from the Great Recession, when unemployment rates were closest to those during 1996–2000 (Figure J). By contrast, the wages of white college graduates increased between 2015 and 2019 (Gould and Wilson 2019).

Figure J

III. Examples of bargaining power in action 

The imbalance of power between employers and employees is both a cause and consequence of the racial disparities in labor market outcomes that we have detailed above. One of the things that gives an employee or potential employee greater leverage at the bargaining table is the existence of equally or more attractive employment alternatives—a condition that is facilitated by tighter labor markets. However, over the last four decades there has been insufficient vigilance in fighting unemployment.

As shown in Figure K, between 1979 and 2019 the actual unemployment rate exceeded estimates of the NAIRU by an average of roughly 0.8 percentage points each year. Failure to meet even this arguably too-conservative employment target has weakened the bargaining power of the vast majority of workers, as evidenced by growing wage inequality over this period. Black workers have suffered some of the greatest harm from policy decisions that allowed excessive unemployment in pursuit of misguided inflation targets intended to limit wage growth.

Figure K

The widening of wage gaps between black and white workers over these same years further suggests that the perpetual 2-to-1 unemployment disparity further eroded black workers’ bargaining power relative to white workers. This diminished leverage can affect a worker’s willingness to challenge unfair and unsafe working conditions given concerns about how long it may take to find another job if the worker were to leave or be terminated from the current job as an act of employer retaliation. Long-standing racial disparities in income and wealth also raise the stakes associated with leaving or losing a job more for black workers than for white workers.

Race, unequal power, and the Covid-19 crisis 

The Covid-19 pandemic and recession offer the most recent example of the resilience of racial inequality and stratification in the labor market and how they generate disparate outcomes and unequal bargaining power. When businesses, schools, and other public places responded to the public health crisis in mid-March 2020 by simultaneously closing their doors, three distinct groups of workers quickly emerged. The first group included tens of millions of workers who lost jobs. Workers in the second and third groups both retained their jobs but under very different conditions.

“Essential” frontline workers were required to continue physically reporting to work, while those not in that category were able to work remotely from the safety of their homes. Black workers were least likely to be among those able to retain employment under remote working arrangements: Less than one-fifth had the option to work from home, compared to almost one-third of white workers. Therefore, black (along with Hispanic and Native American) workers were more likely than whites to suffer job loss or be compelled to put their health at risk in exchange for a measure of job security (Gould and Wilson 2020).

One of the structures contributing to such racially disparate impacts is occupational segregation, characterized by overrepresentation of black workers, and especially black women workers, in low-wage occupations and underrepresentation in higher-wage occupations. The Covid-19 crisis popularized the term essential worker, drawing attention to the fact that black workers occupy a disproportionate share of lower-wage jobs in major frontline industries, often with inconsistent work hours (thus, inconsistent pay) and without paid leave or employer-provided health coverage. Rho, Brown, and Fremstad (2020) report that black workers make up a disproportionate share of frontline workers across six sectors of the economy that are considered essential.

While black workers represent 11.9% of all workers, they make up about one in six (17%) of frontline-industry workers. This category includes employment in public transit (26.0%); child care and social services (19.3%); trucking, warehouse, and postal service (18.2%); health care (17.5%); and grocery, convenience, and drug stores (14.2%).

Except for those in health care, none of these workers had any prior professional obligation that would require them to put their health at risk. Absent policy intervention, union representation, or a sympathetic employer, few had any assurances that they would be compensated for the increased risk.

Public-sector vs. private-sector racial wage gaps and the role of unions 

Given the amount of power an employer holds over any individual worker, it becomes necessary to establish a countervailing force that builds sufficient power among workers through a stronger collective voice with which to advocate for higher pay, better benefits, training and promotional opportunities, and protections against discrimination and harassment. In a unionized workforce, for example, collective bargaining results in labor contracts that help to create greater transparency and consistency through clearly defined policies and pay structures. These contracts play a critical role in reducing the potential for pay discrimination by limiting an employer’s discretion in paying different wages to comparably qualified individuals doing the same job and providing workers with critical protections and recourse against other forms of exploitation or mistreatment.

These conditions are more likely to exist in the public sector than in the private sector because in the former a larger share of the workforce is covered by a union contract: 39% of public-sector employees are in a union or covered by a union contract, compared to only 7% of private-sector workers. Historically, the appeal of better job opportunities and greater pay equity in the public than in the private sector has contributed to black workers’ disproportionate employment share in the public sector as well as higher average rates of union membership. Based on empirical analysis of wages among public- and private-sector employees, black workers in the public sector face smaller unexplained wage gaps than their counterparts in the private sector—6.9% versus 16.9%, respectively.3 Within the public sector, postal service jobs have been particularly valuable to black workers because of the uniform wage and benefit structure (all postal employees who have the same job title and job tenure are paid the same nationwide) and higher pay relative to comparable private-sector employment. However, since the 1980s the postal service has been under sustained assault by those who believe the compensation provided by these jobs is too generous.

Newly developed historical data from the early postwar period affirm that collective bargaining has been an effective tool for reducing wage inequality. Based on data compiled for men in several U.S. cities in 1951, Callaway and Collins (2017) found “the [union] wage premium was larger at the bottom of the income distribution than at the middle or higher, larger for African Americans than for whites, and larger for those with low levels of education,” findings that are “consistent with the view that unions substantially narrowed urban wage inequality at mid-century.”

Using data on union households from Gallup surveys dating back to 1936, Farber et al. (2021) similarly found that unions raised wages “between ten and twenty log points, with the less-educated receiving an especially large premium.” While this union effect has been relatively consistent over the last 80 years, patterns of union membership have not been. Unions’ disproportionate representation of “disadvantaged” workers (i.e., not white and not college-educated) began in the mid-1940s and peaked during the 1960s. While black workers continued to have higher rates of union membership than whites in the decades since, as overall union density has declined rates of union membership for black and white workers have converged.

Despite unions being a powerful force for increasing wages among the working class, racism within the labor movement has at times served to perpetuate rather than reduce racial inequality. While racially integrated unions have been instrumental in building support for policies that benefit black workers (Day 2020), tragically there are also examples of white workers using their unions to defend rather than defeat white supremacy.

IV. Challenging the prevailing economic theories used to explain racial disparities in labor market outcomes 

The economic theories most often invoked to explain the observed racial differentials in labor market outcomes described above are human capital theory, taste-based models of discrimination, and statistical models of discrimination. In this section, we briefly review these models and their core assumptions. We then make a case for why each of these models is historically and empirically inconsistent with the facts. 

Challenges to the conventional wisdom of human capital theory 

Adam Smith first introduced the concept of human capital as having an economic value analogous to physical capital in Wealth of Nations. Building upon this concept, Mincer (1958), Schultz (1961), and Becker (1964) popularized what we now know as human capital theory, formalizing a relationship between education, productivity, and earnings. Productivity is the assumed link between education and earnings in the Mincerian earnings function that operationalizes modern human capital theory.

Human capital theory posits that a worker’s earnings are related, directly and solely, to the worker’s productive capacity, represented by an individual’s particular set of skills, knowledge, and abilities, or human capital. Workers can increase their earnings by investing in human-capital-enhancing activities that, presumably, make them more productive. While human capital investments can take multiple forms, including formal education and on-the-job training, we will focus on formal education, the most frequently studied and most often deployed explanation for observed labor market differentials between black and white workers.

For a majority of economists, education is treated as a means of skill accumulation, which translates into greater productivity and higher compensation. However, Darity and Underwood (2021) argue there are three major issues with the human capital theory of wages: (1) it is difficult to precisely calculate productivity, and evidence on the link between more education and increased productivity is far from definitive; (2) the huge wage differential between CEOs, or even the top 1% of all wage earners (Bivens and Mishel 2013), and the typical “line” worker creates an important conundrum; and (3) of primary importance to the discussion outlined in this paper, the presence of labor market discrimination directly contradicts human capital theory.

Regarding the first point, the fundamental question raised by Darity and Underwood (2021) is, what is the function of higher education? Does it generally impart skill- or productivity-enhancing knowledge, or do credentials function as artificial entry barriers to certain occupations? Of primary concern here is the difficulty in precisely calculating one’s productivity apart from the circular move of using wages as a proxy.

We might conceive of one set of occupations where the skills-productivity nexus is consistent with the association between higher education and higher earnings, another set of occupations where the exclusion associated with gaining the credential produces scarcity that raises earnings, and a third set of professions where both factors are at play in determining earnings. The problem is there is no existing research of which we are aware that approaches the connection between higher education and higher earnings, empirically. Thus, we have no way of quantifying which or for how many jobs higher education—or education at any level—leads to a greater capacity to perform job functions. In jobs where employers rate their employees, there is considerable evidence that job performance ratings do not rise uniformly with higher levels of educational attainment for employees. Rather, in some instances there is an inverse relationship between employer ratings and employee educational attainment (Berg 1970).

A second challenge to human capital theory lies with the mere existence of corporate “super salaries.” In 2019, the average CEO at one of the top 350 largest U.S. firms (by sales) earned almost 320 times what the typical employee in those firms’ same industry earned ($21.3 million versus $66,800), constituting an increase of $2.6 million for CEOs and $1,100 for employees from 2018 (Mishel and Kandra 2021). If one were to accept human capital theory at face value, this differential would imply that the average CEO is 320 times as productive as the typical worker, a claim that has the ring of absurdity about it, even if there was a reasonable way to measure the difference.

But one need not consider the extreme cases of corporate executives’ huge compensation packages to recognize the difficulty of our lack of criteria for measuring productivity apart from comparative earnings. The Georgetown University Center on Education and the Workforce’s standard for a good job is one that pays at least $35,000 for workers 25–44 and at least $45,000 for workers 45–64. Inclusive of workers with a bachelor’s degree or higher, this corresponds to median earnings of $65,000 (Carnevale et. al 2018). That is consistent with the average annual compensation for tractor/trailer drivers. Is an investment banker who earns $250,000 in the same year necessarily close to four times as productive? Furthermore, if we did have a reliable independent standard for measuring productivity and found that the investment banker truly is about four times as productive, would that higher level of productivity be attributable to the banker having had a university education? 

The third challenge to human capital theory is the phenomenon of labor market discrimination as evidenced by the persistence of racial disparities in wages and employment that cannot be accounted for by differences in skills. According to human capital theory, black-white differences in unemployment and earnings can largely be explained by black-white differences in skills or education. While, empirically, higher levels of educational attainment are associated with lower average rates of unemployment and higher average wages, there is also strong evidence that the returns to educational attainment are unequal for black and white workers.

By definition, racial discrimination results in an unfair devaluation of black labor, since equivalently productive workers—or in the context of higher education, workers with similar advanced degrees—receive different pay. Thus, discrimination drives a wedge between any ostensible consistent relationship between wages, skills, and productivity. 

Nevertheless, deniers of labor market discrimination as an explanation for the persistence of the black-white wage gap raise questions about whether there are other unobserved characteristics that explain these differences. The literature seeking to explain the racial wage gap as a racial gap in cognitive skills has been controversial, to say the least. This body of research stemmed from cross-sectional analysis of the National Longitudinal Survey of Youth (NLSY), which included scores from the Armed Forces Qualification Test (AFQT). These AFQT scores were used as a proxy for cognitive skills in the estimation of relative wage differentials among black and white men in their 20s and 30s. The finding that inclusion of AFQT scores in a standard human capital model substantially reduced the black-white wage gap (O’Neil 1990; Maxwell 1994; Neal and Johnson 1996) led some to conclude that racial discrimination in the labor market was not a significant factor in the persistence of the wage gap because racial disparities in wages could be explained by differences in cognitive skills.

The validity of that conclusion was challenged on multiple grounds. First, because there was little overlap in AFQT scores of blacks and whites, high correlation between race and test scores presented a problem in estimating the effect on the wage gap (Ferguson 1995; Rodgers and Spriggs 1996). Using AFQT scores to explain black-white pay gaps was also challenged on the basis of the lack of robustness to different model specifications (Mason 1998; Goldsmith, Veum, and Darity 1997). For example, Mason (1998) found that a different measure of intelligence reported in the Panel Study of Income Dynamics (PSID) failed to significantly explain the racial wage gap. Goldsmith, Veum, and Darity (1997) used data from the NLSY to show that the AFQT no longer explains the racial wage gap once psychological measures of “self-esteem” and “locus of control” are included in the wage equation.

Finally, the argument that there are unobserved variables that account for relatively lower skills among black workers is inconsistent with the fact that the racial wage gap is different for men and women (Darity, Guilkey, and Winfrey 1996; Wilson and Rodgers 2016). In fact, given that black women had a slight wage advantage over white women as recently as the early 1980s—something that has never been observed among men—it seems unlikely that some unobserved or unexplained pre-market force at once disadvantages the skill attainment of black men relative to white men while providing an advantage for black women over white women.

Challenges to the conventional wisdom of taste-based model of discrimination 

Becker’s (1957) taste-based model of discrimination is perhaps the best-known neoclassical competitive model used to explain labor market discrimination. Becker’s original model has three central assumptions: (1) labor markets are competitive and employers are motivated by profit maximization; (2) black and white workers are equally productive; and (3) whites have an “externally” acquired “taste for discrimination,” functioning as a preference for white workers. This model posits that discrimination is in fact intentional, if not rational, and allows tastes for discrimination to function through three kinds of agents: employers, employees, and customers.

The biggest challenge to Becker’s taste-based model of discrimination lies in the conclusion that discriminatory wage outcomes are only temporary. In the context of black-white wage differentials, the preference for white workers, or, equivalently, the distaste for black workers, requires black workers to compensate discriminating employers by accepting lower wages. While the discriminatory tastes of employers, employees, or customers may create incentives for workplace segregation, in the long run racial wage differentials are eliminated through competition.

This conclusion is directly refuted by the historical record outlined in Section II, which demonstrates that anti-discrimination policy intervention, not market competition, was responsible for the most significant narrowing of racial wage gaps in the decade following the passage of the Civil Rights Act of 1964, and that lax enforcement of those laws in the decades since, along with other policies that weakened the bargaining power of workers, have contributed to further widening of those gaps.

A second weakness of this model is that it assumes full employment, since all job seekers are presumed hired. The set of possible outcomes then are differentiated by the racial composition of a firm’s workforce, but unemployment—the possibility that someone actively seeking employment will not be hired at all—is not a consideration. 

Challenges to the conventional wisdom of statistical models of discrimination 

Statistical models of discrimination, pioneered by Phelps (1972) and Arrow (1973), allow for less overt and unintentional means by which disparate or discriminatory labor market outcomes manifest. These models are based on the idea that employers have incomplete information about the actual productivity of individual job applicants. However, they may have beliefs about the average productivity of a given group of workers (e.g., black workers, women, or formerly incarcerated individuals) that they assign to individuals belonging to that group. Based on those beliefs, workers belonging to the group assumed to be less productive will have a lower probability of being hired (i.e., a higher unemployment rate) or, when hired, will be offered a lower wage, resulting in a wage gap.

According to statistical models of discrimination, profit-maximizing employers in an environment of imperfect information believe they can distinguish visually between candidates from groups A and B that are drawn from different frequency distributions for ability to perform. Based on the assumption that the mean of group B’s ability distribution is markedly higher than the mean of A’s ability distribution, and there is little difference, if any, in the variance, these employers display a preference for members of group B. 

If, in fact, these employers are wrong and the two distributions are identical, then that fact should be learned over time. As a result, any profit-maximizing employer should become indifferent between members of groups A and B. On the other hand, if those employers are correct, then subsequent inequalities in intergroup outcomes are due to average differences in ability and there is no need for a theory of discrimination at all.

Confounding matters more, the informational assumption that leads employers to rely on knowledge, whether accurate or not, about group affiliation in making individual hiring decisions seems tenuous. It suggests that employers are incapable of making a sound approximation about a candidate’s future potential to perform without relying on the additional signal of group affiliation. This is implausible given the vast resources corporations devote to hiring decisions and the design of screening mechanisms. Over time, an appropriate set of questions or tests should emerge that will facilitate selection, regardless of group affiliation. 

In his open letter to economists, AFL-CIO Chief Economist William Spriggs calls out the inherent racism in the statistical discrimination framework by asking:

How does a model assume that an entire set of actors, observing the infinite diversity of human beings, all settle on race as a meaningful marker independent of history, laws, and social norms? And, miraculously, those same ‘rational’ actors use ‘statistical’ methods to find only negative attributes highly correlated with race. (Spriggs n.d.)

In other words, the only logical reason for taking account of group affiliation or race is to discriminate on the basis of race, and not to improve the accuracy of predictions of an individual’s performance. 

V. Stratification economics as a better framework for understanding persistent racial disparities in the labor market 

Each of the aforementioned economic theories falls short in its attempt to explain long-standing racial disparities in unemployment and pay while blatantly denying the persistence of discrimination. Despite compelling empirical evidence and a solid historical record that points to discrimination as a significant factor in the persistence of racial disparities in the labor market, the interpretation of those disparities is an ongoing debate in the field of economics.

When economists get a statistically significant coefficient on race after estimating a wage equation that controls for standard measures of individual productive capacity (e.g., education, experience) and macroeconomic conditions (e.g., state or regional fixed effects), as well as race and gender, what does that mean? Do we interpret that coefficient as evidence of racial discrimination, or does it reflect some unobserved or omitted variable? Devotees of the conventional economic theories described above tend to dismiss discrimination as a valid or significant explanation of the gaps in favor of the latter interpretation. But if there is some unobserved variable that would explain the statistically significant coefficient on race, it would also have to be strongly correlated with race. In its most basic form, race is nothing more than a socially constructed identifier, defined in the United States primarily by skin color—an arbitrary and superficial physical characteristic that has no relationship to one’s productive capacity. How then should we interpret that correlation?

Getting an answer to that last question requires that we go beyond our standard individual-centered models and consider structural and institutional factors, as well as what we can learn from social, psychological, and historical analyses.

In the absence of that, we continue to lean on human capital models and models of discrimination to our peril. Those models have been inadequate to explain well-documented and persistent patterns of racial inequality, leading to an overemphasis on the shortcomings of individuals and little or no emphasis on fixing biased or discriminatory systems that uphold an economic hierarchy predicated on race. This is the hole that stratification economics was developed to fill.

Stratification economics was developed in response to the inadequacy of conventional economic theory to explain intergroup inequality in general and the persistence of racial disparities in particular. In contrast to Becker’s taste-based discrimination model, or models of statistical discrimination, stratification economics includes a set of theories or models that identify the structural processes that enable the persistence of discrimination and inequality over the long term. This framework emphasizes the effect of group formation, group identity, and group action on an individual’s life outcomes, as opposed to a more conventional framework in which individuals act solely as autonomous optimizers. Stratification economics employs an interdisciplinary approach that incorporates economics, sociology, and social psychology while proposing that one’s relative position matters. Individuals discern relative position by making both intragroup and intergroup comparisons, but a key feature of intergroup comparison is the identification of an outsider group, defined by race, ethnicity, gender, class, religion, or some other demographic characteristic (Darity et al. 2017).

According to stratification economics, while discrimination is unjust, it also serves the functional role of preserving hierarchy. Therefore, persistent racial inequality arises when a dominant group seeks to maintain the hierarchy that affords it some degree of social or economic privilege. Under this framework, identity can be structured so that investing in, or associating with, a group identity can lead to economic returns and benefits. This treatment of identity as endogenous represents a major departure from more conventional economic models but is consistent with a set of alternative theories for explaining stubborn racial gaps in economic outcomes, and these theories help to operationalize stratification economics.4 Those most relevant to the labor market context are Lewis’s (1979) noncompeting groups hypothesis and Swinton’s (1978) labor force competition model of racial discrimination. In each of these, racial identity is associated with aspects of power and social control that are directly incorporated into the analysis.

Lewis (1979) and Swinton (1978) present models of a hierarchical wage or occupational structure and the existence of white worker “coalitions” that allow those who share this group identity to maintain a higher position in that hierarchy by limiting other (i.e., black) workers’ access to higher-status and higher-paying occupations and funneling them into lower-status and lower-wage jobs. The coalitions’ ability to exercise such an influence is based on their position as the majority group, which is a numerical and historical advantage. It is important to note that while applying racial preferences to an existing hierarchical occupational structure (i.e., occupational segregation) is discriminatory, it can be achieved without explicitly invoking or referencing race. Rather, a white worker “coalition” can essentially render excluded workers “noncompeting” by using its majority position in the firm or industry to influence the required credentials for a position, manipulate opportunities to obtain the credentials, or otherwise act as a gatekeeper over entry and promotion to preferred positions, as is often observed in professional environments, including corporate leadership, academia, law, or medicine.

Thus, Lewis concludes that more direct forms of in-market discrimination only become necessary as pre-market efforts to preserve the established racial hierarchy in the occupational structure become less effective. An interesting implication of this conclusion is that investments in human capital that make members of the excluded group more qualified for preferred positions can increase the likelihood that they will experience labor market discrimination. Darity, Dietrich, and Guilkey (1997) find that while black males were making dramatic strides in acquiring literacy between 1880 and 1910 in the United States, simultaneously they were suffering increasing proportionate losses in occupational status due to disadvantageous treatment of their measured characteristics. 

Krueger’s (1963) extension of the trade-based version of the Becker model also has relevance to the discussion of racially disparate labor market outcomes. In that model, white capitalists must value racial group solidarity sufficiently to accept a lower return on their capital as the price they pay for a generally higher level of income for all whites (and higher wages for white workers). In principle, if white capitalists lose from their inability to hire less-expensive black workers, a sufficiently high relative gain in income for white workers can compensate white capitalists for their losses. This prospect advanced by Anne Krueger nearly 60 years ago fits like a glove into stratification economics’ frame of understanding discrimination as an act that yields group benefits and losses.

Further, there is an additional perverse possibility derived from stratification economics. A racial hierarchy of workers can be exploited by owners of capital to subvert worker solidarity and capture a larger share of a worker’s productivity as economic profit. In short, employers can potentially get away with paying black and white workers a wage below their marginal productivity if, on average, the weight white workers place on being relatively better off than black workers is sufficiently high and white workers are paid a wage that is above that of black workers. Thus, both white labor and white capital jointly can benefit from discrimination against black workers. 

Conclusion 

When we look at race and labor market discrimination in the context of workers’ bargaining power, it is important we recognize there are at least two complementary goals. With respect to wages, we want to shift the balance of power in a way that puts upward pressure on wages—particularly for wage earners at or below the median—and at the same time close racial wage gaps. We cannot rely on competitive markets alone to do this. Rather, interventions are required to address these inequalities. Appropriate design of those interventions requires that we expand the frameworks we use for understanding power, race, gender, and inequality so that we restructure systems and institutions to prevent discriminatory outcomes rather than enable them. 

Policies geared toward maximizing employment and limiting the depth and duration of recessions are essential to establishing a new balance of power that makes workers less vulnerable to limited job prospects and low wages. For many of the reasons we have already discussed, these policies are particularly important to improve outcomes of black workers. During the last four decades, the Federal Reserve’s monetary policy decisions have been too contractionary, and those decisions have limited wage growth for the bottom 80% of workers and had an adverse effect on closing the black-white wage gap. While recent revisions to the Federal Reserve’s long-run goals and monetary policy strategy reflect some acknowledgement of the role the central bank plays in reducing or exacerbating racial economic inequality, unless there is an ongoing commitment to avoid prematurely enacting policies that needlessly limit job growth and disproportionately harm black workers, the balance of power is unchanged. Similarly, Congress must avoid excessive and unnecessary fiscal austerity and utilize its power to target funding for job creation in ways that promote racial equity, including a federal job guarantee. A federal job guarantee would eliminate the need for economists to squabble over the full employment unemployment rate, and essentially end the tradeoff between unemployment and inflation by making the Phillips curve vertical at a zero unemployment rate.

Labor unions play an important role in giving workers a stronger collective voice to advocate for higher pay, better benefits, training and promotional opportunities, and protections against discrimination and harassment. The Protecting the Right to Organize (PRO) Act is an important step toward streamlining the process when workers form a union, ensuring that they are successful in negotiating a first agreement, and holding employers accountable for violations of labor law (McNicholas, Poydock, and Rhinehart 2021). Historically, when given an opportunity to join a union, black workers have had the highest rates of union membership and have benefited from better pay and working conditions relative to workers who are not covered by a union contract. Still, the labor movement, like any other U.S. institution, is not immune to racism, and unions must continue to grow as more diverse, inclusive, and dynamic organizations as they serve the vital role of leveling the playing field for all workers. 

Finally, the fact that labor market discrimination has persisted well beyond the passage of Title VII of the Civil Rights Act of 1964 and the establishment of the Equal Employment Opportunity Commission, the federal agency tasked with enforcement of federal anti-discrimination laws, should not be overlooked, or taken lightly. As outlined in Yang and Liu (2021), meaningful accountability for discrimination requires solutions that confront the power and information asymmetries that weaken our enforcement system. Specifically, the authors recommend changes in at least four areas: (1) policies that encourage employer transparency, such as requiring employers to report employment and pay data by race, ethnicity, gender, and occupation, are necessary to fight discrimination and encourage accountability; regular reporting draws attention to discriminatory patterns, but also empowers workers with the information they need to pursue recourse against workplace discrimination; (2) increased funding of federal, state, and local enforcement agencies is necessary to provide the staffing and resources required to investigate the tens of thousands of discrimination charges filed each year and level the playing field for workers seeking justice; (3) revising legal doctrines to better align with the language and purpose of Title VII and other anti-discrimination laws will help to relieve the exceptionally onerous burden workers face in proving cases of discrimination; and (4) legal protections against anti-discrimination should be expanded to cover all workers and protect against practices that coerce employees to waive any rights to legally challenge unfair or unequal treatment.

The pursuit of economic and racial justice requires a serious interrogation of long-accepted assumptions about how the labor market functions and how much power any individual worker has to choose a better alternative. For black workers, there is also a long history of racially motivated exclusion, exploitation, and oppression that contributes to the assumed inferiority of black labor and the normalization of racial inequality. Therefore, meaningful policy changes that will serve to empower all workers and eliminate persistent racial disparities in the labor market also require a serious reckoning with the pervasiveness of racism in the collective thought, actions, institutions, and polices of the United States.

Notes

1. The nonwhite racial category included black workers along with others who did not identify as white, but about 95% of those in the category were black (or “negro”).

2. The 2019 high school and college completion data are based on non-Hispanic white population, while 1972 estimates for whites are not distinguishable by ethnicity.

3. Based on estimates of a wage regression with controls for education, age, state of residence, and union contract coverage status in addition to race and gender. The data used for this analysis included a combined 10 years of data from the CPS ORG (2009–2018).

4. Darity and Mason (1998) provide a more extensive review of economic models with relevance to the theory of stratification economics.

References 

Abayomi, Kobi, and Lee Hawkins. 2009. “Copulas for Tunable Markov Processes: Heuristics for Extreme-Valued Labor Market Outcomes, for African American Males: Fortune 500 CEOs vs. Professional Athletics.” Proceedings of the 2010 Joint Mathematics Meetings, Spring. 

Agan, Amanda, and Sonja Starr. 2018. “Ban the Box, Criminal Records, and Racial Discrimination.” Quarterly Journal of Economics 133, no. 1: 191–235. 

Arrow, Kenneth J. 1973. “The Theory of Discrimination.” In O. Ashenfelter and A. Rees, eds., Discrimination in Labor Markets. Princeton University Press. 

Azar, José, Ioana Marinescu, and Marshall Steinbaum. 2019. “Measuring Labor Market Power Two Ways.” AEA Papers and Proceedings 109.

Bassier, Ihsaan, Arindrajit Dube, and Suresh Naidu. 2020. “Monopsony in Movers: The Elasticity of Labor Supply to Firm Wage Policies.” National Bureau of Economic Research Working Paper no. 27755. https://doi.org/10.3386/w27755.

Becker, G. 1957. The Economics of Discrimination. University of Chicago Press. 

Becker, G.S. 1964. Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. 3rd Edition. University of Chicago Press. 

Bendick, Marc Jr., Charles W. Jackson, and Victor Reinoso. 1994. “Measuring Employment Discrimination Through Controlled Experiments.” In James B. Stewart, ed., African-Americans and Post-Industrial Labor Markets. Transaction Publishers. 

Berg, Ivar. 1970. Education and Jobs: The Great Training Robbery. Praeger. 

Betsey, Charles. 1994. “Litigation of Employment Discrimination Under Title VII: The Case of African American Women.” American Economic Review 84, no. 2: 98–102. 

Bivens, Josh, and Lawrence Mishel. 2013. “The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes.” Journal of Economic Perspectives 27, no. 3: 57–78. 

Bivens, Josh, and Lawrence Mishel. 2015. Understanding the Historic Divergence Between Productivity and a Typical Worker’s Pay. Economic Policy Institute.

Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute. 

Blau, Francine D., and Andrea Beller. 1992. “Black-White Earnings over the 1970s and 1980s: Gender Differences in Trends.” Review of Economics and Statistics 74, no. 2: 276–86. 

Bound, John, and Richard Freeman. 1989. “Black Economic Progress: Erosion of the Post-1965 Gains in the 1980s?” In Steven Shulman and William Darity, Jr., eds., Question of Discrimination: Racial Inequality in the U.S. Labor Market. Wesleyan University Press. 

Callaway, Brantly, and William J. Collins. 2017. “Unions, Workers, and Wages at the Peak of the American Labor Movement.” National Bureau of Economic Research Working Paper no. 23516.

Card, D., A. Cardoso, J. Heining, and P. Kline. 2018. “Firms and Labor Market Inequality: Evidence and Some Theory.” Journal of Labor Economics 36, no. S1: 13–70.

Card, David, and Alan Krueger. 1992. “School Quality and Black-White Relative Earnings: A Direct Assessment.” Quarterly Journal of Economics 107 (February): 151–200. 

Carlson, Leonard, and Caroline Swartz. 1988. “The Earnings of Women and Ethnic Minorities, 1959–1979.” Industrial & Labor Relations Review 41, no. 4: 530–46. 

Carnevale, Anthony P., Jeff Strohl, Neil Ridley, and Artem Gulish. 2018. Three Educational Pathways to Good Jobs: High School, Middle Skills and Bachelor’s Degree. Georgetown University Center on Education and the Workforce.

Cunningham, James S., and Nadja Zalokar. 1992. “The Economic Progress of Black Women, 1940–1980: Occupational Distribution and Relative Wages.” Industrial & Labor Relations Review 45, no. 3: 540–55. 

Darity, William Jr., Jason Dietrich, and David Guilkey. 1997. ‘‘Racial and Ethnic Inequality in the United States: A Secular Perspective.’’ American Economic Review (May): 301–5. 

Darity, William A. Jr., David Guilkey, and William Winfrey. 1996. “Explaining Differences in Economic Performance Among Racial and Ethnic Groups in the USA: The Data Examined.” American Journal of Economics and Sociology 55 (October): 411–26.

Darity, William A. Jr., Darrick Hamilton, Patrick L. Mason, Gregory N. Price, Alberto Dávila, Marie T. Mora, and Sue K. Stockly. 2017. “Stratification Economics: A General Theory of Intergroup Inequality.” In Andrea Flynn, Susan R. Holmberg, Dorian T. Warren, and Felicia J. Wong, eds., The Hidden Rules of Race: Barriers to an Inclusive Economy. Cambridge University Press. 

Darity, William A. Jr., and Patrick L. Mason. 1998. “Evidence on Discrimination in Employment: Codes of Color, Codes of Gender.” Journal of Economic Perspectives 12: 63–90. 

Darity, William. A. Jr., and Miles Underwood. 2021. Reconsidering the Relationship Between Higher Education, Earnings, and Productivity. Postsecondary Value Commission. 

Day, Meagan. 2020. “Unions Are Essential for Eliminating Racism.” Jacobin, July 7, 2020.

Donohue, John, and James Heckman. 1991. “Continuous vs. Episodic Change: The Impact of Civil Rights Policy on the Economic Status of Blacks.” Journal of Economic Literature 29 (December): 1603–43. 

Dube, Arindrajit, et al. 2020. “Monopsony in Online Labor Markets.” American Economic Review: Insights 2, no. 1: 33–46.

Dube, Arindrajit, Laura Giuliano, and Jonathan Leonard. 2019. “Fairness and Frictions: Impact of Unequal Raises on Quit Behavior.” American Economic Review 109, no. 2: 620–63.

Farber, Henry S., Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu. 2021. “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data.” National Bureau of Economic Research Working Paper no. 24587. 

Ferguson, Ronald. 1995. “Shifting Challenges: Fifty Years of Economic Change Toward Black-White Earnings Equality.” Daedalus 124: 37–76. 

Fix, Michael, George C. Galster, and Raymond J. Struyk. 1993. “An Overview of Auditing for Discrimination.” In Michael Fix and Raymond Struyk, eds., Clear and Convincing Evidence: Measurement of Discrimination in America. Urban Institute Press.

Fosu, Augustin K. 1992. “Occupational Mobility of Black Women, 1958–1981: The Impact of Post-1964 Antidiscrimination Measures.” Industrial & Labor Relations Review 45, no. 2: 281–94. 

Goldsmith, Arthur, Jonathan Veum, and William Darity Jr. 1997. “The Impact of Psychological and Human Capital on Wages.” Economic Inquiry 35 (October): 815–29. 

Gould, Elise. 2020. State of Working America Wages 2019: A Story of Slow, Uneven, and Unequal Wage Growth over the Last 40 Years. Economic Policy Institute. 

Gould, Elise, and Valerie Wilson. 2019. Wage Growth Is Weak for a Tight Labor Market—and the Pace of Wage Growth Is Uneven Across Race and Gender. Economic Policy Institute. 

Gould, Elise, and Valerie Wilson. 2020. Black Workers Face Two of the Most Lethal Preexisting Conditions for Coronavirus—Racism and Economic Inequality. Economic Policy Institute.

Hamilton, Darrick, Algernon Austin, and William Darity Jr. 2011. Whiter Jobs, Higher Wages: Occupational Segregation and the Lower Wages of Black Men. Economic Policy Institute.

Heckman, James J., and Brook Payner. 1989. “Determining the Impact of Federal Antidiscrimination Policy on the Economic Status of Blacks: A Study of South Carolina.” National Bureau of Economic Research Working Paper no. 2854. 

Krueger, Anne. 1963. “The Economics of Discrimination.” Journal of Political Economy 75 (October): 481–86.

Langella, Monica, and Alan Manning. 2020. “The Measure of Monopsony.” Marshall Lecture, Annual Congress of the European Economic Association.

Leonard, Jonathan S. 1990. “The Impact of Affirmative Action Regulation and Equal Employment Law on Black Employment.” Journal of Economic Perspectives 4, no. 4: 47–63. 

Lewis, W.A. 1979. “The Dual Economy Revisited.” The Manchester School 47: 211–29.

Mangino, William. 2010. “Race to College: The Reverse Gap.” Race and Social Problems 2: 164–78. 

Mangino, William. 2012. “Why Do Whites and the Rich Have Less Need for Education?” American Journal of Economics and Sociology 71, no. 3 (July): 562–602. 

Mason, Patrick L. 1997. “Race, Culture, and Skill: Interracial Wage Differences Among African Americans, Latinos, and Whites.” Review of Black Political Economy 25, no. 3: 5–39.

Mason, Patrick L. 1998. “Race, Cognitive Ability, and Wage Inequality.” Challenge 41. 

Maxwell, Nan. 1994. “The Effects on Black-White Wage Differences of Differences in the Quantity and Quality of Education.” Industrial & Labor Relations Review 47: 249–64. 

McNicholas, Celine, Margaret Poydock, and Lynn Rhinehart, 2021. How the PRO Act Restores Workers’ Rights to Unionize: A Chart of the Ways the PRO Act Fixes Major Problems in Current Labor Law. Economic Policy Institute. 

Mincer, J. 1958. “Investments in Human Capital and Personal Income Distribution.” Journal of Political Economy 66: 281–302. 

Mishel, Lawrence, and Jori Kandra. 2021. “Preliminary Data Show CEO Pay Jumped Nearly 16% in 2020, While Average Worker Compensation Rose 1.8%.” Working Economics Blog (Economic Policy Institute), May 27, 2021.

Neal, Derek A., and William R. Johnson. 1996. “The Role of Premarket Factors in Black-White Wage Differences.” Journal of Political Economy 104, no. 5: 869–95. 

Neal, Derek, and Armin Rick. 2014. “The Prison Boom and the Lack of Black Progress After Smith and Welch.” National Bureau of Economic Research Working Paper no. 20283. 

Neumark, David. 2012. “Detecting Discrimination in Audit and Correspondence Studies.” Journal of Human Resources 47 (Fall): 1128–57. 

O’Neill, June. 1990. “The Role of Human Capital in Earnings Differences Between Black and White Men.” Journal of Economic Perspectives 4: 25–45. 

Pager, Devah. 2003. “The Mark of a Criminal Record.” American Journal of Sociology 108 (March): 937–75. 

Phelps, Edmund. 1972. “The Statistical Theory of Racism and Sexism.” American Economic Review 62, no. 4: 659–61. 

Quillian, Lincoln, Devah Pager, Ole Hexel, and Arnfinn H. Midtbøen. 2017. “Meta-Analysis of Field Experiments Shows No Change in Racial Discrimination in Hiring over Time.” PNAS Early Edition.

Rho, Hye Jin, Haley Brown, and Shawn Fremstad. 2020. “A Basic Demographic Profile of Workers in Frontline Industries.” Center for Economic and Policy Research. 

Rodgers, William M. III, and William E. Spriggs. 1996. “What Does the AFQT Really Measure? Race, Wages, Schooling, and the AFQT Score.” Review of Black Political Economy 24 (Spring): 13–47. 

Rodgers, William M. III, and William E. Spriggs. 2002. “Accounting for the Racial Gap in AFQT Scores: Comment on Nan L. Maxwell, ‘The Effect on Black-White Wage Differences of Differences in the Quantity and Quality of Education.’” Industrial & Labor Relations Review 55 (April): 533–41. 

Schultz, T.W. 1961. “Investment in Human Capital.” American Economic Review 51: 1–17. 

Sokolova, Anna, and Todd Sorensen. 2020. “Monopsony in Labor Markets: A Meta-Analysis.” Washington Center for Equitable Growth. 

Spriggs, William. n.d. “Is Now a Teachable Moment for Economists? An Open Letter to Economists from Bill Spriggs.”

Swinton, David H. 1978. “A Labor Force Competition Model of Racial Discrimination in the Labor Market.” Review of Black Political Economy 9: 5–42.

Tomaskovic-Devy, Donald, Melvin Thomas, and Kecia Johnson. 2005. “Race and the Accumulation of Human Capital Across the Career: A Theoretical Model and Fixed-Effects Application.” American Journal of Sociology 111, no. 1: 58–89. 

Turner, Margery, Michael Fix, and Raymond Struyk. 1991. Opportunities Denied, Opportunities Diminished: Racial Discrimination in Hiring. Urban Institute Press. 

Webber, Douglas A. 2015. “Firm Market Power and the Earnings Distribution.” Labour Economics 35: 123. 

Webber, Douglas A. 2018. “Employment Adjustment over the Business Cycle: The Impact of Competition in the Labor Market.” IZA Discussion Paper no. 11887, Institute of Labor Economics (IZA).

Webber, Douglas A. 2020. “Labor Market Competition and Employment Adjustment over the Business Cycle.” Journal of Human Resources 56, no. 1. 

Wilson, Valerie R. 2015. The Impact of Full Employment on African American Employment and Wages. Economic Policy Institute.

Wilson, Valerie, and William M. Rodgers III. 2016. Black-White Wage Gaps Expand with Rising Wage Inequality. Economic Policy Institute. 

Yang, Jenny R., and Jane Liu. 2021. Strengthening Accountability for Discrimination: Confronting Fundamental Power Imbalances in the Employment Relationship. Economic Policy Institute. 

Zalokar, Nadka. 1990. The Economic Status of Black Women: An Exploratory Investigation. U.S. Commission on Civil Rights.

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?

In 2018, the Reward Work Act and the Accountable Capitalism Act, proposed by Democratic senators, included provisions that would require large companies to allocate 33–40% of the seats on their boards to worker-elected representatives. These proposals emulate the German model of “board-level codetermination,” which originated in the aftermath of World War II and has since spread to many European countries, including Austria, Denmark, Finland, Norway, and Sweden. In addition, the German model of “shop-floor codetermination” through elected works councils has received widespread attention in the past several years, in part due to the widely covered 2014 and 2019 unionization drives at Volkswagen’s Chattanooga, Tennessee, plant.

American corporate law has historically been hostile to such arrangements, which impinge on owners’ or managers’ exclusive discretion. And the academic literature has claimed that involving workers in firm governance impedes efficient decision-making, distorts incentives, and deters capital formation by allowing workers to capture the fruits of investment, ultimately stunting economic growth and leaving both employers and workers worse off. But alternative perspectives in the literature emphasize the potential benefits of codetermination for firms and workers through enhanced trust and information flows. And recent arguments stress that shared governance requirements can mitigate imbalances of power between employers and workers and thereby prevent exploitation.

This paper critically assesses these competing perspectives. We describe the background of existing codetermination laws and ask whether there are successful precedents for proposals to rectify workplace power imbalances through codetermination reforms. We then ask how contemporary codetermination institutions operate in practice. In which areas of decision-making does codetermination boost workers’ influence, and to what extent? How do worker representatives use their newfound authority? Are shared governance arrangements characterized by adversarial struggles between worker representatives and employers, or by cooperative relationships in which worker representatives and employers work together toward mutually agreeable goals? We draw on surveys, interviews, and case studies to answer these questions, and briefly survey the existing quantitative evidence on the economic impacts of codetermination.

We conclude that, historically, codetermination reforms have not been a key stand-alone vehicle for increasing worker power and have instead been intended to supplement core frameworks of union representation and centralized collective bargaining. Contemporary codetermination arrangements mostly function as amicable venues for workers and employers to share information and perspectives and for workers to shape decisions about immediate working conditions. For example, board-level codetermination creates two-way knowledge flows, giving employers a more intimate understanding of company operations and the desires of workers, and giving workers financial and strategic information that may inform collective bargaining strategies. However, the presence of worker representatives on company boards does not substantially shift high-level decision-making; workers usually occupy a minority of seats and therefore lack the ability to outvote shareholders, and often worker representatives defer to shareholder representatives in recognition of the fact that workers benefit when the company performs well. Shop-floor codetermination gives workers some control over decisions about hours and amenities, but (apart from, e.g., German works councils) little control over wage-setting or layoff decisions. One notable exception is that worker representatives’ influence may grow during economic downturns, when qualitative evidence suggests the representatives sometimes play an important role in negotiating wage or hour cuts that prevent layoffs.

Probably reflecting the limited authority conveyed by most existing codetermination arrangements, the quantitative evidence suggests that both board-level and shop-floor codetermination have mostly zero or slight positive impacts on worker and firm outcomes.

On the worker side, minority board-level representation does not affect wages, but it may slightly increase job security and subjective job satisfaction; on the firm side, it has zero or small positive effects on productivity, capital intensity, and profitability. Relatively weak forms of shop-floor codetermination have similarly slight effects on both worker and firm outcomes, while stronger shop-floor codetermination arrangements (which allocate broader and more substantive powers to worker representatives) may slightly boost wages, reduce within-firm earnings inequalities, and raise job security (possibly at the expense of nonincumbent workers). Strong forms of shop-floor codetermination do not appear to worsen firm performance, and may even increase productivity, but there is still a dearth of credible quasi-experimental evidence on the effects of these arrangements, so we are hesitant to make confident pronouncements.

Our overall conclusion is that most existing codetermination arrangements are relatively weak and have, at most, incremental positive effects. This conclusion leaves us unable to decisively confirm or reject the important claim, implicit in American corporate law, that employers must retain exclusive discretion over firm governance or else economic performance will suffer. On the one hand, the existing evidence shows it is possible to involve workers in workplace decision-making in ways that, if anything, weakly improve firm performance while also plausibly benefiting workers. However, the representation arrangements for which we possess the most credible evidence do not involve very substantial restrictions on employer discretion. Causal evidence on the economic performance effects of shared governance arrangements that more substantively limit employer discretion—such as powerful German works councils or parity codetermination in German iron, coal, and steel sector firms—remains scarce. In sum, codetermination laws may perform valuable functions even if they do not substantially affect the balance of power in workplaces.

I. Introduction

In the United States, shareholders and owners exercise exclusive discretion over the governance of private firms. This model of corporate governance aligns with an influential strain of thought, dating back to Friedman (1970), which asserts that shareholder control produces the right incentives for economic growth while not endangering the welfare of workers, who are protected by the forces of labor market competition. Alternative strains of thought claim that pervasive employer labor market power necessitates countervailing “worker power institutions,” and argue that recent ailments suffered by American workers can be traced back to the steady decline of pro-worker institutions over the past five decades (Stansbury and Summers 2020).

This latter perspective has motivated recent proposals to boost worker power by giving workers formal rights to participate in workplace governance. In 2018, the Reward Work Act and the Accountable Capitalism Act, proposed by Democratic senators, included provisions that would require large companies to allocate 33–40% of the seats on their boards to worker-elected representatives. These proposals emulate the German model of “board-level codetermination,” which originated in the aftermath of World War II and has since spread to many European countries, including Austria, Denmark, Finland, Norway, and Sweden. In addition, the German model of “shop-floor codetermination” through elected works councils has received widespread attention in the past several years, in part due to the widely covered 2014 and 2019 unionization drives at Volkswagen’s Chattanooga, Tennessee, plant (Liebman 2017; Silvia 2018, 2020).

Other papers in this volume examine the effects on labor market outcomes of specific restrictions on firm decision-making, e.g., in the areas of wage-setting (minimum wages) or the determination of other job characteristics (safety or flexibility regulations). This paper examines the impact of codetermination laws—broader interventions that restructure firms’ internal authority structures by integrating workers into decision-making.

American corporate law has historically been hostile to such arrangements, which impinge on owners’ or managers’ exclusive discretion. In 1981, a landmark U.S. Supreme Court ruling narrowed the scope of unions’ bargaining rights, citing “an employer’s need for unencumbered decision-making” (Harlin 1982). The Chamber of Commerce’s amicus curiae brief in the same case asserted that decisions about aspects of workplace governance apart from wages, hours, and working conditions “are uniquely the central burdens and prerogatives of management…. They are matters over which the collective bargaining process is unlikely to be useful, but likely to be obstructive or destructive.”1

These statements echo influential arguments in the academic literature, which claim that involving workers in firm governance impedes efficient decision-making, distorts incentives, and deters capital formation by allowing workers to capture the fruits of investment, ultimately stunting economic growth and leaving both employers and workers worse off (Jensen and Meckling 1979; Hansmann and Kraakman 2000). In contrast, alternative perspectives in the literature emphasize the potential benefits of codetermination for firms and workers through enhanced trust and information flows (Freeman and Lazear 1995). In addition, recent arguments stress that shared governance requirements can mitigate imbalances of power between employers and workers and thereby prevent exploitation of workers (Anderson 2017; Strine, Kovvali, and Williams 2021).

In this paper, we critically assess these competing perspectives on codetermination. We begin, in Section II, with a historical discussion: We describe the background of existing codetermination laws and ask whether there are successful precedents for proposals to rectify workplace power imbalances through codetermination reforms. Then, in Section III, we ask how contemporary codetermination institutions operate in practice. The aforementioned perspectives assert, respectively, that shared governance beneficially “boosts worker power” or that it harmfully “constrains employer discretion.” Both of these statements are vague and in need of substantial clarification. In which areas of decision-making does codetermination boost workers’ influence, and to what extent? How do worker representatives use their newfound authority? Are shared governance arrangements characterized by adversarial struggles between worker representatives and employers, or by cooperative relationships in which worker representatives and employers work together toward mutually agreeable goals? We draw on surveys, interviews, and case studies to answer these questions. Finally, in Section IV, we briefly survey the existing quantitative evidence on the economic impacts of codetermination, drawing heavily on a recent survey article by Jäger, Noy, and Schoefer (2021).

We conclude the following:

• Historically, codetermination reforms have not been a key stand-alone vehicle for increasing worker power and have instead been intended to supplement core frameworks of union representation and centralized collective bargaining.

• Contemporary codetermination arrangements mostly function as amicable venues for workers and employers to share information and perspectives and for workers to shape decisions about immediate working conditions.

• Board-level codetermination, for example, creates two-way knowledge flows, giving employers a more intimate understanding of company operations and the desires of workers, and giving workers financial and strategic information that may inform collective bargaining strategies. However, the presence of worker representatives on company boards does not substantially shift high-level decision-making; workers usually occupy a minority of seats and therefore lack the ability to outvote shareholders, and often worker representatives defer to shareholder representatives in recognition of the fact that workers benefit when the company performs well.

• Shop-floor codetermination gives workers some control over decisions about hours and amenities, but (apart from, e.g., German works councils) little control over wage-setting or layoff decisions. One notable exception is that worker representatives’ influence may grow during economic downturns, when qualitative evidence suggests the representatives sometimes play an important role in negotiating wage or hour cuts that prevent layoffs.

• Probably reflecting the limited authority conveyed by most existing codetermination arrangements, the quantitative evidence suggests that both board-level and shop-floor codetermination have mostly zero or slight positive impacts on worker and firm outcomes (Blandhol et al. 2020; Jäger, Schoefer, and Heining 2021; Harju, Jäger, and Schoefer 2021). On the worker side, minority board-level representation does not affect wages, but it may slightly increase job security and subjective job satisfaction; on the firm side, it has zero or small positive effects on productivity, capital intensity, and profitability.

• Relatively weak forms of shop-floor codetermination have similarly slight effects on both worker and firm outcomes, while stronger shop-floor codetermination arrangements (which allocate broader and more substantive powers to worker representatives) may slightly boost wages, reduce within-firm earnings inequalities, and raise job security (possibly at the expense of nonincumbent workers). Strong forms of shop-floor codetermination do not appear to worsen firm performance, and may even increase productivity, but there is still a dearth of credible quasi-experimental evidence on the effects of these arrangements, so we are hesitant to make confident pronouncements.

Our overall conclusion is that most existing codetermination arrangements are relatively weak and have, at most, incremental positive effects. This conclusion leaves us unable to decisively confirm or reject the important claim, implicit in American corporate law, that employers must retain exclusive discretion over firm governance or else economic performance will suffer. On the one hand, the existing evidence shows it is possible to involve workers in workplace decision-making in ways that, if anything, weakly improve firm performance while also plausibly benefiting workers. However, the representation arrangements for which we possess the most credible evidence do not involve very substantial restrictions on employer discretion. Causal evidence on the economic performance effects of shared governance arrangements that more substantively limit employer discretion—such as powerful German works councils or parity codetermination in German iron, coal, and steel sector firms—remains scarce. We close by noting that codetermination laws may perform valuable functions even if they do not substantially affect the balance of power in workplaces.

II. A brief history of codetermination

We begin by sketching the historical origins of modern codetermination laws, focusing on the countries with the strongest contemporary codetermination systems: Germany, Austria, the Netherlands, and the Nordic countries. We use the history of German codetermination as a case study, and then note parallels to the historical trajectories of codetermination in the others.

The purpose of this historical discussion is threefold. First, we illustrate that codetermination laws or agreements tended to arise because powerful national labor movements mobilized and overcame employer resistance to shared governance—they did not constitute a sudden empowerment of workers by government fiat. Second, we emphasize that codetermination laws and agreements were one specific byproduct of a wider campaign by unions and labor groups to shift toward an egalitarian relationship of social partnership between labor and capital. Other products of this movement include widespread union representation in workplaces and strong, centralized collective bargaining frameworks; codetermination reforms have often been intended to supplement or extend core frameworks of union representation. Third, we show that labor movements often fell short of securing codetermination arrangements that they believed would result in significant workplace power-sharing; they were instead forced to settle for arrangements that they considered weak or insufficiently radical.

A. Germany

In Germany, the world’s first national codetermination law was introduced in the aftermath of World War I. As McGaughey (2016) notes, German labor movements had been advocating for shared governance since the popular revolutions of 1848–1849, but before World War I these efforts had been successfully suppressed by the aristocracy and by major business owners. The political and economic devastation wrought by the war shattered existing power structures and dramatically worsened the bargaining position of major industrialists, putting labor movements on a stronger footing. In addition, as “workers councils” seized control of several cities in the months following the end of the war, the looming threat of widespread proletarian revolution put immense pressure on employers to placate workers (Beal 1955; Thelen 1991). The result was a series of collective agreements negotiated between employer associations and labor unions, beginning in November 1918 with the Stinnes-Legien Agreement (Winkler 1993). It consisted of a package of reforms, including the introduction of an eight-hour working day, official recognition of labor unions by employers, and the establishment of industry-level collective bargaining frameworks through which unions and employer associations would jointly negotiate standards for wages, hours, and working conditions (Beal 1955; Silvia 2013). In addition, the agreement permitted the creation of “works councils” (shop-floor codetermination institutions under union supervision) in firms with 50 or more employees. The rising German union movement viewed works councils as a promising avenue through which to extend and entrench its influence in workplaces (Addison 2009).

In 1919 and 1920, the political position of the German labor movement worsened as a successful revolution failed to materialize and moderate parties won a parliamentary majority in the Weimar Republic’s first elections (Beal 1955). Under pressure from labor activists and striking workers, the newly elected parliament passed a national codetermination law: the Works Council Act of 1920, which introduced mandatory establishment-level worker representation in firms with 20 or more employees. However, labor activists believed the law allocated far too little power to worker representatives, and 100,000 workers gathered in front of the Reichstag to protest the law’s introduction (Weipert 2012).

Over the next decade, German judges and employers further weakened the works councils established by the act (Thelen 1991; McGaughey 2016), thus eliminating any semblance of substantive codetermination. With the ascent of the Nazis in the early 1930s, the Works Council Act was dealt its final blow as labor groups were banned, union leaders were imprisoned or murdered, and major industrialists regained their former power.

Codetermination was reintroduced after World War II partially through the grassroots efforts of German workers and unions and partially via an external imposition by the British occupiers (Silvia 2013; Zahn 2015; McGaughey 2016). In the immediate aftermath of the war, German workers moved quickly to reestablish labor unions and works councils, taking advantage of the temporarily weak position of employers. Meanwhile, the British imposed geopolitically motivated labor reforms. Business leaders in the German heavy industries had played a crucial role in bankrolling the Nazis and supplying the machinery of both World Wars, and the Allies were determined to prevent a reoccurrence of the same dynamic. They therefore took steps to democratize the heavy industries and decentralize power away from major industrialists. In 1948, an Allied statute imposed “parity codetermination” on large firms in the iron, coal, and steel industries; under parity codetermination, workers elect representatives to 50% of the seats on a company’s board. The statute also formalized the role and rights of works councils, declaring them to be local support bodies for the industry-level labor unions and giving them a set of formal codetermination rights (that, although valued by union leaders, were considered quite weak; Silvia 2013). Finally, the Allies helped reintroduce the short-lived industry-level collective bargaining frameworks set up by the Stinnes-Legien Agreement.

German labor groups, which had initially taken advantage of the decimated postwar position of German employers to push for widespread nationalization, were impressed by parity codetermination. They dropped their demands for nationalization and began instead to push for an economywide adoption of parity codetermination (Scherrer 1983; Silvia 2013). They were only partially successful; in 1952, the German legislature introduced a law requiring only one-third board-level representation in large firms in industries other than iron, coal, and steel, due to strong resistance from resurgent employer associations to the idea of extending parity codetermination requirements. Failure to secure full parity codetermination was seen as a dispiriting defeat for labor groups, who did not view one-third representation as an authentic form of shared governance (Silvia 2013).

Labor groups were further dispirited by the passage, in the same year, of a new Works Council Act, which significantly weakened the works councils that had been established via the Allied statute, ad hoc arrangements, and state-level legislation (Thelen 1991; Silvia 2013). The act narrowed the mandate of works councils and formally separated them from labor unions, in an attempt to curtail the influence of unions. The rights of German works councils were later strengthened by reforms in 1972 and 2001 (Addison et al. 2004).

In the two decades following the 1952 board-level and shop-floor codetermination laws, the primary aim of West German labor movements was to secure the extension of parity codetermination to all large German firms (Silvia 2013; McGaughey 2016). With the decline of the center-right Christian Democrats and ascent of the left-wing Social Democratic Party in the late 1960s and early 1970s, German labor movements came close to achieving their goal. In 1976, a major codetermination reform initiated by the governing Social Democrats extended 50% board-level representation to all German firms with 2,000 or more employees. However, the reform included a crucial concession to the Social Democrats’ coalition partner, the classically liberal, business-friendly Free Democratic Party: Shareholders would be given a tie-breaking vote on company boards, meaning that workers could always be outvoted by unanimous shareholders and hence would enjoy only “quasi”-parity representation. Once again, labor movements were disappointed with this concession.

Since the 1970s, there have been several amendments to German codetermination laws (Page 2018). In 1994, a push to simplify corporate regulations culminated in the abolition of board-level codetermination requirements in small newly formed stock corporations (which had, uniquely, previously been subject to codetermination requirements regardless of their size; this reform is studied by Jäger, Schoefer, and Heining 2021). The reform was very narrow in scope, in part because the ambitions of the Christian Democrat/Free Democrat government were limited to begin with (they aimed only to harmonize regulations between stock corporations and limited liability companies and did not pursue a wider rollback of codetermination requirements), and in part because the government was forced to compromise with the Social Democratic upper house (Bundesrat). A few years later, in 2001, a Social Democratic government passed legislation broadening works councils’ coverage and slightly strengthening their codetermination rights, in response to a gradual decline in works council coverage and a report released by a codetermination review commission (Addison 2009).

Overall, since the reforms of the 1970s, codetermination laws have not been a major source of political conflict in Germany. Employer associations officially oppose codetermination requirements, but a comfortable majority of individual businesses and managers are supportive of them (Paster 2012). Paster suggests that these facts can be reconciled by noting that employer associations strategically overemphasize the views of vocal opponents of shared governance mandates, since opponents have much to gain from abolition but proponents have little to lose (as they would be able to voluntarily retain their codetermination arrangements).

To sum up: From the 1910s to the 1970s, German codetermination reforms were only one element of a wider competition between employers and labor groups, with the economic devastation of the World Wars and the external intervention of the British providing the substantial boost of worker power that enabled labor groups to secure major reforms. These reforms primarily involved the strengthening of unions and the establishment of industry-level collective bargaining frameworks; shop-floor codetermination was intended as a mechanism to supplement the operations of industry-level unions, while parity board-level codetermination was viewed as a stand-alone method of boosting worker power but was never extended beyond the iron, coal, and steel sectors. More broadly, many of the imposed codetermination arrangements, including minority board-level representation as well as the works councils originally established by both Works Council Acts, were perceived by labor groups to be weak and inauthentic forms of shared governance. Only parity board-level representation was considered a really substantive example of codetermination; interestingly, the top-down imposition of parity codetermination by the Allies constitutes perhaps the only historical example of a dramatic equalization of power through the fiat-based imposition of codetermination arrangements. But this occurred in a very unique historical context, and parity codetermination has not since been introduced in any other context.

B. Other countries

The histories of codetermination in Austria, the Netherlands, and the Nordic countries share the three key features we highlighted in the German context.

First, in each of these countries, the introduction of codetermination was enabled by preexisting factors that helped boost workers’ influence. In Austria, codetermination originated largely in parallel with Germany, with worker mobilization following World War I leading to the Austrian Works Councils Act of 1919, and post–World War II reforms reestablishing and extending the codetermination arrangements that arose in the interwar years (Kummer 1960).

Meanwhile, in the Netherlands and the Nordic countries, this boost to worker power came through the establishment of national frameworks for negotiation and collective agreement between powerful union associations and employer associations (e.g., via the Danish Constitution of the Labor Market negotiated in 1899, the first Dutch national agreement in 1914, the Norwegian Basic Agreement of 1935, and the Swedish Saltsjöbaden Agreement of 1938; see Wheeler 2002; Haug 2004a, 2004b; Trampusch 2006; Bergene and Hansen 2016). Under these frameworks, unions and employer associations met regularly to jointly determine national or industry-level standards for wages and working conditions. Labor movements secured the creation of these frameworks through massive and extended strikes and through the legislative efforts of social democratic parties, which were for a long time deeply intertwined with Nordic labor movements (Alestalo and Kuhnle 1986).

Firm-level codetermination arrangements in the Nordic countries were introduced in the decades following the creation of these frameworks, initially through collective negotiations and then through legislation (Bjorheim 1974; Knudsen 2006; Votinius 2012). Codetermination reforms consisted of the allocation of new co-decision-making rights to establishment-level union representatives, who were already present in most workplaces. National unions pursued codetermination rights for their representatives out of a desire to have a say on issues of workplace organization broader than the narrow set of decisions (about wages, benefits, etc.) covered by collective bargaining agreements (Wheeler 2002). Nordic codetermination representatives inherited much of their power from the broader social power of the national unions (Votinius 2012).

Second, in all of these countries, codetermination rights were secured as part of broader packages of reforms aimed at empowering workers. As we have mentioned, codetermination reforms in the Nordic countries simply extended the role of union representatives, whose near-universal presence in workplaces was a result of the organizing and legislative efforts of national unions. In addition, codetermination arrangements were introduced alongside shorter working weeks, systems of unemployment or sickness insurance, and other labor reforms (Van Leeuwen 1997; Haug 2004a, 2004b).

Third, political compromises meant that many of the codetermination reforms in these countries introduced weaker shared governance arrangements that left labor groups unsatisfied. For example, in Norway, the codetermination arrangements established in the 1960s and 1970s were later criticized by labor activists for conveying too little power to workers and focusing too narrowly on firm performance (Bergene and Hansen 2016). In Finland, political compromises in the drafting of a 1990 board-level codetermination law meant that the law applied to far fewer companies than preferred by the Social Democrats (Harju, Jäger, and Schoefer 2021). The 1950 Works Council Act in the Netherlands introduced mandatory works councils in firms with 50 or more employees; however, these councils had to include managers, they had only information and consultation rights without substantive codetermination powers, and their mandate was to improve firm performance rather than to advocate for workers. Thus, these councils were essentially toothless until a 1979 reform substantially strengthened them (Van het Kaar 1997). Similarly, a 1971 reform in the Netherlands gave works councils the right to nominate representatives to company boards, but these nominations could be rejected by the incumbent board. This was changed by a 2004 reform, but it remains the case that works councils cannot nominate candidates who are either an employee of the firm or a representative of a union engaged in a collective agreement with the firm (Van het Kaar 2007); consequently, Dutch worker-nominated board members are only “worker representatives” in a thinner sense.

C. Conclusion

To understand modern European codetermination, we must place it in its historical and institutional context. Firm-level codetermination requirements are only one (often relatively weak) component of a wider institutional environment shaped by European labor movements over the 20th century to advocate for workers. Our description of contemporary codetermination arrangements, in Section III, will frequently refer to interactions between codetermination and this wider institutional structure.

III. Does codetermination shift power in the workplace?

We now draw on detailed qualitative evidence to answer the following questions: In which domains, and to what extent, do existing codetermination arrangements shift power in the workplace? How do worker representatives deploy their powers, and how does shared governance play out in practice? What are the interactions between codetermination and other pro-labor institutions, including unions and collective bargaining frameworks? In Section IIIA we cover board-level codetermination, and in Section IIIB we discuss shop-floor codetermination.

A. Board-level codetermination

1. Existing board-level codetermination laws

Under board-level codetermination, workers elect representatives who fill a share of the seats on their company’s board. As in the United States, the boards of European companies are charged with making major strategic decisions and with appointing and supervising senior executives; board-level codetermination therefore gives workers the right to participate in a limited set of high-level decisions (Conchon 2011; Jäger, Schoefer, and Heining 2021).

As of 2022, a large number of European countries have board-level codetermination laws (Jäger, Noy, and Schoefer, 2021). Virtually all such laws give workers a minority of seats on their company’s board—usually 20% or 33%, ranging up to 50% minus the casting vote in the case of quasi-parity representation in Germany, as described above (ETUI 2020; Jäger, Schoefer, and Heining 2021). Under minority and quasi-parity representation, workers can always be overruled by shareholders voting unanimously, and consequently these codetermination arrangements give workers very little direct decision-making authority. The sole exceptions to this rule are firms in the German iron, coal, and steel sectors. Our discussion in this section focuses on minority and quasi-parity board-level codetermination arrangements, under which shareholders hold majority voting rights.

2. How does board-level codetermination operate in practice?

Board-level worker representatives are upfront about the fact that their minority status leaves them without formal decision-making power. For example, a French worker representative interviewed by Gold, Kluge, and Conchon (2010, 62) noted:

Our action as board-level employee representatives is very limited by the fact that our voting right is not powerful enough. So I know full well that I couldn’t…well, if you like, I’ve never managed to overturn a vote since I was first elected in 1999.

When asked to assess the impacts of board-level codetermination, one Finnish worker representative responded simply:

The employer always has a majority. No direct effect. (Harju, Jäger, and Schoefer 2021, 28)

Probably as a consequence of the fact that worker representatives have little hope of out-voting shareholders, formal voting does not figure prominently in the day-to-day operations of codetermined boards. Instead, board meetings are focused on cooperative dialogue and the mutual sharing of information and perspectives. Boards aim for consensus decisions, and split votes are unusual. (Of course, these collaborative, consensus-oriented discussions occur with the majority status of the shareholder representatives looming quietly in the background, which likely affects worker representatives’ behavior.) For example, worker representatives interviewed by Gold, Kluge, and Conchon (2010) said that:

Our whole modus vivendi on the supervisory board is oriented towards consensus. To that extent, the outcome of formal voting does not carry so much weight. In 11 years on the supervisory board I have never encountered the kind of fundamental conflict with shareholders or managers the question refers to. (A representative from the Czech Republic, p. 28)

…[W]e sit around the same table and we have the same powers and responsibilities, but of course I know where the power lies. Of course, if we come to a vote, then we lose—but the [shareholder representatives] always seek consensus….Very frequently, they ask us, they challenge us, and so they want our opinion. That must have some impact as well, or there’s not much point in asking. (A Finnish representative, pp. 35, 40)

I don’t feel in a minority or any kind of inferiority. Both sides try to achieve unanimity. (A German representative, p. 103)

Boards are able to arrive at consensus decisions in part because of the compliant attitudes of worker representatives. Either in recognition of their inability to overrule shareholders or due to a belief that the interests of workers are mostly aligned with the interests of the company, worker representatives often defer to directors and shareholder representatives, especially when boards make major strategic decisions with important profit implications. For example, Levinson (2000) reports that Swedish worker representatives are almost totally inactive during board-level discussions of company strategy; meanwhile, fewer than 5% of Finnish worker representatives report wielding influence over strategic decisions or decisions about production, outsourcing, or investment (Harju, Jäger, and Schoefer 2021). An Austrian worker representative argued that:

It’s my task to be there for the workforce….It’s the task of the [management] to run the company. I don’t interfere with that….Everyone is concerned with the long-term survival of the company. (Gold, Kluge, and Conchon 2010, 17)

Worker representatives’ reluctance to participate in strategic discussions may also be attributable to a perception that strategic decisions are made out of their view and discussed during board meetings only as a formality. A Finnish representative interviewed by Harju, Jäger, and Schoefer (2021) reported that:

…management has, in fact, already decided the course of action at the stage when I become aware of it. At that point, it is virtually impossible to influence the big lines anymore; maybe you can say your words and negotiate some details.2

If worker representatives are stranded in a perpetual minority and often defer to shareholder representatives, what is their purpose on the board? The qualitative evidence suggests that they serve three main functions. First, they share information with managers and communicate the perspectives and ideas of workers. As two Finnish board-level representatives said:

It often feels that the members of the management group want to talk to me because they feel that they are separated from the employees and want to hear my opinions.

….I can bring the personnel’s thoughts and ideas to the management team very freely. And bring different types of thinking from employees. (Harju, Jäger, and Schoefer 2021, 30–31)

A French board-level representative noted that:

[Shareholder representatives] do appreciate us because they live in their bubble, they’re in their stratosphere. Quite visibly, when I explain things to them that [workers] might find very basic, they’re often completely taken aback….While they regard everything as a cost item, I for my part try to show them that it doesn’t represent a cost when it enables the company to operate better, live better, and even to sustain. That can even serve the shareholders’ interests…. They do listen when I talk like that. (Gold, Kluge, and Conchon 2010, 62)

Possibly due to the benefits of increased access to information (paired with little relinquishment of formal influence), European directors and shareholders hold mostly positive views of board-level codetermination. Levinson (2000) observes that 61% of Swedish directors believe board-level codetermination has net positive effects on companies, citing increases in information-sharing and the legitimacy of decisions; meanwhile, 30% believe the institution has a neutral effect and only 9% believe it has a negative effect. In addition, 80% of Swedish directors report that the degree of cooperation between worker and shareholder representatives is “good” or “very good.” According to Paster (2012), 71% of German executives and 63% of German private investors oppose the repeal of board-level codetermination laws.

The second function of board-level worker representatives is to directly influence decisions about working conditions—an area of decision-making in which shareholders appear (somewhat) willing to allow workers to shape outcomes. Levinson (2000) reports that worker representatives in Sweden are highly active during board-level discussions of personnel or working conditions, and over 90% of Swedish directors claim that worker representatives have a “large” impact on decisions about working conditions. Anecdotally, European worker representatives describe using their platform to secure a variety of goods for their fellow workers, including subsidized commuter tickets, a budget for leisure activities, or expansions of pension eligibility (Gold, Kluge, and Conchon 2010; Harju, Jäger, and Schoefer 2021). Worker representatives also occasionally mention influencing decisions about layoffs, mergers, or wages, though these examples are the exception rather than the rule and there is widespread frustration at the difficulty of affecting important decisions and the unwillingness of employers to listen to worker representatives on these topics (Gold, Kluge, and Conchon 2010). For example, Finnish representatives interviewed by Harju, Jäger, and Schoefer (2021, n.p.) protested that:

We don’t get the opportunity to influence and provide help [in cases of personnel transfers and redundancies]. We can’t influence these matters.

Yes, I can freely participate in the discussion [about layoffs], but usually these issues are not discussed in the board meetings. The agenda is usually decided in advance, and then the board of directors simply goes through the agenda by stating facts rather than having discussions.…It is always the employer who makes the decision on [wage-setting].

Of course, even if worker representatives rarely exert direct influence over layoff decisions, worker representation may indirectly deter layoffs by raising the costs (consultation, negotiation, etc.) associated with firing workers (Keskinen 2017). However, this seems more likely to be true for shop-floor than board-level codetermination, as shop-floor representatives are usually given specific powers over decisions about layoffs or personnel transfers (ETUI 2020).

Third, board-level representatives sometimes use the information they acquire through board meetings to support the activities of shop-floor representatives or union representatives (notably, sometimes the same individual will be both a board-level representative and a shop-floor or union representative). For example:

I feel that I am well-informed about the economic background with regard to [my company]….Needless to say, that is a great help to me in our wage negotiations, in which I am the chief trade union negotiator [under an industry-level collective agreement]. (An Austrian representative in Gold, Kluge, and Conchon 2010, 20)

The benefit to the union of having one or more board-level employee representatives is to get information upfront and to display its stances at a high level, meaning that the union can anticipate events. (A French representative in Gold, Kluge, and Conchon 2010, 54)

My dual role as a [board-level and shop-floor] representative helps me to get more information, which is helpful when dealing with salary negotiations. (A Finnish representative interviewed by Harju, Jäger, and Schoefer 2021, n.p.)

One particularly notable and high-stakes example of cooperation between board-level, shop-floor, and union representatives is the negotiation of “employment pacts” that protect workers from layoffs during recessions in exchange for reductions in compensation. We describe this example in depth in Section IIIB.

However, we should take care not to overrate the importance of institutional interactions; many of the representatives surveyed by Gold, Kluge, and Conchon (2010) report having little to no contact with shop-floor or union representatives and having no input on collective bargaining strategies. One Norwegian representative even notes that all of the financial information that could usefully inform collective bargaining strategies is publicly available. Interactions between board-level representatives and other worker representation institutions are therefore far from a universal phenomenon.

3. Conclusion

As a consequence of workers’ minority vote share under existing laws, board-level codetermination does not allow workers to directly wield decision-making authority. Rather, existing board-level codetermination arrangements enhance information flows between managers and workers, allow workers to secure marginal improvements in working conditions, and may complement other worker representation institutions, including trade unions and shop-floor codetermination.

The available quantitative evidence suggests that these three mechanisms add up to produce neutral or slight positive impacts of board-level codetermination on worker and firm outcomes, as we describe in Section IV. Meanwhile, Finnish worker representatives surveyed by Harju, Jäger, and Schoefer (2021) do not perceive board-level codetermination as particularly impactful. Many believe the institution has no effects at all—citing the powerlessness inherent in a minority vote share or attempts by employers to bypass worker representatives by making decisions unofficially and out-of-view and treating board meetings as a formality. The Finnish representatives who do believe the institution has an impact mostly point to increases in “trust,” “transparency,” or “communication,” or “the staff feeling better taken into account.” They do not claim the institution affects wages, layoffs, or other economic outcomes.

B. Shop-floor codetermination

1. Existing shop-floor codetermination laws

Under shop-floor codetermination, workers elect shop-floor representatives or committees (e.g., “shop stewards” or “works councils”) who participate in day-to-day decisions about working conditions and dismissals. Most countries in Europe, and many countries outside of Europe, have laws that give workers rights to shop-floor codetermination (Jäger, Noy, and Schoefer 2021). The strength and breadth of authority conveyed to shop-floor representatives by these laws varies from country to country.

In the majority of countries with shop-floor codetermination laws, shop-floor representatives are merely given information and consultation rights, meaning that employers must inform shop-floor representatives in advance about planned layoffs or changes to working conditions and must consult them about the changes (ETUI 2020; Visser 2021). However, employers have no general obligation to take the perspective of shop-floor representatives into account, meaning that these laws convey no formal decision-making authority to workers.

In Austria, Germany, and the Nordic countries, shop-floor representatives are given more substantive formal authority, with the breadth of this authority varying across countries. In Austria, shop-floor representatives have co-decision-making rights in several areas, including disciplinary procedures, the allocation of working hours, workplace monitoring technologies, and performance pay systems (Aumayr et al. 2011; ETUI 2020). Austrian shop-floor representatives also have the right to demand external arbitration when employers make decisions with which they disagree in a broader set of categories (ETUI 2020). In Germany, shop-floor representatives have co-decision-making rights over a similar set of areas, can veto dismissals and force the employer to take the issue to a labor court, and (where industry-level collective bargaining agreements permit) can engage in local wage bargaining on behalf of workers. In Sweden and Norway, most changes to working conditions must be negotiated with establishment-level union representatives (ETUI 2020). In the Netherlands, major changes to workplace regulations must be approved by shop-floor representatives (ETUI 2020). Notably, the right to participate in decisions about working conditions or dismissals gives shop-floor representatives some indirect control over production decisions; proposals to alter production techniques by restructuring workflows or introducing automation technologies must pass through worker representatives charged with evaluating the impacts of these changes on workers. We return to this point in Section IV, when we discuss the relationship between codetermination and automation.

Overall, the majority of existing shop-floor representation laws convey very little formal authority to workers, but Austria, Germany, and the Nordic countries give shop-floor works councils or union representatives substantive powers over a variety of decisions relating to immediate working conditions and dismissals or transfers of staff. Shop-floor representatives, by contrast to board-level representatives, are directly granted decision-making authority and are highly involved in day-to-day firm governance; however, they have no direct mandate to deal with higher-level strategic decisions.

2. How does shop-floor codetermination operate in practice?

It is difficult to draw sweeping conclusions about how shop-floor codetermination operates in practice because of the considerable heterogeneity across countries in the responsibilities and rights assigned to shop-floor representatives. Since the available qualitative evidence largely consists of case studies or surveys of Nordic or German shop-floor codetermination, we focus on the activities of shop-floor representatives in countries that allocate them substantive decision-making powers. A few broad conclusions are evident.

First, shop-floor representatives are highly engaged in day-to-day discussions about working conditions, they manage to exert moderate influence over the outcomes of these discussions, and their contributions to these discussions are valued by employers. For example, Swedish shop-floor representatives interviewed by Wheeler (2002) describe influencing decisions about working hours and health and safety, helping set up education and training programs for workers, and helping resolve conflicts among workers or between workers and managers. Managers interviewed in the same study appreciatively cite the influence of the shop-floor representatives, saying that their input improves decision-making and increases worker satisfaction.

The interview evidence from Wheeler (2002) is consistent with broader survey evidence on the impacts of shop-floor representatives and their relationships with managers. In the 2019 European Company Survey, about 50% of managers across Europe claim that worker representatives have a “moderate” or “great” amount of influence on decisions about working conditions (Jäger, Noy, and Schoefer 2021).3 Levinson (2000) cites surveys showing that 80–90% of Swedish managing directors agree that shop-floor representatives exert “large” or “very large” influence over decisions about the workplace environment or working hours.

Meanwhile, managers have mostly positive views of the impacts of shop-floor codetermination on day-to-day decision-making. In the 2013 European Company Survey, about 80% of managers agree that worker representatives behave in a constructive and trustworthy way, that worker representation increases employee buy-in to decisions, and that worker representation “grants a competitive edge.” That said, the majority of managers indicate that they prefer to consult workers informally (authors’ own calculations), a point explored in-depth by Jäger, Noy, and Schoefer (2021). Levinson (2000) shows that 80–90% of Swedish managers approve of shop-floor representation, believing that the institution causes decisions to be “better rooted among employees.” Swedish managers also reject the claim that shop-floor representation impedes timely or effective decision-making or is a drain on resources—repudiating the U.S. Supreme Court’s assertion, quoted in the introduction, that involving workers in decisions that are “the central burdens and prerogatives of management” necessarily drags out or worsens decision-making.

The second general observation we can make is that, while shop-floor representatives are also highly engaged in discussions about layoffs, outsourcing, or personnel transfers, they wield less influence in this area than over decisions about working conditions. Representatives interviewed by Wheeler (2002) describe instances where they delayed layoffs or negotiated more generous severance packages, but report a general inability to prevent layoffs from happening. In the European Company Survey, only 25% of managers claim that employee representatives wield a “moderate” or “great” amount of influence over decisions about dismissals (Jäger, Noy, and Schoefer 2021).4

While shop-floor representatives appear unable to routinely influence dismissals, they may be more able to affect layoff decisions during economic crises. German works councils, for example, have a long history of negotiating “employment pacts” during recessions that ward off layoffs in exchange for cuts to wages or hours—effectively permitting firms to adjust employment on the intensive, rather than extensive, margin (Rehder 2003; Burda and Hunt 2011). This practice appears to be enabled by other kinds of worker representation as well. For example, Gregoric and Rapp (2019) show that Scandinavian firms with board-level codetermination were less likely to lay off workers during the Great Recession and more likely to cut wages or hours instead; Burdín and Dean (2009) show that Uruguayan worker-managed firms behave similarly.

Why might worker representation, specifically, enable this behavior? Traditional firms are reluctant to adjust wages or hours downward (Bewley 2002), perhaps because workers learn to reflexively resist proposed cuts to compensation out of fear that such cuts can be used to opportunistically exploit them. Worker involvement in decision-making might give workers access to the information they need to verify that cuts are genuinely necessary, or it may increase trust and enhance the legitimacy of decision-making enough to permit firms to propose wage or hour cuts. By thus enabling intensive-margin employment cuts, worker representation can benefit both workers and firms by insulating workers from unemployment and preserving productive worker-firm matches.

That said, the ability of European firms to avoid layoffs by cutting wages and hours during crises is also driven by other European labor market institutions, including short-time work policies, working time accounts, and clauses in industry-level collective bargaining agreements (Burda and Hunt 2011; Rinne and Zimmermann 2012; Herzog-Stein, Lindner, and Sturn 2018). We should not attribute this phenomenon entirely (or, perhaps, even predominantly) to codetermination.

The third general observation we can make is that shop-floor representatives, at least outside of Germany, do not exert much influence over wage-setting in their role as codetermination representatives. Here, it is crucial to draw clear distinctions between different European worker representation institutions, which often blend together. In countries with “single-channel” shop-floor representation, such as the Nordic countries, establishment-level union representatives function both as codetermination representatives (who have co-decision-making rights) and as union representatives (who have rights to engage in local wage negotiations and collective bargaining). Often, the distinction between “co-decision-making” and “negotiation” breaks down in practice, and shop-floor representatives simply engage in general advocacy on behalf of workers (Sippola 2012). Crucially, however, any authority that these shop-floor representatives have to influence wage-setting comes through their role as union representatives, not through their role as codetermination representatives. In cases where the two roles do come apart—for example, Finnish law allows for the election of codetermination representatives who are not union representatives—the codetermination representatives report wielding very little influence over wage-setting, and point to union representatives as the parties responsible for securing better wages (Harju, Jäger, and Schoefer 2021).

Meanwhile, countries like Germany have “dual-channel” shop-floor representation, meaning that shop-floor codetermination arrangements are clearly separate from shop-floor union representation (ETUI 2020). In Germany, shop-floor codetermination representatives (“works councils”) do sometimes engage in wage negotiations (as permitted by the works council law), and there is indeed some evidence that German works councils boost wages and create mild within-firm wage compression (Hirsch and Mueller 2020). That said, sectoral bargaining conducted by industry-level unions remains by far the most dominant form of collective negotiation in Germany.

Overall, under both single-channel and dual-channel regimes, it is collective bargaining and union-based negotiation that ultimately influence wage-setting; while shop-floor codetermination can affect decisions about, e.g., the adoption of performance pay schemes, the institution is not set up to influence overall wage levels.

3. Conclusion

Shop-floor representatives in the Nordic countries and Germany wield moderate authority in day-to-day firm governance, which they use to shape nonpecuniary aspects of working conditions. They are largely unable to influence routine decisions about layoffs or wage-setting, but they may have a greater capacity to affect these decisions during economic crises. Relationships between shop-floor representatives and employers are generally amicable, with both parties viewing shop-floor shared governance as mutually beneficial.

This qualitative evidence is once again consistent with quantitative evidence on the impacts of shop-floor representation, which suggests the institution has zero impacts on wages, may slightly reduce separations, and may improve subjective job quality (Addison 2009; Keskinen 2017; Harju, Jäger, and Schoefer 2021). We now turn to surveying the quantitative evidence on the impacts of codetermination.

IV. What are the economic impacts of codetermination?

Section III paints the following picture: Board-level and shop-floor codetermination arrangements affect some decisions about working conditions, result in increased information flows and increased worker trust in company management, and have little impact on major decisions—including decisions about wage-setting, layoffs, investment, and company strategy.

If we had to extrapolate from this qualitative characterization of codetermination to a prediction about the economic impacts of the institution, we would probably conjecture that codetermination has few impacts on observable economic outcomes and mildly improves nonpecuniary aspects of job quality. In particular, on the worker side, we would predict that codetermination does not affect wages and that it reduces turnover—either by directly insulating workers from layoffs during crises or by increasing job quality and hence reducing voluntary separations. On the firm side, we would predict null or small positive effects of codetermination on firm performance—not negative effects—for two reasons. First, the qualitative evidence is inconsistent with all of the channels through which negative effects of codetermination on firm performance are hypothesized to materialize. Codetermination does not give workers influence over wage-setting or decisions about investment or expansions, meaning that the “hold-up” and “worker rent-seeking” mechanisms postulated by Jensen and Meckling (1979) cannot get off the ground. Additionally, surveys of managers suggest that codetermination does not significantly slow down or obstruct decision-making. Second, the survey evidence described in Section III suggests that European managers, directors, and even investors have mostly positive views of codetermination, which would be hard to reconcile with the institution having substantial negative impacts on firm performance. Managers and directors even cite positive impacts of codetermination on decision-making, information flows, and trust, which might lead us to expect small positive impacts on firm performance.

We would also predict that shop-floor codetermination has greater impacts than board-level codetermination, at least in countries like Germany or Sweden that grant shop-floor representatives meaningful powers. Our qualitative discussion in Section IIIA showed that board-level representatives almost completely lack substantive decision-making authority, while in Section IIIB we noted that shop-floor representatives in Germany, Austria, and the Nordic countries exercise at least some authority over decisions about working conditions, may also influence layoff decisions, and (in Germany) can also be involved in wage negotiations.

Happily, these predictions are largely consistent with the available quantitative evidence on the economic impacts of codetermination, which we now briefly summarize.

A. Sources of evidence

The available evidence comes from two sources. First, a large set of studies, surveyed by Jäger, Noy, and Schoefer (2021), estimates the partial-equilibrium effects of codetermination on individual firms and their workers by comparing codetermined to noncodetermined firms. The central challenge faced by these studies is that firms with and without codetermination (e.g., firms above versus below the size thresholds for codetermination mandates, or firms whose workforces do versus do not take up their rights to codetermination) may differ unobservably in ways that make a simple comparison of their outcomes misleading. Several studies therefore use “quasi-experimental” techniques that attempt to isolate variation in codetermination status that is plausibly unrelated to these underlying unobservable factors.

For example, Jäger, Schoefer, and Heining (2021) and Harju, Jäger, and Schoefer (2021) analyze reforms in Germany and Finland that abolished or introduced codetermination requirements for specific subsets of firms delineated by size or legal form. They use micro datasets on individual firms and their workers to compare the outcomes of similar firms, affected versus unaffected by the reforms, before and after the reforms. By zooming in on these specific comparisons, these studies uncover the causal effects of the codetermination reforms under the reasonable assumption that affected and unaffected firms would have experienced identical trends in outcomes in the absence of the reforms.

Studies comparing the outcomes of codetermined and noncodetermined firms vary in the plausibility of the assumptions required to make their estimates have a causal interpretation. Consequently, Jäger, Noy, and Schoefer (2021) do not simply aggregate the findings of all existing studies, but instead weight existing results by the plausibility of the underlying “identifying assumptions.” Their survey, and our brief summary below, focuses mainly on the studies with the most persuasive quasi-experimental strategies.

The second source of evidence consists of cross-country event study estimates by Jäger, Noy, and Schoefer (2021), which try to uncover the general-equilibrium impacts of codetermination reforms on aggregate economic outcomes and the quality of industrial relations, using a similar difference-in-differences (comparing affected versus unaffected countries, before and after a reform) strategy at the country level. This strategy is less reliable at the level of countries than at the level of firms, since sample sizes are smaller and it is harder to find similar comparison countries that plausibly are on an otherwise similar trend, but these event study estimates nevertheless constitute the best available evidence on the general-equilibrium impacts of codetermination laws.

We now summarize the conclusions from these two sources of evidence.

B. Worker outcomes

First, both board-level and shop-floor codetermination have few (if any) impacts on observable worker outcomes, with shop-floor codetermination having slightly stronger effects. Board-level representation has zero or very small positive impacts on wage levels, with recent studies finding point estimates on the order of 1–2% and confidence intervals that include zero (Blandhol et al. 2020; Jäger, Schoefer, and Heining 2021; Harju, Jäger, and Schoefer 2021). Meanwhile, some evidence indicates that shop-floor representation in Germany moderately boosts wages and narrows within-firm earnings gaps, perhaps thanks to the special wage negotiation rights held by German works councils (Jirjahn and Smith 2018; Hirsch and Mueller 2020; Schnabel 2020).

Board-level representation also does not appear to reduce voluntary turnover, which constitutes revealed-preference evidence that this form of codetermination does not substantially improve job quality (Jäger, Schoefer, and Heining 2021; Harju, Jäger, and Schoefer 2021). However, strong forms of shop-floor codetermination are associated with lower voluntary turnover (Addison, Schnabel, and Wagner 2001). Both forms of codetermination do seem to reduce involuntary separations (i.e., layoffs), and may commensurately be accompanied by slight reductions in hiring in codetermined firms (Addison, Schnabel, and Wagner 2001; Keskinen 2017; Harju, Jäger, and Schoefer 2021). Finally, there is suggestive evidence that both kinds of codetermination improve subjective job quality (Harju, Jäger, and Schoefer 2021). Cross-country event studies confirm that codetermination reforms do not appear to affect wage levels, the labor share, or income inequality (Jäger, Noy, and Schoefer 2021).

C. Firm performance

Second, both types of codetermination have neutral or small positive impacts on firm performance, including productivity, capital intensity, revenue, and profitability (Jäger, Schoefer, and Heining 2021; Harju, Jäger, and Schoefer 2021). There is even some evidence that German works councils raise productivity (Mueller and Stegmaier 2017). This is consistent with the results of cross-country event studies, which find no effects of codetermination on productivity growth, capital formation, or growth in gross domestic product (Jäger, Noy, and Schoefer 2021).

D. Industrial relations

Finally, codetermination laws do not appear to improve the quality or cooperativeness of a country’s industrial relations, though the evidence here is murkier. Some scholars argue that codetermination institutions have been responsible for shaping cultures of cooperative industrial relations, e.g., in Germany (Thelen 1991). However, Jäger, Noy, and Schoefer (2021) find no evidence that codetermination reforms affect a country’s subsequent strike intensity and find no cross-sectional correlation between the “cooperativeness” of a country’s industrial relations and whether the country has codetermination laws; that said, they do find suggestive evidence for increases in union density as a result of codetermination reforms. In addition, they argue that the qualitative historical evidence suggests that codetermination arose in countries with preexisting cultures of social partnership and worker-management dialogue, rather than causing the development of such cultures.

Overall, the empirical evidence is not yet conclusive on this front.

E. Institutional complementarities

Jäger, Noy, and Schoefer (2021) also discuss whether evidence on the economic impacts of codetermination in Europe can be translated to the United States, given major differences in institutional context between the U.S. and Europe (for example, unions are much weaker and collective bargaining coverage is much lower in the U.S.). The qualitative evidence we have surveyed contributes to this discussion by highlighting historical and contemporary complementarities between codetermination and other worker representation institutions—including the fact that codetermination has historically played a subsidiary role to industry- or national-level trade unions and collective bargaining frameworks, and that many contemporary worker representatives describe their ability to supply unions with information as one of their main functions. These important complementarities mean we should be cautious about extrapolating from the European evidence to conclusions about the effects codetermination would have in the United States.

F. The future of work

Technological change and automation will continue to reshape labor markets over the next several decades, with the effects of these transformations on worker welfare likely to be mixed (Acemoglu 2021). Some authors hypothesize that worker involvement in production/job design through codetermination will help ensure that automation is handled in ways appropriately sensitive to the welfare of workers (Autor, Mindell, and Reynolds 2019; McKay, Pollack, and Fitzpayne 2019). There is important historical precedent for this view: In the 1970s, Swedish unions’ campaign for broad workplace codetermination rights was motivated by a perception that new technologies were being implemented in ways that eroded job quality and that workers needed a voice in production and workplace design in order to correct this trend (Sandberg et al. 1992).

On the one hand, by boosting wages or increasing firing costs, codetermination could raise the price of workers relative to robots and thereby unintentionally accelerate the substitution of humans with machines. Indeed, there is evidence that wage increases among low-paid workers spur increased automation of routine tasks (Dechezleprêtre et al. 2021), and union density is cross-sectionally correlated with higher automation (Acemoglu and Restrepo 2022). We have noted that codetermination does not appear to substantially boost wages, but it does reduce involuntary separations—plausibly in part by increasing firing costs—which leaves room for this mechanism to operate (although higher firing costs may also lead to a shift from labor-saving process innovations to product innovations; Manera and Uccioli 2021). On the other hand, codetermination might do exactly what Swedish unions hoped it would: give workers the power to persuade employers to build up their human capital and assign them to more sophisticated tasks that complement advanced technologies rather than keeping them on routine manual tasks and replacing them when those manual tasks are automated.

Unfortunately, there is very little concrete evidence to help us adjudicate between these potential channels. A pair of studies using data from the European Company Survey provides suggestive support for the latter hypothesis. The first study shows that the presence of employee representation in an establishment is correlated with the adoption of more sophisticated and automation-resistant job designs (Belloc et al. 2021). The second shows that codetermination is positively associated with take-up of advanced technologies, arguably because those technologies are complementary to workers’ newly acquired sophisticated skills (Belloc, Burdín, and Landini 2022).

In a similar vein, evidence from the German manufacturing sector, where works councils and board-level representatives are very influential, suggests that automation does not threaten the job security of incumbent workers and instead causes them to transition to higher-skilled and higher-paying tasks within their firms (though automation does negatively affect the outcomes of young workers and labor market entrants; see Dauth et al. 2021).5 These findings stand in contrast to other studies with similar methodologies showing substantial negative effects of automation on job security and employment in the United States (Acemoglu and Restrepo 2020), perhaps owing to the weakness of employee representation in the U.S. relative to Germany and a corresponding failure of the upskilling mechanism to materialize there.

Overall, the (small amount of) existing evidence suggests that worker representation does not obstruct automation or the adoption of advanced technologies, but it does encourage automating firms to upskill rather than replace their incumbent workers. (Importantly, the fact that worker representation protects incumbent workers in these cases does not necessarily mean it improves overall welfare.)

G. A puzzle

Before concluding our discussion, we turn to an interesting puzzle raised by the evidence we have surveyed so far. If codetermination has weakly positive impacts on both workers and firms, and if directors and managers mostly approve of the institution, why are codetermination laws necessary? Why don’t American firms voluntarily adopt shared governance arrangements?

First and most obviously, the National Labor Relations Act imposes significant legal barriers to voluntary codetermination arrangements in the United States (Liebman 2017). Even when a jurisdiction’s corporate law does not explicitly prohibit codetermination, by enshrining owner/shareholder control as the default form of firm governance, established legal frameworks can make experimentation with alternative governance systems difficult and risky (Anderson 2017).

Second, information asymmetries or “prisoner’s dilemma” dynamics may block unilateral voluntary adoption of worker participation even if the institution is socially beneficial (Levine and Tyson 1990). For instance, firms that voluntarily adopt shared governance may thereby signal to the stock market that workers have gained the upper hand in their internal labor relations, resulting in a stock price decline (Hayden and Bodie 2021); alternatively, mild wage compression induced by codetermination may cause talented workers to leave codetermined firms for noncodetermined ones (Burdín 2016).

These explanations are consistent with the observation that in Europe, where worker participation in firm governance is normalized by formal codetermination laws, we do observe widespread voluntary adoption of worker participation in firms without formal codetermination. Jäger, Noy, and Schoefer (2021) discuss evidence from the European Company Survey showing that firms without formal worker representation still frequently involve their workers in decision-making, and they claim that informal worker involvement has a considerable impact on the outcomes of decision-making.

H. Conclusion

Quantitative studies of the economic impacts of codetermination produce results consistent with our qualitative characterization of the institution. Board-level and shop-floor codetermination do not significantly shift core economic outcomes; both forms of codetermination may cause slight increases in job quality and job security, and strong forms of shop-floor codetermination may also slightly boost wages and productivity. The weakly positive impacts of codetermination on firm performance are arguably consistent with the absence of voluntarily adopted codetermination arrangements in many contexts. Finally, potential interactions between codetermination and other European labor market institutions, or between codetermination and emerging technologies, place important limits on our ability to extrapolate from the existing evidence.

V. Overall conclusion

According to the evidence, existing codetermination arrangements are mild, mostly benign institutions with nonexistent or small positive economic impacts. European-style codetermination institutions, especially minority board-level representation, convey very little authority to workers, and are hence unlikely to significantly shift power from employers to workers. It remains possible that stronger codetermination arrangements, such as German-style works councils, parity board-level codetermination, or a bicameral governance system where decisions require joint approval by shareholder- and worker-elected bodies, provide a larger boost to worker power (as speculated by a group of academics in The Guardian; see Fraser et al. 2020). However, empirical evidence on the economic impacts of such strong shared governance institutions is scant (Jäger, Noy, and Schoefer 2021).

Although existing codetermination arrangements do not significantly shift power within workplaces, they do appear to increase information-sharing and worker-management cooperation, which may explain the evidence for small positive impacts of these institutions on worker welfare and firm performance. Notably, the purpose of codetermination laws need not be to dramatically restructure workplace hierarchies or influence major economic decisions. As Jäger, Noy, and Schoefer (2021) note, proponents of codetermination often emphasize the intrinsic importance of fostering open and democratic workplaces by giving workers formal channels to express a voice in firm governance. Codetermination laws may successfully deliver on this front even if they do not have large effects on measurable economic outcomes.

Acknowledgments

We thank the editor, Lawrence Mishel, and two reviewers, Matthew Bodie and Gabriel Burdín.

About the authors

Simon Jäger (sjaeger@mit.edu) is an assistant professor of economics at MIT, Shakked Noy (snoy@mit.edu) is a predoctoral research fellow at MIT, and Benjamin Schoefer (schoefer@berkeley.edu) is an assistant professor of economics at UC Berkeley.

Notes

1. Chamber of Commerce brief in First National Maintenance Corp. v. NLRB: 452 US 666 (1981).

2. Some of our quotes from Finnish worker representatives in this section, including this one, are drawn from interviews or surveys conducted as part of the research for Harju, Jäger, and Schoefer (2021) that were not specifically quoted in the final version of the paper.

3. This statistic encompasses all forms of worker representation (including board-level representation), but shop-floor representation is much more widespread among surveyed firms than board-level representation.

4. A notable exception may be Germany, where works councils have the authority to veto all “unwarranted” dismissals and force their employer to take the issue to an employment court. However, even in Germany, only 28% of managers in the European Company Survey say that worker representatives wield “moderate” or “great” influence over dismissal decisions.

5. Similarly, Hirvonen, Stenhammer, and Tuhkuri (2021) provide quasi-experimental evidence that firms’ investment in new technologies increases firms’ employment in Finland (see Harju, Jäger, and Schoefer 2021 for an overview of Finnish codetermination institutions).

References

Acemoglu, Daron. 2021. “Harms of AI.” National Bureau of Economic Research.

Acemoglu, Daron, and Pascual Restrepo. 2020. “Robots and Jobs: Evidence from U.S. Labor Markets.” 128 Journal of Political Economy 2188.

Acemoglu, Daron, and Pascual Restrepo. 2022. “Demographics and Automation.” 89 Review of Economic Studies 89 1.

Addison, John. 2009. The Economics of Codetermination: Lessons from the German Experience. Palgrave Macmillan.

Addison, John, Lutz Bellmann, Claus Schnabel, and Joachim Wagner. 2004. “The Reform of the German Works Constitution Act: A Critical Assessment.” 43 Industrial Relations 392.

Addison, John, Claus Schnabel, and Joachim Wagner. 2001. “Works Councils in Germany: Their Effects on Establishment Performance.” 53 Oxford Economics Papers 659.

Alestalo, Matti, and Stein Kuhnle. 1986. “The Scandinavian Route: Economic, Social, and Political Developments in Denmark, Finland, Norway, and Sweden.” 16 International Journal of Sociology 3.

Anderson, Elizabeth. 2017. Private Government: How Employers Rule Our Lives (and Why We Don’t Talk about It). Princeton University Press.

Aumayr, Christine, Demetriades Stavroula, David Foden, Vera Scepanovics, and Felix Wolf. 2011. “Employee Representation at Establishment Level in Europe.” Eurofound Report.

Autor, David, David Mindell, and Elisabeth Reynolds. 2019. The Work of the Future: Shaping Technology and Institutions. MIT Work of the Future.

Beal, Edwin F. 1955. “Origins of Codetermination.” 8 Industrial and Labor Relations Review 483.

Belloc, Filippo, Gabriel Burdín, Luca Cattani, William Ellis, and Fabio Landini. 2021. Coevolution of Job Automation Risk and Workplace Governance. Institute of Labor Economics.

Belloc, Filippo, Gabriel Burdín, and Fabio Landini. 2022. “Robots, Digitalization, and Worker Voice.” Working Paper. https://dx.doi.org/10.2139/ssrn.4009136.

Bergene, Ann Cecilie, and Per Bonde Hansen. 2016. “A Historical Legacy Untouched by Time and Space? The Hollowing-Out of the Norwegian Model of Industrial Relations.” 6 Nordic Journal of Working Life Studies 5.

Bewley, Truman. 2002. Why Wages Don’t Fall During a Recession. Harvard University Press.

Bjorheim, Lars. 1974. “The Development of Industrial Democracy in Norway.” Paper presented to the International Conference on Manpower Training and Development, Oslo, Norway, August 1974.

Blandhol, Christine, Magne Mogstad, Peter Nilsson, and Ola Vestad. 2020. “Do Employees Benefit from Worker Representation on Corporate Boards?” National Bureau of Economic Research.

Burda, Michael, and Jennifer Hunt. 2011. “What Explains the German Labor Market Miracle in the Great Recession?” National Bureau of Economic Research.

Burdín, Gabriel. 2016. “Equality Under Threat by the Talented: Evidence from Worker-Managed Firms.” 126 Economic Journal 1372.

Burdín, Gabriel, and Andrés Dean. 2009. “New Evidence on Wages and Employment in Worker Cooperatives Compared with Capitalist Firms.” 37 Journal of Comparative Economics 517.

Conchon, Aline. 2011. Board-Level Employee Representation Rights in Europe: Facts and Trends. European Trade Union Institute.

Dauth, Wolfgang, Sebastian Findeisen, Jens Südekum, and Nicole Woessner. 2021. “The Adjustment of Labor Markets to Robots.” 19 Journal of the European Economic Association 3104.

Dechezleprêtre, Antoine, David Hémous, Morten Olsen, and Carlo Zanella. 2021. “Induced Automation: Evidence from Firm-Level Panel Data.” Working Paper. https://dx.doi.org/10.2139/ssrn.3835089.

European Trade Union Institute (ETUI). 2020. “National Industrial Relations.” https://www.worker-participation.eu/National-Industrial-Relations/Countries.

Fraser, Nancy, Chantal Mouffe, Saskia Sassen, Jan-Werner Müller, Dani Rodrik, Thomas Piketty, Gabriel Zucman, Ha-Joon Chang, et al. 2020. “Humans Are Not Resources: Coronavirus Shows Why We Must Democratise Work.” Guardian, May 15, 2020.

Freeman, Richard, and Edward Lazear. 1995. “An Economic Analysis of Works Councils.” In Works Councils: Consultation, Representation, Cooperation in Industrial Relations, edited by Joel Rogers and Wolfgang Streeck. National Bureau of Economic Research Comparative Labor Markets Series.

Friedman, Milton. 1970. “The Social Responsibility of Business Is to Increase its Profits.” New York Times Magazine, September 13, 1970.

Gold, Michael, Norbert Kluge, and Aline Conchon. 2010. ‘In the Union and on the Board’: Experiences of Board-Level Employee Representatives across Europe. European Trade Union Institute.

Gregoric, Aleksandra, and Marc Steffen Rapp. 2019. “Board-Level Employee Representation (BLER) and Firms’ Responses to Crisis.” 58 Industrial Relations 376.

Hansmann, Henry, and Reinier Kraakman. 2000. “The End of History for Corporate Law.” 89 Georgetown Law Journal 439.

Harju, Jarkko, Simon Jäger, and Benjamin Schoefer. 2021. Voice at Work. National Bureau of Economic Research.

Harlin, Julia. 1982. “First National Maintenance Corp. v. NLRB: The Supreme Court Narrows Employers’ Section 8(A)(5) Duty to Bargain.” 39 Washington and Lee Law Review 285.

Haug, Ralph. 2004a. “The History of Industrial Democracy in Sweden: Industrial Revolution to 1980.” 21 International Journal of Management 7.

Haug, Ralph. 2004b. “Industrial Revolution to 1980: The History of Industrial Democracy in Denmark and Norway.” 21 International Journal of Management 135.

Hayden, Grant M., and Matthew T. Bodie. 2021. “Codetermination in Theory and Practice.” 73 Florida Law Review 1.

Herzog-Stein, Alexander, Fabian Lindner, and Simon Sturn. 2018. “The German Employment Miracle in the Great Recession: The Significance and Institutional Foundations of Temporary Working-Time Reductions.” 70 Oxford Economic Papers 206.

Hirsch, Boris, and Steffen Mueller. 2020. “Firm Wage Premia, Industrial Relations, and Wage Sharing in Germany.” 73 Industrial and Labor Relations Review 1119.

Hirvonen, Johannes, Aapo Stenhammer, and Joonas Tuhkuri. 2021. “New Evidence on the Effect of Technology on Employment and Skill Demand.” Working Paper. https://economics.mit.edu/files/22239.

Jäger, Simon, Shakked Noy, and Benjamin Schoefer. 2021. “What Does Codetermination Do?” ILR Review, n.p. https://doi.org/10.1177/00197939211065727.

Jäger, Simon, Benjamin Schoefer, and Jörg Heining. 2021. “Labor in the Boardroom.” 136 Quarterly Journal of Economics 669.

Jensen, Michael, and William Meckling. 1979. “Rights and Production Functions: An Application to Labor-Managed Firms and Codetermination.” 52 Journal of Business 469.

Jirjahn, Uwe, and Stephen Smith. 2018. “Nonunion Employee Representation: Theory and the German Experience with Mandated Works Councils.” 89 Annals of Public and Cooperative Economics 201.

Keskinen, Maija. 2017. “Workplace Cooperation and Firm Performance: Evidence from Finland.” Master’s thesis, Aalto University.

Knudsen, Herman. 2006. “Workplace Representation in Denmark: Structure and Role.” Paper presented to the HIVA-EZA Conference, “A Boost for Workplace Democracy in Europe?” Leuven, Belgium, November 9–10, 2006.

Kummer, Karl. 1960. “Works Councils in Austria.” 81 International Labour Review 110.

Levine, David, and Laura D’Andrea Tyson. 1990. “Participation, Productivity, and the Firm’s Environment.” In Paying for Productivity: A Look at the Evidence, edited by Alan S. Blinder. Brookings Institution.

Levinson, Klas. 2000. “Codetermination in Sweden: Myth and Reality.” 21 Economic and Industrial Democracy 457.

Liebman, Wilma. 2017. “Does Federal Labor Law Preemption Doctrine Allow Experiments with Social Dialogue?” 12 Harvard Law and Policy Review, n.p.

Manera, Andrea, and Martina Uccioli. 2021. “Employment Protection and the Direction of Technology Adoption.” Working Paper. https://dx.doi.org/10.2139/ssrn.3754464.

McGaughey, Ewan. 2016. “The Codetermination Bargains: The History of German Corporate and Labor Law.” 23 Columbia Journal of European Law 1.

McKay, Conor, Ethan Pollack, and Alastair Fitzpayne. 2019. Automation and a Changing Economy Part II: Policies for Prosperity. Aspen Institute Future of Work Initiative.

Mueller, Steffen, and Jens Stegmaier. 2017. “The Dynamic Effects of Works Councils on Labour Productivity: First Evidence from Panel Data.” 55 British Journal of Industrial Relations 372.

Page, Rebecca. 2018. Codetermination in Germany: A Beginner’s Guide. Arbeitspapier, Hans-Böckler-Stiftung.

Paster, Thomas. 2012. “Do German Employers Support Board-Level Codetermination? The Paradox of Individual Support and Collective Opposition.” 10 Socio-Economic Review 471.

Rehder, Britta. 2003. Betriebliche Bündnisse für Arbeit in Deutschland: Mitbestimmung und Flächentarif im Wandel. Campus Verlag.

Rinne, Ulf, and Klaus Zimmermann. 2012. “Another Economic Miracle? The German Labor Market and the Great Recession.” 1 IZA Journal of Labor Policy, n.p. https://doi.org/10.1186/2193-9004-1-3.

Sandberg, Ake, Gunnar Broms, Arne Grip, Lars Sundström, Jesper Steen, and Peter Ullmark. 1992. Technological Change and Codetermination in Sweden. Temple University Press.

Scherrer, Christoph. 1983. “Co-Determination: The German Workplace Experience.” 2 Against the Current 47. https://www.marxists.org/history/etol/newspape/atc/v02n02.pdf.

Schnabel, Claus. 2020. “Betriebliche Mitbestimmung in Deutschland: Verbreitung, Auswirkungen und Implikationen (Workplace Participation in Germany: Distribution, Effects, and Implications).” 21 Perspektiven der Wirtschaftspolitik, n.p.

Silvia, Stephen. 2013. Holding the Shop Together: German Industrial Relations in the Postwar Era. Cornell University Press.

Silvia, Stephen. 2018. “The United Auto Workers’ Attempts to Unionize Volkswagen Chattanooga.” 71 ILR Review 600.

Silvia, Stephen. 2020. “The UAW Attempts to Organize Volkswagen Chattanooga: The Sequel.” Paper presented at the 72nd Annual Meeting of the Labor Employment Research Association, June 12–16, 2020.

Sippola, Markku. 2012. “Local Bargaining and Codetermination: Finnish Experience in Comparative Perspective.” 18 European Journal of Industrial Relations 53.

Stansbury, Anna, and Lawrence Summers. 2020. The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy. National Bureau of Economic Research.

Strine, Leo, Jr., Aneil Kovvali, and Oluwatomi Williams. 2021. Lifting Labor’s Voice: A Principled Path toward Greater Worker Voice and Power within American Corporate Governance. University of Pennsylvania, Institute for Law and Economics.

Thelen, Kathleen Ann. 1991. Union of Parts: Labor Politics in Postwar Germany. Cornell University Press.

Trampusch, Christine. 2006. “Industrial Relations and Welfare States: The Different Dynamics of Retrenchment in Germany and the Netherlands.” 16 Journal of European Social Policy 121.

Van het Kaar, Robbert. 1997. Amendment of the Dutch Works Councils Act: A Few Surprises. European Foundation for the Improvement of Living and Working Conditions. https://www.eurofound.europa.eu/publications/article/1997/ amendment-of-the-dutch-works-councils-act-a-few-surprises.

Van het Kaar, Robbert. 2007. “Corporate Governance and Employee Board-Level Representation in the Netherlands.” In The Forgotten Resource: Corporate Governance and Employee Board-Level Representation. The Situation in France, the Netherlands, Sweden, and the UK. Hans Böckler Stiftung.

Van Leeuwen, Marco. 1997. “Trade Unions and the Provision of Welfare in the Netherlands, 1910–1960.” 50 Economic History Review 764.

Visser, Jelle. 2021. “OECD/AIAS ICTWSS Database: Detailed Note on Definitions, Measurement, and Sources.” Organization for Economic Cooperation and Development.

Votinius, Jenny. 2012. “Employee Representation at the Enterprise: Sweden.” 81 Bulletin of Comparative Labour Relations 51.

Weipert, Axel. 2012. “Vor den Toren der Macht. Die Demonstration am 13. Januar 1920 vor dem Reichstag (At the Gates of Power: The Demonstration on January 13, 1920, in Front of the Reichstag).” In JahrBuch für Forschungen zur Geschichte der Arbeiterbewegung (Yearbook for Research on History of the Labor Movement). Friedrich-Ebert-Stiftung.

Wheeler, Jeff. 2002. “Employee Involvement in Action: Reviewing Swedish Codetermination.” 26 Labor Studies Journal 71.

Winkler, Henrich August. 1993. Weimar 1918–1933: Die Geschichte der ersten deutschen Demokratie (Weimar 1918–1933: The History of the First German Democracy). Beck Paperback.

Zahn, Rebecca. 2015. “German Codetermination without Nationalization, and British Nationalization without Codetermination: Retelling the Story.” 36 Historical Studies in Industrial Relations 1.

The Organization for Economic Cooperation and Development (OECD) creates and reflects an intellectual center of gravity for economic policymakers among the advanced democratic industrial countries. Ultimately, its authority rests upon the credibility of its analysis, though its economic thinking has reflected and reinforced the paradigm shifts between different schools of economic thought.

Such influence has been especially evident regarding employment analysis and recommendations. The original OECD Jobs Strategy in 1994 marked the high point of an era of market fundamentalism. In the words of one ex-OECD staff member, “The OECD is seen as stressing the primacy of markets and thus of market-based solutions; institutions are generally viewed as hindrances, and deregulation is favoured over regulation.” The 1994 strategy argued that high unemployment, especially in Europe, was essentially a structural problem and that economies were operating close to the “natural rate” of unemployment, which could not be reduced through monetary or fiscal policy. The solution was to make labor markets “flexible” through the reduction of employment protection: Wages would be allowed to fall, and employment thus to rise, by reducing minimum wages and weakening collective bargaining systems.

But the most recent version of the OECD Jobs Strategy in 2018 came to a very different conclusion: “countries with policies and institutions that promote job quality, job quantity and greater inclusiveness perform better than countries where the focus of policy is predominantly on enhancing (or preserving) market flexibility.” The subsequent OECD report on collective bargaining released in 2019 argued: “Collective bargaining is a key institution to promote rights at work. At the same time, collective bargaining and workers’ voice are unique instruments to reach balanced and tailored solutions to the challenges facing OECD labour markets.” The claims that labor market, or job, flexibility should be a paramount goal of economic policy to minimize unemployment should correspondingly fade.

This paper explores the developments along that journey step-by-step:

• Calls for labor market flexibility had appeared in OECD documents since 1980, but the 1994 Jobs Strategy was influential in reinforcing the drive to remove what had come to be referred to as labor market rigidities in many OECD countries in the 1990s, namely by reducing minimum wages, decentralizing collective bargaining, weakening employment protection legislation, and reducing unemployment benefits.
• Over the following decade, despite assertions to the contrary, there was little empirical evidence to indicate positive employment results from these reforms.
• Divergence appeared between the European Union and the OECD over the support for a social-market as opposed to a free-market economy.
• The OECD revision of the Jobs Strategy in 2006 recognized that the impact of labor market institutions on employment performance depends on the economic and social setting. It was argued later that there are several “roads to Rome.”
• Growing income inequality, previously ignored by mainstream economists, was seen to have negative economic as well as social effects. Two major OECD reports—“Growing Unequal” and “Divided we Stand”—charted the rise in income inequality across OECD countries.
• The OECD acts in concert with the International Monetary Fund (IMF) and the World Bank, and in 2011 the IMF Research Department argued that inequality leads to imbalanced growth. Subsequent IMF research found that half of the rise in inequality in industrialized countries since 1980 was due to the decline of union density or bargaining coverage.
• The World Bank 2013 World Development Report on “Jobs” described a “plateau effect” of labor institutions on employment; specifically, it found only a small impact of minimum wages and employment protection on employment levels.
• As the effects of the Great Recession persisted, the costs of lightly regulated financial markets became clearer and the broader impacts of deregulated markets and free-market ideology were cast in a new light. During that time, the OECD launched a “New Approaches to Economic Challenges” program designed to revisit past policy prescriptions.
• Trade unions began to argue that the OECD’s labor market policy focus on education and skill levels was a necessary but not a sufficient condition for reducing inequality. More important were minimum wages and collective bargaining.
• Against the background of growing populism, a backlash against globalization and the digitalization of employment, and debates around the gig economy, the OECD revised the Jobs Strategy in 2018. The new strategy made 20 specific policy recommendations and for the first time recognized a positive role of collective bargaining, concluding that “well-designed collective bargaining systems are also found to promote labour market resilience.”
• The OECD’s 2019 report, “Negotiating Our Way Up: Collective Bargaining in a Changing World of Work,” concluded: “The need for co-ordination and negotiation mechanisms between employers and workers is heightened in the changing world of work.” Coordinated bargaining was seen to be superior in labor market outcomes, including for workers considered “marginal.”
• The OECD hosted the “Global Deal,” a multistakeholder partnership initiated by the Swedish government designed to benefit from, and contribute to, a platform that highlights the value of social dialogue and strengthens existing cooperation structures. Tacitly the OECD came full circle and recognized the advantages of the Nordic approach to greater cooperation and broader economic consensus, an approach that relies on collective bargaining and social dialogue.
• The global Covid-19 pandemic, beginning in 2020, has underlined the risks of social and economic inequality in the labor market and beyond.

Introduction

The Organization for Economic Cooperation and Development (OECD) creates and reflects an intellectual center of gravity for economic policymakers among the advanced democratic industrial countries. Krugman (2010) has described the organization as “conventional wisdom central.” It operates as a coordinating body and has been called a think tank for its member governments. Its leadership has been at pains to point out that it is a “do tank” (Gurria 2020), as it frequently issues recommendations. While there has always been some heterogeneity across different departments within the OECD, the power to establish this center of gravity lies within the Economics Department. That power in turn is derived from the national government treasury departments that nominate representatives to the OECD Economic Policy Committee and from the fact that the chair of the committee normally comes from the United States. These sources of power can be highly influential in determining broadly what is acceptable in economic policy and what is not. While the United States has often happily ignored the OECD views of American economic policy, other countries often cannot afford to do so without incurring the wrath of bond markets.

Ultimately, the OECD’s authority rests upon the credibility of its analysis, though its economic thinking has reflected and reinforced the paradigm shifts between different schools of economic thought. Such influence has been especially evident regarding employment analysis and recommendations. The original OECD Jobs Strategy in 1994 marked the high point of an era of market fundamentalism. While the strategy’s recommendations were often couched as euphemisms, the underlying messages were clear to decipher. In the words of one ex-OECD staff member evaluating the original Jobs Strategy 10 years after its launch: “The OECD is seen as stressing the primacy of markets and thus of market-based solutions; institutions are generally viewed as hindrances, and deregulation is favoured over regulation” (Casey 2004). The 1994 strategy argued that high unemployment, especially in Europe, was essentially a structural problem and that economies were operating close to Friedman’s (1968) “natural rate” of unemployment, which could not be reduced through monetary or fiscal policy. The solution was to make labor markets “flexible” through the reduction of employment protection: Wages would be allowed to fall, and employment thus to rise, by reducing minimum wages and weakening collective bargaining systems.

The most recent version of the Jobs Strategy adopted by the OECD Ministerial Council in 2018 came to a very different conclusion: “countries with policies and institutions that promote job quality, job quantity and greater inclusiveness perform better than countries where the focus of policy is predominantly on enhancing (or preserving) market flexibility” (OECD 2018). The subsequent OECD report on collective bargaining released in 2019 argued: “Collective bargaining is a key institution to promote rights at work. At the same time, collective bargaining and workers’ voice are unique instruments to reach balanced and tailored solutions to the challenges facing OECD labour markets” (OECD 2019). The claims that labor market, or job, flexibility should be a paramount goal of economic policy to minimize unemployment should correspondingly fade.

This paper explores the developments along that journey:

• Calls for labor market flexibility had appeared in OECD documents since 1980, but the 1994 Jobs Strategy was influential in reinforcing the drive to remove what had come to be referred to as labor market rigidities in many OECD countries in the 1990s, namely by reducing minimum wages, decentralizing collective bargaining, weakening employment protection legislation, and reducing unemployment benefits.
• Over the following decade, despite assertions to the contrary, there was little empirical evidence to indicate positive employment results from these reforms.
• Divergence appeared between the European Union and the OECD over the support for a social-market as opposed to a free-market economy.
• The OECD revision of the Jobs Strategy in 2006 recognized that the impact of labor market institutions on employment performance depends on the economic and social setting. It was argued later that there are several “roads to Rome” (OECD 2018).
• Growing income inequality, previously ignored by mainstream economists, was seen to have negative economic as well as social effects. Two major OECD reports—“Growing Unequal” (2008) and “Divided we Stand” (2011)—charted the rise in income inequality across OECD countries.
• The OECD acts in concert with the International Monetary Fund (IMF) and the World Bank, and in 2011 the IMF Research Department argued that inequality leads to imbalanced growth. Subsequent IMF research (2015) found that half of the rise in inequality in industrialized countries since 1980 was due to the decline of union density or bargaining coverage—itself the result in part of the drive for labor market flexibility encouraged by the earlier version of the Jobs Strategy and IMF structural adjustment programs.
• The World Bank 2013 World Development Report on “Jobs” described a “plateau effect” of labor institutions on employment; specifically, it found only a small impact of minimum wages and employment protection on employment levels.
• As the economic and financial crisis persisted following the 2008 Lehman Brother’s collapse, the costs of lightly regulated financial markets became clearer and the broader impacts of deregulated markets and free-market ideology were cast in a new light. During that time, the OECD launched a “New Approaches to Economic Challenges” program designed to revisit past policy prescriptions.
• Trade unions began to argue that the OECD’s labor market policy focus on education and skill levels was a necessary but not a sufficient condition for reducing inequality. More important were minimum wages and collective bargaining.
• Against the background of growing populism, a backlash against globalization and the digitalization of employment, and debates around the gig economy, the OECD launched a further revision of the Jobs Strategy. The new Jobs Strategy, published in 2018, made 20 specific policy recommendations and for the first time recognized a positive role of collective bargaining, concluding that “well-designed collective bargaining systems are also found to promote labour market resilience.”
• The OECD subsequently published in 2019 “Negotiating Our Way Up: Collective Bargaining in a Changing World of Work.” The report concluded: “The need for co-ordination and negotiation mechanisms between employers and workers is heightened in the changing world of work.” Coordinated bargaining was seen to be superior in labor market outcomes, including for workers considered “marginal” (young workers and women).
• The OECD hosted the “Global Deal,” a multistakeholder partnership initiated by the Swedish government designed to benefit from, and contribute to, a platform that highlights the value of social dialogue and strengthens existing cooperation structures. Tacitly the OECD came full circle and recognized the advantages of the Nordic approach to greater cooperation and broader economic consensus, an approach that relies on collective bargaining and social dialogue.
• The global Covid-19 pandemic, beginning in 2020, underlined the risks of social and economic inequality in the labor market and beyond.

From Keynesianism to structural adjustment policies, 1970–1994

Until the oil shocks of the 1970s, the predominant strand of OECD thinking was Keynesian. And as far as labor markets were concerned, its thinking was influenced by the Nordic model developed by Gösta Rehn and Rudolf Meidner when they were working at the Swedish trade union center, the LO, in the 1950s. Rehn went on in 1962 to become the director of what later became the OECD Department for Labor and Social Affairs.

Following the oil shocks of the 1970s the OECD’s conventional wisdom shifted to be more in line with the free-market thinking of the Thatcher and Reagan governments. Unemployment in the OECD area soared in the 1980s, but many governments saw this as a price worth paying for dampening inflation. The notion of a natural rate of unemployment determined by the structural features of economies was accepted, and macroeconomic policy, it was argued, could have little impact on employment—but government deficits would crowd out private investment and lead to inflation. A variant of the natural rate of unemployment—the nonaccelerating inflation rate of unemployment (NAIRU)—became the core of macroeconomic analysis in the OECD, the IMF, central banks, and finance ministries during the 1980s and 1990s. Economists made calculations for OECD countries of levels of unemployment that it was argued were “structural,” below which inflation would accelerate.

The view that many OECD labor markets, especially in continental Europe, were becoming sclerotic due to too much regulation to protect workers and set wages through minimum wages and collective bargaining became the conventional wisdom. Slow employment growth in Europe was contrasted with faster employment growth in the United States.

The new leitmotif of the OECD became structural reforms, especially reform of labor markets and labor market institutions. The 1983 OECD statement on structural adjustment program (OECD 1983) called for wage flexibility so that wages would reflect productivity, and policies that impeded this, including minimum wages and, in part, collective bargaining agreements, should be reformed. Employment protection legislation should be weakened to encourage management to hire more workers, secure in the knowledge that they could be fired. Internal work rules that could restrict management’s drive for cost cutting should be lifted. Although it was rarely made explicit, the OECD Economics Department saw the work bargain solely as a monetary exchange, thus legitimizing management prerogative and exploitation. The market and institutional failures that required labor market regulation to be introduced in the first place were never discussed.

Business, and especially American business, enthusiastically encouraged this drive. Barkin (1987) noted:

Management’s drive for the removal of contractual and governmental restraints on their control of the workforce is rationalized in Western Europe as necessary to achieve greater internal and external competitiveness. In support of this view the OECD substituted the advocacy of a flexible manpower policy (including wage policy) under the euphoric title of positive adjustment policy for the prior programme of an active manpower policy promoted during the 60s and early 70s.

A commission, serviced by the Employment and Social Department of the OECD and chaired by London School of Economics Director Ralph Dahrendorf, published a report in 1984 that sought to humanize the flexibility debate, arguing that reforms should not be instrumentalized against one group in society, namely workers. There is no sign that this argument had an impact on the mainstream recommendations of the OECD. Indeed, the conventional wisdom shifted little for two decades. Freeman (2005) commented:

Today, there is a new orthodoxy that makes the deregulation of labor market institutions and increased employment and wage flexibility in the labor market the keys to economic success. International agencies, such as the OECD and the IMF, and many economists blame unemployment and sluggish economic growth on unions and state regulations of pay and employment that purportedly reduce market flexibility. They recommend that governments weaken labor market institutions in favor of market driven solutions. They called for reductions in the pay of low wage workers to create additional demand for them and tax breaks for the highly paid to induce them to work more or harder.

The 1994 Jobs Study and Jobs Strategy

The original 1994 OECD Jobs Strategy, set in motion at the OECD ministerial meetings in 1992, codified this new orthodoxy as far as employment policy was concerned. The communique of the employment and labor ministers meeting in January 1992 set the tone, concluding: “Flexible and efficient labour markets are key to achieving non-inflationary economic and employment growth” (OECD 1992). The Jobs Study from the OECD secretariat and the resulting Jobs Strategy were published and adopted two years later at the 1994 Ministerial Council of Economic and Finance Ministers (OECD 1994a).

The strategy had originally nine recommendations, to which a 10th (increasing product market competition) was added the following year:

1. Fashion macroeconomic policy to encourage noninflationary growth.
2. Improve frameworks to enhance the creation and diffusion of new technology.
3. Increase flexibility of working time.
4. Eliminate impediments to the creation and expansion of enterprise.
5. Make wages and labor costs more flexible to reflect local conditions and individual skill levels.
6. Reform employment security provisions that inhibit the expansion of employment in the private sector.
7. Strengthen active labor market policies and reinforce their effectiveness.
8. Improve labor force skills and competency through reforming education and training systems.
9. Reform unemployment and related benefit and tax systems so that equity is not pursued at the expense of efficient labor markets.
10. Enhance product market competition to reduce monopolistic tendencies (added subsequently).

Of the 10 policy recommendations, one referred to macroeconomic policy and nine to microeconomic policy, reinforcing the underlying view that unemployment was a structural problem caused by insufficiently flexible labor markets. Of the nine structural policy recommendations, those concerning technology, improved skill levels, entrepreneurship, and increased competition were hardly controversial; they were described by Freeman (2005) as “boiler plate platitudes.” Four were recommendations to deregulate labor markets in continental Europe to bring them into line with the U.S. model.

The recommendation on wage setting specified that governments should “make wages and labour costs more flexible by removing restrictions that prevent wages from reflecting local conditions and individual skill level, in particular for younger workers,” and the recommendation on employment protection called upon governments to “reform employment security provisions that inhibit the expansion of employment in the private sector” (OECD 1994a). The strategy focused on provisions regulating dismissals and redundancies and those governing temporary employment contracts. On unemployment benefits, the OECD recommended “cutting unemployment benefit levels and duration of payment, tightening eligibility and enforcing work requirements, and restricting entry to and the generosity of early pensions” (Casey 2004).

The recommendations bore a strong similarity to the policies of the Thatcher government for “flexibilising” labor markets in the U.K. in the 1980s. These have been summarized by Blanchflower and Freeman (1993) as “industrial relations laws that weakened union power; measures to enhance self-employment; privatization of government run or owned businesses; reduction in the value of unemployment benefits and other social receipts relative to wages; new training initiatives; tax breaks to increase use of private pensions; lower marginal taxes on the individuals; elimination of wage councils that set minimum wages.” The Jobs Strategy followed rather than predated these reforms.

Nickell (2017) argued that the recommendation on active labor market policies, which called for strong job search conditionality to be attached to receipt of unemployment benefits, reflected a “Nordic approach” to activation policies. However, the strategy did not recommend the Nordic institutions of strong unions and high levels of expenditure on labor market policies.

Though the Jobs Study and Jobs Strategy were backed up by two volumes of “evidence and explanations” by the OECD (1994b), they offered little external empirical evidence to support the employment case for deregulating labor markets. As is discussed below, over the succeeding two decades no strong empirical evidence has emerged to support the claims for flexibilizing labor markets to obtain positive employment effects—among neoliberal economists the claim was simply taken as self-evident. Freeman (2005) notes:

Adherents to the new orthodox view search the data for specifications…[or] measures that support their priors, while barely noticing evidence that goes against them. If results are inconsistent with the priors, they assume that something is wrong with their empirical specification or measures, rather than question the validity of their case.

Follow-up, the 1998 ‘assessment’ of the Jobs Strategy, and ‘Going for Growth’

The OECD follow-up to the Jobs Strategy included a series of thematic reviews but also detailed country recommendations processed through the OECD’s Economic Development Review Committee (EDRC), which is responsible for producing annual or biennial economic surveys of member states. As with the Economic Policy Committee, the EDRC is made up of officials from the treasury, economics, and finance ministries. It uses a peer review process in which two countries comment on a draft of recommendations, prepared by the secretariat, to the country being surveyed. The EDRC’s work is the most closed and least transparent of all OECD committees and working groups.

The country-specific recommendations from the Jobs Strategy follow-up primarily focused on continental European countries.1 In the 1990s the only wage-setting recommendation directed at the United States was that it weaken minimum wage laws.

Regarding the recommendations to governments for increasing flexibility by wage-setting institutions, the follow-up included detailed proposals beyond the broad policy guidance. The recommendations included:

• Refocusing collective bargaining at the sectoral level to the provision of framework agreements that leave firms with more leeway to adjust wages to local conditions.
• Introducing opening clauses for local bargaining parties to renegotiate sectoral agreements.
• Phasing out administrative extensions of agreements that were considered to rigidify wage-setting arrangements.
• Reassessing the role of statutory minimum wages and either switch to better-targeted redistributive instruments or minimize their adverse effects by introducing sub-minimum wages differentiated by age or region and/or indexing them to prices instead of average earnings.

The five-year assessment of the Job Strategy in 1999 carried out by the OECD secretariat was largely self-congratulatory. It argued that many OECD countries had sought to implement the strategy’s recommendations, and those that had had enjoyed better employment performance. However, attempts to quantify the impact on employment of some of the key recommendations on labor market regulation produced insignificant results. The 2004 OECD Employment Outlook examined employment protection legislation (EPL) and acknowledged that, “The net impact of EPL…on aggregate unemployment is therefore ambiguous a priori, and can only be resolved by empirical investigation. However, the numerous empirical studies of this issue lead to conflicting results, and moreover their robustness has been questioned” (OECD 2004, Chapter 2). Nevertheless, reflecting the organization’s “priors,” the structural policy recommendations became a high-profile mantra for the OECD. The biennial “Going for Growth” report first published in 2005 repeated the self-reinforcing methodology of the initial Jobs Strategy assessment.

The influence of the OECD and the self-reinforcing relationship with finance ministry officials went beyond Europe. Jackson (2007) commented from a Canadian perspective:

…OECD processes have been influential and important in terms of defining the “conventional wisdom” that drives economic policy advice. Seen through the prism of published country reviews and based on information provided by senior Canadian government officials and interviews, the OECD strongly influenced the main themes of Canadian economic and labor market policy over the 1990s: very large cuts to the deficit achieved by cuts in social spending; deep cuts to the unemployment insurance programme; deregulation and privatisation; the pursuit of greater labor market flexibility; formal targets for low inflation; and a major focus on debt reduction and tax cuts as opposed to reinvestment in social programmes after the elimination of the federal deficit.

Factors behind the 2006 review of the Jobs Strategy: Different ‘roads to Rome’

In the early 2000s, thinking in the OECD began to shift. Two-thirds of the OECD members at that time were also members of the European Union, and the European Commission’s European Employment Strategy, developed over the same period as the Jobs Strategy and having many similarities, was more influenced by “social market theories whereby the state intervenes to moderate the negative effects of market relationships and to enhance the efficiency of market performance” (Casey 2004). The social dimension of European integration and instigation of what was known as the European Social Dialogue—negotiations between employers and trade unions at the European level—that was instigated by European Commission President Jacques Delors was an attempt to build agreement around a more social model of labor market reform. Already in 1997 a joint seminar between the OECD and the European Commission to discuss the implementation of the two strategies concluded that:

A number of member countries, notably in EU, have however been reluctant to implement the recommendations relating to labour market flexibility. As the OECD itself acknowledges this is due to concern the policies to achieve greater flexibility in the labour market would be at odds with the objectives concerning equity and social cohesion. The trade-off posed is clearly a difficult one. (European Commission 1999)

Labor and employment ministers meeting in 2003 called on the OECD to “reassess the Jobs Strategy in the light of more recent experience and future challenges.” The 2004 OECD Employment Outlook prepared by the Department of Employment, Labor, and Social Affairs began the work by including detailed chapters on two of the flexibility recommendations of the Jobs Strategy: the impact of employment protection legislation, and wage setting. The Outlook concluded that “the evidence of the role played by employment protection legislation on aggregate employment and unemployment rates remains mixed” (OECD 2004). It expressed concern that in some countries such as Spain temporary contracts that replaced permanent jobs produced labor market duality between those with permanent contracts and those with temporary contracts, and it recognized that job insecurity itself was a problem. The Outlook examined the Job Study diagnosis that excessively high aggregate wages and wage compression hindered employment creation and found that the “evidence is somewhat fragile.” It concluded that the effect of collective bargaining on employment “is contingent upon other institutional policy factors that need to be clarified to provide robust policy advice.”

In 2004, at an OECD seminar organized by the Trade Union Advisory Committee to the OECD (TUAC), Washington Center for Economic and Policy Research (CEPR), and the European Trade Union Institute (ETUI), the authors of a set of empirical surveys on the effect of labor market regulations on employment (Baker et al. 2004) presented their findings. The report of the meeting2 noted that the results “showed no statistically significant relationship between labour market protection and unemployment.” The authors concluded that there was a “yawning gap between the confidence with which the case for labour market deregulation has been asserted and the evidence that the regulating institutions are the culprits” (Baker et al. 2004). While the Economics Department director acting as discussant in the meeting found the results “uninteresting,” the response from governments present was more nuanced. The British treasury official who at the time was also chair of the Economic Committee Working Party on Structural Policy noted that the introduction of the minimum wage in the U.K. had been effective in raising wages of less-skilled workers without raising unemployment.

Other research in the 2000s that focused on the emerging market economies in Central and Eastern Europe similarly failed to find evidence of the positive effects of labor market deregulation. Avdagic (2015), examining the effect of employment protection legislation on aggregate and youth unemployment in advanced economies and Central and Eastern Europe during 1980–2009, concluded: “The results offer no clear support for the argument that EPL is a cause of unemployment.…[T]he findings on the whole indicate that government efforts to tackle unemployment by deregulating EPL alone may well be futile.”

Heimberger (2020) subsequently carried out a meta-analysis of 75 studies across a range of countries examining the relationship between employment protection legislation and unemployment, concluding:

We cannot reject the hypothesis that, on average, the genuine empirical effect of EPL is zero. Notably, this main finding would be consistent with an explanation according to which the effects of employment protection are not universal, as increased employment protection may have different effects on unemployment in different countries or time periods.

Some studies have discovered potentially positive welfare-improving effects of employment protection, depending on institutional settings. Belot, Boone, and van Ours (2007) found “new results on the welfare effects of employment protection”:

Using data from 17 OECD countries, we show that there exists an inverse U shape relationship between employment protection and economic growth. Using a simple theoretical model with non-contractible specific investments, we show that over some range increasing employment protection does indeed raise welfare. We also show that the optimal level of employee protection depends on other local market features, such as the bargaining power of workers and the existence of wage rigidities like the minimum wage.

Vergeer and Kleinknecht (2011) analyzed the impact of labor market deregulation on productivity in 19 OECD countries for a longer period, 1960–2004. They concluded:

…wage cost saving flexibilization of labour markets has a negative impact on labour productivity growth. A one percentage point change in growth rates of real wages leads to change in Labour productivity growth by 0.31 to 0.39 percentage points. This cannot solely be explained by hiring low-productive labour. Flexibilization of Labor markets leads to a labour-intensive growth path that is problematic with an ageing population in Europe.

Regarding collective bargaining, the OECD’s 2006 reassessment of the Jobs Strategy, drawing on Bassanini and Duval (2006), concluded that:

…high corporatism bargaining systems tend to achieve lower unemployment than do other institutional setups. Nevertheless, the evidence concerning the impact of collective bargaining structures on aggregate employment and unemployment continues to be somewhat inconclusive. The overall non-robustness of results across studies probably reflects, at least in part, the difficulty of measuring bargaining structures and practices, as well as the fact that the same institutional set-up may perform differently in different economic and political contexts. One exception to this pattern is the robust association between higher centralisation/coordination of bargaining and lower wage dispersion…. The empirical evidence concerning a negative impact of minimum wages on unemployment is mixed, with some studies finding evidence for significant effects particularly for youth while others do not detect any effects. The Bassanini and Duval research found no significant impact of the minimum wage on the aggregate unemployment rate. (OECD 2006)

The “Reassessed Jobs Strategy” in the 2006 Employment Outlook (OECD 2006) represented a shift in thinking by reflecting the uncertainty of the empirical evidence about the effects of labor market institutions and accepting that different national and institutional settings are key to understanding good employment performance. Acknowledging this a decade later the OECD said:

The 2006 Reassessed Job Strategy placed more emphasis on promoting labour force participation and improving job quality. The main message was that there are several roads to Rome, i.e., good labour market performance is consistent with more market reliant models that emphasise labour and product market flexibility, but also with models that involve a stronger role of public policies, generally coupled with strong social dialogue and a combination of stronger protection for workers with flexibility for firms. (OECD 2018)

Coats (2018) noted:

…the OECD, in its reassessment of the Jobs Study…stepped back from an unqualified endorsement of the Anglo-Saxon model of labour market flexibility. In part, this was because the evidence showed more than one route to strong jobs growth. For example, in the Nordic countries and Netherlands (to some extent), strong collective bargaining institutions, social dialogue, generous out-of-work benefits, rigorous job search requirements and investment in human capital constituted a package of policies that were just as successful at creating jobs as the deregulated Anglo-Saxon model. A judicious mix of flexibility and security seemed to have been achieved, to which the neologism “flexicurity” was applied.

Watt (2006) noted: “analysis of the policy recommendations and the underlying evidence presented in the Employment Outlook suggests that since 1994 the OECD has moved a considerable way on a number of key policy issues.”

Lansley and Reed (2010), drawing on international experience for recommendations for U.K. employment policies for British trade unions in the light of the Great Recession, concluded:

…the fundamental arguments of the anti-regulationist school and its belief in self-regulating markets simply don’t stand up to the economic experience of the last two decades. The free-market experiment has been plagued by instability, not the stability it predicted. The empirical evidence provides no backing for those calling for the weakening or abolition of the minimum wage and cutbacks in current and planned labour market interventions. While badly thought-out regulation can be harmful, the evidence is that it is possible to achieve successful economic outcomes (low unemployment, high employment participation and growth) with strong social and workplace protection. More regulation does not necessarily mean poorer economic performance while increased regulation of the appropriate kind can actually improve performance in the right circumstances. Indeed, the OECD once the champion of the orthodox view has accepted the case for intervention in recent years.

Part of what drove the selling of the Anglo-Saxon model of labor market flexibility was the perceived success of the U.S. labor market in providing low unemployment rates. But, even in the U.S., where most workers do not have contract protection under law, studies on the recent and limited protections workers have from at-will dismissal gave a mixed view on employment but a mostly positive view on workers’ wages. Women and workers of color, in particular, had higher wages with laws protecting against unjust or unreasonable cause protections from firing (Autor 2003; Kugler and Saint-Paul 2004; Miles 2000; Hoyt 2018). Showing improvements from the U.S. extreme of employer flexibility on an important labor market metric.

Within the OECD a break in consensus was allowing a subtle shift away from the neoliberal paradigm. There had been some opposition within the OECD to the structural policy hegemony of the Economics Department, and successive Employment Outlooks from what had become the Department of Employment, Labor, and Social Affairs produced research results that did not support the Economics Department’s enthusiastic drive for deregulation. Efforts to quantify the adverse economic effects of labor market regulations produced inconclusive results.

Nevertheless, neoliberal economists within and outside the OECD have continued to advocate flexibilizing labor markets. For instance, the “Going for Growth” report, still one of the flagship publications of the Economics Department, identifies five structural reform priorities for each OECD country, and until 2011 the benchmark for identifying these was a comparison with gross domestic product (GDP) per capita in the U.S. The 2010 “Economic Survey of Slovakia” gives the flavor of typical recommendations: It called on the government to undertake reforms “of a bold nature” and argued that reforming the wage determination system “[so as to allow] job seekers to price themselves into the market and employment will help to reduce poverty risks, reduce social expenditure pressures, limit the economic costs of fiscal consolidation, help lower entry barriers for innovative entrepreneurs and increase efficiency of active labour market measures” (OECD 2010).

The elephant in the room and the elephant curve: Rising income inequality

If there was growing uncertainty and disagreement within the OECD, the IMF, and the World Bank over the past two decades about the efficiency and employment effects of labor market institutions, there was growing consensus that rising inequality, primarily in advanced economies, was a major concern for economic as well as social and political reasons.

At the beginning of the current century the conventional view of most economists in the OECD and the international financial institutions (IFIs) would have been that distributional issues were questions for political and social decision-makers at the national level and only relevant to economists if measures to address inequality had a significant economic cost, which it was often argued was the case. Lucas (2003), author of the rational markets’ theorem, wrote: “Of the tendencies that are harmful to sound economics, the most seductive and in my opinion the most poisonous, is to focus on questions of distribution.”

At the time this would have been the consensus view of many economists within the OECD. To the extent that distributional issues were raised, it was frequently pointed out that globalization was reducing inequality between the developing countries and the OECD countries, explained almost entirely by the rapid industrialization of China and India since 1990—which, it was argued, was due to the success of market reforms. Rising inequality within countries was ignored.

The global picture of rising incomes in poor countries, exploding incomes of the top 1%, and stagnant or falling incomes of the middle class in OECD countries was depicted in 2016 by Milanovic (2016) of the World Bank in an “elephant curve,” which showed that those who had lost out over the period had been low- and middle-income groups in developed countries.

Complacency concerning inequality as well as the enthusiasm for the promotion of the light regulation of markets in general was shaken by the near meltdown of the global economy following the 2008–2009 financial crisis and the Great Recession. Stagnation of middle-class incomes in the United States was seen as one of the factors behind the growth of unsustainable subprime lending.

As noted above, the thinking on the employment and social side of the OECD concerning labor markets and in particular income inequality had already begun to shift in the 2000s, as reflected by the publication of a series of reports on income inequality—notably “Growing Unequal” in 2008 (OECD 2008) and “Divided We Stand: Why Inequality Keeps Rising” in 2011 (OECD 2011). Rising income inequality began to be regarded as an economic as well as a social and political problem. In the foreword to a 2015 OECD publication summarizing this work, OECD Secretary General Angel Gurria wrote:

Inequality is bad and getting worse. In the 1980s, the richest 10% of the population in OECD countries earned seven times more than the poorest 10%. They now earn nearly ten times more. When you include property and other forms of wealth, the situation is even worse: in 2012, the richest 10% controlled half of all total household wealth and the wealthiest 1% held 18%, compared to only 3% for the poorest 40%. The poorest members of society suffer immediately from inequality, but in the longer term, the whole economy is also damaged. OECD figures show that the rise in inequality observed between 1985 and 2005 in 19 OECD countries knocked 4.7 percentage points off cumulative growth between 1990 and 2010. (Keely 2015)

In 2017 Gurria stated in a speech to employers:

Inequalities harm growth. They erode trust in governments, in business, in modern capitalism and in democracy. They also contribute to a polarised and dangerous environment where populism, protectionism, and exclusive nationalism tend to grow and spread. We urgently need to reverse these trends. (Gurria 2017)

The shift in rhetoric was not limited to the OECD. Then-IMF Managing Director Christine Lagarde stated in a speech to the 2012 annual meetings of the IMF and World Bank: “Excessive inequality is corrosive to growth; it is corrosive to society. I believe the economics profession and the policy community have downplayed inequality for too long” (Lagarde 2012). These statements were made at the time when the Occupy Wall Street protests had reverberations around the world, with public demonstrations erupting against economic inequality and the injustice of wealth and income being concentrated in the top 1%.

The picture painted by the OECD has become familiar in retrospect, but at the time it was significant and unusual, coming as it did from an organization that was seen as being highly orthodox in its analysis and policy prescriptions. Significantly, the U.S. launch of “Divided We Stand” was delivered in front of a trade union audience at an event held at the AFL-CIO and chaired by its president, Rich Trumka. It provoked Daniel Mitchell of the Cato Institute to decry Angel Gurria as “an International bureaucrat pushing socialism…using your tax dollars to push for class warfare” (Mitchell 2011). The analysis of household income data in “Divided We Stand” showed that in most OECD countries the incomes of the top 10% had grown faster than the bottom 10% over the previous two decades, resulting in an overall rise in inequality. The Gini coefficient3 rose over the same period in 17 out of 24 OECD countries for which long-term data series were available—the OECD average had risen almost 10%, from 0.29 to 0.316—and the rise in household inequality was primarily attributed to changes in the distribution of wages and salaries (OECD 2011). The highest levels of inequality in the larger OECD economies were in the English-speaking countries, notably the U.K. and the U.S., where inequality had first begun to rise in the 1980s after falling in the postwar decades. However, increases were also seen in traditionally low-inequality countries—the exceptions being Turkey, Greece, France, Hungary, and Belgium. In subsequent analyses of tax data for a more limited group of countries, in which the OECD drew on data published in Piketty’s (2014) bestselling 700-page study “Capital in the Twenty-First Century,” the OECD noted:

…from 1975 up to the crisis, the top percentile managed to capture a very large fraction of the growth in pre-tax incomes, especially in English speaking countries: around 47% of total growth went to the top 1% in the United States, 37% in Canada, and above 20% in Australia and the United Kingdom. By contrast, in Nordic countries, but also in France, Italy, Portugal, and Spain it was the bottom 99% of the population which benefited from more growth, receiving about 90% of the increase in total pre-tax income between 1975 and 2007. (OECD 2014a)

OECD work that began with “Divided We Stand” also found unconvincing that the focus of concern should be “inequality of opportunity” rather than “inequality of outcome” and that cross-generational mobility would offset inequality over time. It broadly confirmed the succinct argument of Atkinson (2015) that, “If we are concerned about inequality of opportunity tomorrow, we should be concerned about inequality of outcome today.” Inequality is transmitted through generations in part due to lack of access to education—high inequality is self-reinforcing. Moreover, high-inequality countries tend to display low intergenerational mobility, reflected in what came to be known as the “Gatsby Curve,” made famous by Alan Krueger (2012). The OECD concluded that, “One of the main objectives of social policy is to break the cycle of disadvantage across generations and prevent the development of a self-replicating underclass” (OECD 2008, 216).

Reports prepared for OECD committees in 2011 had highlighted the impact of regulatory reform and changes in labor market institutions alongside technological change on rising wage inequality. However, when it came to going public in 2012 in “Divided We Stand” on the causes of the rise in inequality, the OECD remained within a conventional analytic comfort zone. It dismissed the effects of globalization and financialization, arguing “neither rising trade integration nor financial openness had a significant impact on either wage inequality or employment trends within OECD countries” (OECD 2011, 29). While raising the possible effects of deregulation policies, including the weakening of unions that the OECD itself had been recommending for two decades, the report concluded that the effects were mitigated by the effects that deregulation, including wage suppression, could have by raising employment levels and thereby reducing inequality “amongst workers and jobless individuals.” Skill-biased technological change was seen as the key driver of inequality. The report noted that taxation systems had become less effective in redistribution and that “redistribution strategies based on government taxes and transfers alone would be neither effective nor financially sustainable” (OECD 2011, 40). A major feature of the report was therefore to highlight “the central role of education. The rise in the supply of skilled workers considerably offset the increase in wage dispersion associated with technological progress, regulatory reforms and institutional changes” (OECD 2011, 31). The overall policy conclusion was that economic strategy “should rest on three main pillars: more intensive human capital investment; inclusive employment promotion; and well-designed tax/transfer redistribution policies” (OECD 2011, 41).

Subsequent OECD work in 2014 quantified the negative impact of rising inequality on economic growth across a range of OECD countries. The main transmission mechanism was found to be the impact on human capital accumulation in low-income households and the persistence of this across generations. The summary of the work found that rising income inequality “has a negative and statistically significant impact on subsequent growth. In particular, what matters most is the gap between low-income households and the rest of the population. In contrast, no evidence is found that those with high incomes pulling away from the rest of the population harms growth” (Cingano 2014).

A series of reports from other institutions including the IMF (referred to below) around the same time broadened the list of causal factors that led inequality to reduce economic growth. Stiglitz (2012) found that a rising concentration of income at the top of the distribution reduces welfare by allowing top earners to manipulate the economic system in their favor.

The OECD was also reluctant to tackle the issue of rising functional inequality and the decline of the share of wages in national income. At the 2011 Washington launch event of “Divided we Stand,” Richard Trumka, in broadly welcoming the work, noted that the report “seems to focus primarily on the distribution of wages as a principal driver of income inequality. You do not seem to view the more fundamental fall in share of wages in national income as a major cause of rising inequality. I think both the fall in wage shares and the rise in inequality are important causes of rising inequality and both have implications for policy” (Trumka 2011). Until the 1980s the share of wages in national income in industrialized countries was constant to such an extent that economists treated it as “stylized fact,” and different theories of the functional distribution of income were built around it. Neoclassical theory postulated that income distribution is determined by the marginal productivity of factors of production. Neo-Keynesian theory postulated that income distribution was determined by technological progress (Kaldor 1955). The data changed significantly after the Thatcher-Reagan reforms. The International Labor Organization (ILO) found that starting in the early 1990s wage shares had fallen in three-quarters of the 69 countries it studied; on average wage shares in industrialized countries fell by an average of nine percentage points of GDP over three decades (ILO 2011). In explaining the decline in wage shares the ILO found that “financialization” and “globalization” both played important roles in weakening the bargaining power of workers compared to business, as did declining union strength and the weakening of labor market protection. In contrast, the IMF and the OECD argued that technological progress was the main cause of the declining wage share, with capital substituting labor through automation (IMF 2017). As seen within the declining wage share, the rise in inequality, it was argued, was primarily due to skill-biased technological change, whereby high-skilled workers enjoy a wage premium.

Despite the reluctance of the OECD at that time to publicly accept that labor market flexibility was behind much of the rise in inequality, elsewhere there was increasing acceptance of the evidence that wage-setting mechanisms such as collective bargaining and wide trade union membership reduce income inequality, and also that the weakening of these institutions in industrialized countries through changing power relationships between workers and business over the past three decades has been an important cause of rising personal income inequality and a driving factor in explaining the fall in the wage share. Deakin, Malmberg, and Sarkar (2014), examining the effects of weakening labor laws in six OECD countries from 1970 to 2010, found that “worker protective labour laws are associated with a higher labour share and therefore, in broad terms, with improved income distribution—an outcome driven by laws on working time and employee representation.” Guschanski and Onaran (2017) found “a robust effect of institutional factors such as union density and minimum wages on the wage share, lending strong support to the political economy approach to functional income distribution.”

The shifting views of the IMF and World Bank

The advocacy of labor market deregulation reflected by the OECD Economics Department had been made with equal strength at the international financial institutions during the 1990s and early 2000s (IMF 2003). To some commentators, this stance was influenced by political influences rather than empirical evidence. According to Freeman (2005), the fact that trade unions and other institutions could resist structural adjustment programs imposed by the IFIs “led IMF-associated economists to stress the dangers of insufficient labour market flexibility in economic crises even when those crises arise from problems far removed from the labour market.”

However, different views came from within the IMF. An IMF 2011 Research Department report challenged fundamentally the traditionally benign view the IFIs had held toward income distribution. It concluded that higher inequality is associated with lower and less sustainable growth in the medium term even in advanced economies (Berg and Ostry 2011). A 2015 study by Jaumotte and Buitron examining the rise in inequality in advanced countries between 1980 and 2010 found that:

…the rise of inequality in the advanced economies included in this study has been driven by the upper part of the income distribution, owing largely to the increase in income shares of top 10 percent earners. We find evidence that the decline in union density—the fraction of union members in the workforce—is strongly associated with the rise of top income shares.…On average, the decline in union density explains about 40 percent of the 5-percentage point increase in the top 10 percent income share. This contribution rises to over 50 percent when controlling for sectoral employment shifts over the sample period.

The study was widely quoted in the press, including in the U.S., where the Los Angeles Times reported:

The IMF’s analysis undermines the accepted wisdom that lower union membership affects chiefly low- and moderate-income workers. The fund’s analysts…find instead that the impact of declining unionization is felt across the entire income spectrum. The trend not only reduces the welfare of the lower income worker, they find; it makes the rich richer. (Hiltzik 2015)

The Economic Policy Institute had been publishing regular briefs drawing attention to the link between increasing inequality and declining union membership.

In a 2013 assessment of the IMF’s advice on labor markets in advanced economies in the Great Recession, IMF then-Chief Economist Oliver Blanchard together with IMF researchers Florence Jaumotte and Prakash Loungani cautioned: “…the implications of alternative structures of collective bargaining are poorly understood, suggesting that the IMF should tread carefully in its policy advice in this area. Moreover, trust among the social partners appears to be just as important in bringing about macro flexibility as the structure of collective bargaining.” The IMF was criticized by trade unions at the time4 for not reflecting the reality of IMF country-level recommendations. The International Trade Union Confederation (ITUC) general secretary, writing to the IMF managing director, noted that “nothing we have seen from recent IMF reports on European countries indicates that this is being put into practice.”

From these exchanges and starting in 2013, Blanchard organized with the international trade union organizations—the ITUC and the TUAC—a series of workshops over the following two years on collective wage bargaining. The workshops brought together labor market academics, trade union representatives, and IMF staff. Conclusions of the meetings were not published by the IMF, but in the opinion of one of the current authors the discussions contributed to more caution in the IMF’s advocacy of labor market flexibility at the global level even if not reflected in national programs.

The conventional wisdom on labor market institutions shifted at the same time in parts of the World Bank. The title of the World Bank’s 2013 World Development Report was “Jobs,” and a chapter devoted to “Labour Policies Revisited” found that there was a “plateau effect” of the impact of labor regulations on employment and efficiency. At the edges of the plateau, where regulations were highly stringent or highly lax, the regulations might have a significant impact on economic efficiency and employment. But in between across most national settings, “estimated effects prove to be relatively modest in most cases—certainly more modest than the intensity of the debate would suggest” (World Bank 2012).

The impact of the financial crisis and the Great Recession

The Great Recession and rise in unemployment in most OECD countries following the 2008–2009 financial crisis was the key backdrop to the discussion of inequality and the role of labor market institutions over the following years, but the downturn had conflicting effects on the discussion of labor regulation at the international organizations. The ILO had dubbed the rise in inequality the “crisis before the crisis.” There was also growing recognition that the depression of middle-class incomes in the U.S. had led to credit-driven growth encouraged by lightly regulated financial markets, with conflicted governance, that proved to be unsustainable. There was also increasing awareness that the role of trade unions in social partnership arrangements such as in Germany had demonstrable positive outcomes in terms of moderating the impact of the crisis on employment. The debate on how to share the cost of the crisis had an impact on the political debate. However, there was also renewed attention given to the relationship between employment regulation and unemployment (Heimberger 2020). The causes of the Great Recession lay in financial markets, not labor markets, but the notion to never waste a crisis took hold among neoliberal commentators, and they employed it to promote the deregulation of labor market institutions. In Europe during the sovereign debt crisis beginning in 2010, unemployment rose to over 25% in Spain and Greece and to 16% in Portugal. The countries seeking external assistance to support their banking systems—Greece, Portugal, Cyprus, and Ireland—were forced to accept draconian austerity and structural reforms by the troika of the European Commission, the European Central Bank, and the IMF. Greece was obliged as part of the support package to adopt brutal cuts in minimum wages and the weakening of collective bargaining systems to bring about internal deflation of incomes. Despite the IMF Research Department’s own evidence of the impact of past policy in weakening labor market institutions, IMF country programs continued to promote labor market deregulation. A series of working papers from IMF authors published in 2012 that purported to show that labor market reforms were strongly associated with declines in unemployment were criticized by ILO authors for having serious data flaws (Aleksynska 2014).

The trade union movement made its own prescriptions for dealing with the crisis with its study, “Exiting from the Crisis: Towards a Model of More Equitable and Sustainable Growth” (Coats 2011). TUAC and AFL-CIO Chief Economist Ron Blackwell played a key role in putting the document together and recruiting the Nobel laureate Joseph Stiglitz to provide a preface. Stiglitz’s authority helped the argument that inequality had to be addressed as part of the path forward. The book challenged the narrow focus on GDP per capita as an economic yardstick and pushed for a rethinking of the Washington consensus—the package of neoliberal policy reforms pressed on many developing countries by the international financial institutions since the 1980s.

The Pittsburgh G20 Summit in 2009 made two key innovations that had significant implications for global employment policy as well as economic governance. The first was the decision to continue to focus on employment policy, in light of which the U.S. labor secretary was asked “to invite our Employment and Labour Ministers to meet as a group in early 2010 consulting with labour and business” (G20 2009). This set in motion for the first time the G20 labor and employment ministerial meetings; prior to that the only G20 ministerial meetings had been of finance ministers.

The second innovation was the statement by leaders declaring “the G20 to be the premier forum for our international economic cooperation.” This gave a degree of permanence to the G20 leaders’ meetings and, with the institution of the labor and employment ministerial meetings, ensured that a listening session with labor union leaders of the G20 countries would be included. That innovation helped encourage language in the G20 to respect tripartite meetings between government, business, and trade unions at the national level.

But the push for labor market reform persisted. In the Mutual Assessment Process (MAP) of the G20 Framework Working Group (FWG) of finance ministry and central bank officials, participants argued that structural reforms of labor and product markets could lift growth by 2% over five years. Using “Going for Growth” methodology, they offered governments a way to remedy disappointing growth when fiscal policies were set on a track of deficit reduction and monetary instruments were exhausted.

In assessing government commitments to lift growth, the OECD identified some 700 proposed reforms, about a quarter of which were labor market reforms. At the Brisbane G20 Summit in November 2014, leaders agreed that “against the backdrop of a disappointingly weak cyclical recovery from deep recession, weakened productive capacity in key economies and a legacy of vulnerabilities from the financial crisis, we need to pursue an integrated approach to boost growth” (G20 2014). Leaders “set an ambitious goal to lift the G20’s GDP by at least an additional two per cent by 2018.” The main mechanism for achieving this goal was the implementation of “structural reforms to lift growth and private sector activity, recognising that well-functioning markets underpin prosperity.” Analysis by the IMF-OECD had indicated “that our commitments, if fully implemented, will deliver 2.1 per cent.” As the growth trajectories were more and more off target, the action plan was subsequently and quietly forgotten. In the words of one participant: “In retrospect the 2014 G20 structural reform initiative looks like a last hurrah for the deregulatory labor market strategy driven by the OECD Economics Department. However, at the time it was very worrying [though] the wind was changing already within the OECD and the economics profession (Pursey 2021).

The 2015 G20 meetings of labor and employment ministers, held in Turkey, discussed as a priority inequality and the decline of the labor share. The final declaration abandoned the deregulatory framework and stated: “In order to address rising inequalities and declining labour income shares, we agree to undertake a mix of policies appropriate to our national circumstances including improving wage-setting mechanisms, institutions for social dialogue, social protection systems and employment services.” The ministers endorsed an annexed set of “G20 Policy Priorities on Labour Income Share and Inequalities” that gave support to collective bargaining systems. Two important commitments of the principles were: “Strengthening labour market institutions [social dialogue, collective bargaining, wage-setting mechanisms, labor legislation] based on respect for the Fundamental Principles and Rights at Work; and reducing wage inequality, through policy tools such as minimum wages and the promotion and coverage of collective agreements, ensuring fair wage scales and that work pays” (G20 2015).

The populist backlash and the geography of discontent

Starting with the Occupy Wall Street movement, something began to change in OECD countries regarding the toleration of inequality. There were explosions of anger against governments and the “elite” from both the left and right, with paradoxical political implications. The Brexit vote in the United Kingdom in 2016, the election of Donald Trump in the United States the same year, the growth of nationalist and anti-immigration parties in northern Europe and, in 2018, the “yellow vest” insurrection in France each can be interpreted as a populist reaction to the rising inequality, stagnant median incomes, and economic insecurity that followed the Great Recession. They reflected a growth of relative deprivation, where significant segments of populations felt that they and their families had lost out—and they feared a future of even greater insecurity. These sharpening divisions appeared after three decades of the weakening of trade unions, whose economic role was to act as a brake on rising inequality and whose political role was to provide voice to those feeling unjustly treated and to negotiate solutions to grievances. Brexit, Trump, nationalism, and street violence all represent bad answers to an important question—how to re-forge agreement on distributive justice for those who have lost out (or so feel) from globalization, technological innovation, and responses to climate change.

Concern over the political fallout of the Great Recession as well as the organization’s failure to anticipate the risks of deregulated markets and rising inequality led the OECD to launch a program of “New Approaches to Economic Challenges” (NAEC) that was intended to assess what had gone wrong in previous OECD models and policy recommendations. One of the key messages from the NAEC work to the OECD Ministerial Council in 2014 was that “the last three decades have seen a rise of inequality, which can effect economic growth, weaken social cohesion and sap trust in markets and institutions. To address the growing concerns linked to increasing inequality, policy makers are advised to support a move to a more inclusive and sustainable economic approach” (OECD 2014b). The OECD “Inclusive Growth Initiative” recognized the need to act across a range of different policy areas and called for a “’whole of government’ approach to make sure that financial, fiscal or monetary decisions, among others do not undermine social cohesion or social progress” (OECD 2017b).

In successive submissions to the OECD, its ministerial council meetings, and annual meetings with national representatives, TUAC had proposed a widening of government action to reduce inequality beyond the traditional remedies of improving skills and to operationalize the recommendations of the NAEC project. TUAC’s submission of December 2013 called for:

…a comprehensive strategy on tackling inequality and moving to inclusive growth including action to: address the growth of in work poverty through establishment of well set minimum wages; strengthen the coverage of collective bargaining by the social partners and adopt this as a government policy objective; undertake corporate governance reforms to contain all the excesses of top income compensation and encourage the setting of links of top pay to median incomes in the private sector; ensure the access of all to quality education and training systems; restore progressivity in the tax system; ensure that economic performance is judged by wider criteria than GDP per head. (TUAC 2013)

The unions took encouragement from the apparent shift in thinking by G20 labor and employment minsters, who at their July 2013 meeting had committed to move forward by:

…Implementing labour market and social investment policies that support aggregate demand and reduce inequality, such as broad based increases in productivity, targeted social protection, appropriately set minimum wages with respect to national wage setting systems, national collective bargaining arrangements and other policies to reinforce the links between productivity, wages, and employment. (G20 2013)

Economists such as Thomas Piketty and the late Anthony Atkinson were invited to make presentations at OECD meetings, and their work began to be used by the OECD to prepare the ground for shifting policy to more progressive taxation and to revisit analysis of labor market institutions. Atkinson (2015), focusing on the U.K., offered 15 proposals to reduce inequality; he recommended establishing a more favorable balance of power between labor and capital, allied with progressive taxation to help those in the lower deciles of the income distribution. He also promoted wider trade union representation to relink productivity growth and incomes.

The 2018 revision of the Jobs Strategy

A new effort to revise the OECD Jobs Strategy, begun in 2016, was influenced by both the popular backlash against globalization and the emerging debate about the future of work in light of technological change, the growth of nonregular work in many countries, and the rise of the “gig” economy. While the OECD appeared to initially flirt with the idea that gig work was a growing and natural progression in the work relationship brought on by technology, it began to take a stand that existing labor regulations must apply to “platform” work as well (O’Farrell 2016).

The 2017 OECD Employment Outlook, in summarizing the 2006 work revising the Jobs Strategy, argued that “The populist backlash against globalisation fundamentally challenges employment policy” (OECD 2017a). It noted:

The perception that the international economic system is rigged clearly challenges the democratic legitimacy of current policies and thus needs to be taken seriously. It also challenges the policy advice offered by international organisations like the OECD, which has long emphasised the economic benefits of global integration, but only recently adopted an inclusive growth approach that pays due attention to the distribution of those benefits across the population. (OECD 2017a, 9)

The OECD began detailed work on changes to collective bargaining systems and their impact on labor market outcomes. The 2017 Employment Outlook had included a taxonomy of collective bargaining systems based on three criteria: the formal level of bargaining (company, sector, or national); the space left for lower-level agreement; and the degree of coordination. It acknowledged that policy reforms had contributed to decentralization of bargaining and had “tested the system.” The outlook laid out the areas of work that needed to be carried out to inform the wider Jobs Strategy revision.

The initial narrative of the revised Jobs Strategy containing the key policy messages and analysis was adopted at the OECD Ministerial Council meeting in June 2018, and the full report was launched in December 2018 (OECD 2018). The OECD claimed that the Jobs Strategy represented a shift in thinking and policy from both the 2006 version and even more so from the original 1994 study. The TUAC backed this view, commenting:

The Narrative of the revised Job Strategy…takes a much broader approach than was previously the case. Policy objectives are no longer limited to the quantity of jobs but have been expanded to include their quality and inclusiveness. Moreover, the narrative recognises there is no necessary trade-off between the quantity of jobs on the one hand and their quality and inclusiveness on the other. Importantly, the OECD now concedes that flexibility has been over-rated in view of “new evidence that 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.”

The revision also clearly rejects the argument that collective bargaining defends the interest of “insiders against outsiders” in the labor market—a long-held tenet of the OECD Economics Department (OECD 2018, 147).

However, Janssen (2019) notes that in also claiming that “flexibility in product and labour markets is essential to create high quality jobs in an ever more dynamic environment,” the strategy is offering two distinct narratives on labor market flexibility running in parallel. McBride and Watson (2019) wrote off the revision as “an attempt to restore legitimacy through ideological positioning rather than fundamental change in basic strategy.” This is hardly surprising in an international organization in which reaching agreement on change between different countries is a complicated process. TUAC’s evaluation prioritized the importance of the implementation process. In any case, the positive role ascribed to collective bargaining and the admitting of greater ambiguity in labor market deregulation and flexibility amounted to more than a cosmetic change.

This assessment was reinforced when in 2019 the OECD published its most comprehensive work on collective bargaining in 30 years under the title, “Negotiating Our Way Up: Collective Bargaining in a Changing World of Work” (OECD 2019). The central conclusions of the report were: (1) coordination in wage bargaining is a key ingredient for good labor market performance; (2) collective bargaining systems and workers’ voice arrangements also matter for job quality; and (3) collective bargaining and workers’ voice play an important role in preventing inequalities in a changing world of work, but they need to adapt.

Most importantly, the OECD came down firmly on the side of the need for countervailing power in the workplace:

Whether considering key issues such as wage inequality, job quality, workplace adaptation to the use of new technologies, or support for workers displaced by shifts in industries, collective bargaining and workers’ voice can complement public policies to produce tailored and balanced solutions. The alternatives to collective bargaining are often either state regulation or no bargaining at all since individual bargaining is not always a realistic option as many employees are not in a situation to effectively negotiate their terms of employment with their employer. (OECD 2019, 13)

Postscript: Labor markets and the Covid-19 pandemic

In the months following the publication of these OECD reports, the Covid-19 pandemic again raised the importance of reducing inequality in OECD countries and beyond. The pandemic and subsequent containment measures have had differential impacts on income groups, age groups, ethnic groups, and social groups. The economic prospects of young people, ethnic minorities, and women—the groups more likely to be employed in service sectors that have been most affected by closures, but which are also overrepresented in insecure and unprotected work (Reitsma et al. 2021; Rogers et al. 2020; Goldman et al. 2021; Williamson et al. 2020; Out et al. 2020)—have been hardest hit in most countries. Sectors with activities that allow teleworking and so are more likely to be performed from home have seen a smaller reduction in employment. Low-income workers are less able to work from home than high-income workers.

An IMF study comparing the distributional impact in the United States of the global financial crisis and the pandemic recession found that young workers, less-qualified workers, and low-income earners were hit hardest in both recessions, but women and Hispanic workers were more severely affected in the pandemic. The concentration of female employment in service sectors together with the difficulty of managing child care when schools and other facilities are closed have resulted in a disproportional impact on women (Shibata 2020).

A study in France (Inserm 2020) found that those living in dense and cramped accommodations have been infected disproportionately during the pandemic, while those in low-paid vulnerable jobs are most at risk from infection and have suffered most from economic hardship. A study in the U.K. of the impact of what was then expected to be the ending of jobs support schemes found that young and ethnic minority workers were twice as likely to lose their jobs when the furlough scheme came to an end (Crossley, Fisher, and Low 2021; Brewer et al. 2020).

Emerging and developing countries have also seen a rise in inequality because of the pandemic. IMF authors concluded that “the estimated effect from COVID-19 on the income distribution is much larger than that of past pandemics. It also provides evidence that the gains for emerging market economies and low-income developing countries achieved since the global financial crisis could be reversed” (Cugat and Narita 2020). The World Bank has warned of “new poverty” appearing in middle-income countries (World Bank 2020).

The growth of nonstandard work and platform work prior to the pandemic had already increased inequality, and since most platform workers do not have employment protection, unemployment benefits, or paid sick leave, economic risk was shifted onto their shoulders during the pandemic. Also, during the pandemic customers for platform workers’ services dried up overnight, and the workers found themselves without income or employment. In a global survey by an online search platform for app-based jobs, over half of the platform workers surveyed said they had lost their jobs, and more than a quarter had seen their hours cut in the first months of the pandemic (AppJobs Institute 2020).

The OECD has noted that the pandemic revealed the shortcomings of safety nets (OECD 2020), in essence admitting that nonregular work leaves many people out of reach of vital social protections for income and health. While before OECD reports 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.

As in the financial crisis, it is already clear that youth are big losers economically in the pandemic. In addition to the disruption of education in most countries, unemployment among first-time job seekers has soared. There is much evidence that initial job market experience influences earnings capacity in the long term, and hence deep recessions lead to scarring effects on individuals and subsequently on economies and societies.

Meanwhile, the wealth of billionaires has increased during the pandemic in all the major economies (Jones and Romei 2020), and U.S. internet companies have seen their stock values rise rapidly. Profits at Amazon tripled to $6.3 billion since the beginning of the pandemic, while turnover at Amazon increased by 37% in the third quarter of 2020.

As economies reopen and pressure for a return to normal increases, there is a danger that a business-as-usual approach will return. But the pandemic has brought into sharp focus the broader importance of social justice. Rising income inequality has fragmented societies, and the countries and communities weathering these trends most effectively will be those with greater social cohesion and where policies are designed to be fair and seen to be fair. The new thinking exhibited in the recent OECD reports represents an opportunity for a positive shift in policy if translated into policy action.

About the authors

John Evans was until 2017 general secretary of the Trade Union Advisory Committee to the OECD, a post he held for more than 30 years. From 2012 until 2017 he combined his TUAC post with that of chief economist of the International Trade Union Confederation. He is currently a visiting fellow at the University of Greenwich in the U.K. and an academic visitor at St Peter’s College at the University of Oxford. He is working on a book project on the shifting views of economists toward income inequality and labor market institutions.

William Spriggs is a professor in, and former chair of, the Department of Economics at Howard University and serves as chief economist to the AFL-CIO. In his role with the AFL-CIO, he also chairs the Economic Policy Working Group for the Trade Union Advisory Committee to the OECD, and serves on the board of the National Bureau of Economic Research. He is currently president-elect of the Labor and Employment Relations Association and vice chair of the board of MDC Inc. (Durham, N.C.). He serves on the advisory boards of WorkRise (of the Urban Institute) and the Opportunity and Inclusive Growth Institute of the Federal Reserve Bank of Minneapolis. From 2009 to 2012, he was assistant secretary for the Office of Policy at the U.S. Department of Labor.

Acknowledgments

The authors are grateful to David Coats, Larry Mishel, Stephen Pursey, and Kari Tapiola for comments on earlier drafts and indebted to Dean Baker and Andrew Watt, who undertook the peer review of the draft.

Notes

1. For an analysis of the country-specific recommendations from 1994 to 1998, see Casey 2004.

2. Unpublished Trade Union Advisory Committee mimeo to the OECD.

3. A common measure of income inequality that ranges from 0 when income is the same for all to 1 when all income goes to one person.

4. See, for example, International Trade Union Confederation, Equal Times, April 2013.

References

Aleksynska, Mariya. 2014. “Deregulating Labour Markets: How Robust Is the Analysis of OECD Recent IMF Working Papers?” ILO Conditions of Work and Employment Series no. 47.

AppJobs Institute. 2020. “How Does the COVID-19 Outbreak Affect the Life of Freelancers & Gig Workers?” Quoted in OECD 2020.

Atkinson, Anthony B. 2015. “Inequality: What Can Be Done?” Harvard University Press.

Autor, David H. 2003. ”Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the Growth of Employment Outsourcing.” Journal of Labor Economics 21: 1–41.

Avdagic, Sabina. 2015. “Does Deregulation Work? Reassessing the Unemployment Effects of Employment Protection.” British Journal of Industrial Relations, 2014, 53, no. 1 (March): 6–26.

Baker, Dean, Andrew Glyn, David Howell, and John Schmitt. 2004. Fighting Unemployment: The Limits of Free Market Orthodoxy. Oxford University Press.

Barkin, Solomon. 1987. “The Flexibility Debate in Western Europe: The Current Drive to Restore Management’s Rights over Personnel and Wages.” Relations Industrielles 42, no. 1: 12–43.

Bassanini, Andrea, and Roland Duval. 2006. “Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions.” Organization for Economic Cooperation and Development, Economics Department Working Paper No. 486.

Belot, Michèle, Jan Boone, and Jan van Ours. 2007. “Welfare‐Improving Employment Protection.” Economica 74, no. 295: 381–96.

Berg, Andrew, and Jonathon Ostry. 2011. “Inequality and Unsustainable Growth: Two Sides of the Same Coin.” IMF Staff Discussion Note, April.

Blanchard, Olivier, Florence Jaumotte, and Prakash Loungani. 2013. “Labor Market Policies and IMF Advice in Advanced Economies During the Great Recession.” IMF Staff Discussion Note, March.

Blanchflower, David, and Richard Freeman. 1993. “Did the Thatcher Reforms Change British Labor Performance?” National Bureau of Economic Research Working Paper No. 4384.

Brewer, Mike, et al. 2020. “Jobs, Jobs, Jobs: Evaluating the Effects of the Current Economic Crisis on the UK Labour Market.” Resolution Foundation, London.

Casey, Bernard. 2004. “The OECD Jobs Strategy and the European Employment Strategy: Two Views of the Labour Market and the Welfare State.” European Journal of Industrial Relations 10, no. 3: 229–351.

Cingano, Federico. 2014. “Trends in Income Inequality and Its Impact on Economic Growth.” OECD Employment, Social, and Migration Working Paper No. 163.

Coats, David, ed. 2011. “Exiting from the Crisis: Towards a Model of More Equitable and Sustainable Growth: Report of a Trade Union Task Force.” European Trade Union Institute.

Coats, David. 2018. Fragments in the Ruins: The Renewal of Social Democracy. London, England: Policy Network.

Crossley, Thomas F., Paul Fisher, and Hamish Low. 2021. “The Heterogeneous and Regressive Consequences of COVID-19: Evidence from High Quality Panel Data.” Journal of Public Economics 193 (January).

Cugat, Gabriela, and Futoshi Narita. 2020. “How COVID-19 Will Increase Inequality in Emerging Markets and Developing Economies.” IMF Blog, October 29.

Deaken, Simon, Jonas Malmberg, and Prabirjit Sarkar. 2014. “How Do Labour Laws Affect Unemployment and the Labour Share of National Income? The Experience of Six OECD Countries, 1970–2010.” International Labour Review 153, no. 1.

European Commission. 1999. OECD/DEELSA seminar, “Wages and Employment.”

Freeman, Richard. 2005. “Labor Market Institutions Without Blinders: The Debate over Flexibility and Labor Market Performance.” National Bureau of Economic Research Working Paper No. 11286.

Friedman, Milton. 1968. “The Role of Monetary Policy.” American Economic Review 58, no. 1: 1–17.

G20. 2009. “Leaders’ Statement: The Pittsburgh Summit.” Pittsburgh, Pa., September 24–25.

G20. 2013. “Labor and Employment and Finance Ministers’ Communiqué.” Moscow, July 19.

G20. 2014. “G20 Leaders’ Communiqué.” Brisbane, Australia, November 16.

G20. 2015. “Labour and Employment Ministers’ Declaration.” Annex 1. Ankara, Turkey, September 4.

Goldman, Noreen, et al. 2021. “Racial and Ethnic Differentials in COVID-19-Related Job Exposures by Occupational Standing in the US.” Preprint paper.

Gurria, Angel. 2017. “Speech to the British Confederation of Industry Conference,” November 6.

Gurria, Angel. 2020. “Remarks at 60th Anniversary of the OECD.” Press release. Organization for Economic Cooperation and Development, December 14.

Guschanski, Alexander, and Ozlem Onaran. 2017. “The Political Economy of Income Distribution: Industry Level Evidence from 14 OECD Countries.” Greenwich Papers in Political Economy GP ERC 51.

Heimberger, Philipp. 2020. “Does Employment Protection Affect Unemployment? A Meta-Analysis.” Oxford Economic Papers, November 28.

Hiltzik, Michael. 2015. “IMF Agrees: Decline of Union Power Has Increased Income Inequality.” Los Angeles Times, March 25.

Hoyt, Eric. 2018. “Constraining Labor’s ‘Double Freedom’: Revisiting the Impact of Wrongful Discharge Laws on Labor Markets, 1979-2014.” Ph.D. Dissertation, University of Massachusetts, Amherst.

ILO (International Labour Organization). 2011. “ILO World of Work Report: Making Markets Work for Jobs.”

IMF (International Monetary Fund). 2003. “Unemployment and Labour Market Institutions: Why Reforms Pay Off.” IMF World Economic Outlook, April.

IMF (International Monetary Fund). 2017. “World Economic Outlook,” Chapter 3, April.

Inserm. 2020. “Premiers Résultats des Enquêtes de Santé Publique de l’Inserm sur la Covid-19: Facteurs de Risque Individuels et Sociaux.“ Press release, October 9.

Jackson, Andrew. 2007. “Crafting the Conventional Economic Wisdom: The OECD and the Canadian Policy Process.” In Rianne Mahon and Stephen McBride, eds., OECD and Transnational Governance. Vancouver, Canada: UBC Press.

Janssen, Ronald. 2019. “The Revised OECD Jobs Strategy and Labour Market Flexibility: A Double Handed Narrative.” European Trade Union Institute Transfer 25: 221–27.

Jaumotte, Florence, and Carolina Osorio Buitron. 2015. “Inequality and Labor Market Institutions.” IMF Staff Discussion Note, July.

Jones, Sam, and Valentina Romei. 2020. “Pandemic Makes World’s Billionaires—and Their Advisers—Richer.” Financial Times, October 23.

Kaldor, Nicholas. 1955. “Alternative Theories of Distribution.” Review of Economic Studies 23, no. 2: 83–100.

Keely, Brian. 2015. “Income Inequality: The Gap Between Rich and Poor.” OECD Insights.

Krueger, Alan B. 2012. “The Rise and Consequences of Inequality in the United States.” Speech to the Center for American Progress, January 12.

Krugman, Paul. 2010. “Oops at the OECD.” New York Times, September 10.

Kugler, Adriana, and Gilles Saint-Paul. 2004. “How Do Firing Costs Affect Worker Flows in a World with Adverse Selection?” Journal of Labor Economics 22: 553–84.

Lagarde, Christine. 2012. “Speech to the 2012 Annual Meetings of the IMF and World Bank.”

Lansley, Stewart, and Howard Reed. 2010. “The Red Tape Delusion: Why Labour Market Deregulation Won’t Solve the Jobs Crisis.” Trades Union Congress.

Lucas, Robert. 2003. “The Industrial Revolution: Past and Future.” Annual Report of the Federal Reserve Bank of Minneapolis, 5–20.

McBride, Stephen, and James Watson. 2019. “Reviewing the 2018 OECD Jobs Strategy: Anything New Under the Sun?” European Trade Union Institute Transfer 25: 149–63.

Milanovic, Branko. 2016. “Global Inequality: A New Approach for the Age of Globalization.” Cambridge, Mass.: Belknap Press of Harvard University.

Miles, Thomas J. 2000. “Common Law Exceptions to Employment at Will and U.S. Labor Markets.” Journal of Law, Economics and Organizations 16: 74-101.

Mitchell, Daniel J. 2011. “Using Your Tax Dollars to Push for Class Warfare.” New York Post, December 17.

Nickell, Stephen. 2017. “Remarks to High-Level Policy Forum on the New OECD Jobs Strategy.” Berlin, Germany, June 17.

OECD (Organization for Economic Cooperation and Development). 1983. “Positive Adjustment Policies: Managing Structural Change.”

OECD (Organization for Economic Cooperation and Development). 1992. “Labour Market Policies for the 1990s: Communique of the Meeting of Employment and Labour Affairs Committee Meeting at Ministerial Level.”

OECD (Organization for Economic Cooperation and Development). 1994a. “The OECD Jobs Study: Facts, Analysis, and Strategy.”

OECD (Organization for Economic Cooperation and Development). 1994b. “The OECD Jobs Study: Evidence and Explanations.”

OECD (Organization for Economic Cooperation and Development). 2004. “Employment Outlook 2004.”

OECD (Organization for Economic Cooperation and Development). 2006. “Employment Outlook 2006.”

OECD (Organization for Economic Cooperation and Development). 2008. “Growing Unequal? Income Distribution and Poverty in OECD Countries.”

OECD (Organization for Economic Cooperation and Development). 2010. “Economic Survey of Slovakia.”

OECD (Organization for Economic Cooperation and Development). 2011. “Divided We Stand: Why Inequality Keeps on Rising.”

OECD (Organization for Economic Cooperation and Development). 2014a. “Focus on Top Incomes and Taxation in OECD Countries: Was the Crisis a Game Changer?”

OECD (Organization for Economic Cooperation and Development). 2014b. “NAEC Executive Summary for the OECD Ministerial Council Meeting.”

OECD (Organization for Economic Cooperation and Development). 2017a. “Employment Outlook 2017.”

OECD (Organization for Economic Cooperation and Development). 2017b. “Opportunities for All: A Framework for Policy Action on Inclusive Growth.”

OECD (Organization for Economic Cooperation and Development). 2018. “Good Jobs for All in a Changing World of Work: The OECD Jobs Strategy.”

OECD (Organization for Economic Cooperation and Development). 2019. “Negotiating Our Way Up: Collective Bargaining in a Changing World of Work.”

OECD (Organization for Economic Cooperation and Development). 2020. “Employment Outlook 2020.”

O’Farrell, Rory. 2016. “The Gig Economy Will Not Abolish Working 9 to 5.” Medium, November 22.

Out, Akaninyene, et al. 2020. “One County, Two Crises: What Covid-19 Reveals About Health Inequalities Among BAME Communities in the United Kingdom and the Sustainability of Its Health System.” International Journal for Equity in Health 19, no. 189.

Piketty, Thomas. 2014. Capital in the Twenty-First Century. Harvard University Press.

Pursey, Stephen. 2021. “G20 Structural Reforms and OECD Jobs Strategies.” International Labour Office. Mimeo.

Reitsma, Marissa B., et al. 2021. “ Racial/Ethnic Disparities in COVID-19 Exposure Risk, Testing, and Cases at the Subcounty Level in California.” Health Affairs 40, no. 6: 870–8.

Rogers, Tiana N., et al. 2020. “Racial Disparities in COVID-19 Mortality Among Essential Workers in the United States.” World Medical Health Policy, August 5.

Shibata, Ippei. 2020. “The Distributional Impact of Recessions: The Global Financial Crisis and the Pandemic Recession.” International Monetary Fund Working Paper WP/20/96.

Stiglitz, Joseph. 2012. “The Price of Inequality.” Allen Lane.

TUAC (Trade Union Advisory Committee). 2013. “Growing More Equal: A Policy Agenda for Reducing Inequality and Promoting Inclusive Growth.” Paper for Consultations with the OECD Liaison Committee.

TUAC (Trade Union Advisory Committee). 2018. “Assessment of the OECD’s Revised Job Strategy: Good on Objectives, Ambiguous on Policy.”

Trumka, Richard. 2011. Speech to Launch Event for “Divided We Stand,” OECD (author’s notes).

Vergeer, Robert, and Alfred Kleinknecht. 2011. “The Impact of Labour Market Deregulation on Productivity: A Panel Data Analysis of 19 OECD Countries (1960-2004).” Journal of Post-Keynesian Economics, Winter 2010–2011.

Watt, Andrew. 2006. “Assessing the Reassessment of the OECD Jobs Strategy: Eppur si Muove?” Etui.

Williamson, Elizabeth, et al. 2020. “OpenSAFELY: Factors Associated with COVID-19-Related Hospital Deaths in Linked Electronic Health Records of 17 Million Adult NHS Patients.” Preprint paper.

World Bank. 2012. World Development Report 2013: Jobs, 256–91.

World Bank. 2020. “Global Action Urgently Needed to Halt Historic Threats to Poverty Reduction.”

Embedded in U.S. employment law is the presumption that the employer and the employee have equal power, that either can as readily walk away from an employment relationship as the other, and that the employee can as easily find an equivalent job as the employer can find an equivalent worker. In other words, each is free to contract—to agree to an employment arrangement—on equal terms, without constraint or coercion. But for workers to be on a level playing field with employers requires an economy at full employment, where everyone who wants a job or even just a decent employment situation can find one. Only in this circumstance is an employee free to contract without constraint or coercion.

Yet the economy is rarely at full employment, and even on the rare occasions that it is large segments of the workforce still face substantial unemployment and difficulty finding quality jobs. Blacks, Hispanics, and those without college degrees endure a permanent recession.

This paper uses measures of unemployment from the Bureau of Labor Statistics and reviews important recent work to examine trends in overall labor market slack and the unemployment experiences of specific demographic groups, as well as to illustrate the impact of unemployment on worker behavior (i.e., quitting, switching jobs), employer behavior (i.e., recruiting intensity), and labor market outcomes such as wage growth.

The length of time workers remain unemployed during spells of unemployment and the likelihood that they will quit a job or switch jobs illustrate their diminished options when unemployment is high:

• In recent downturns the duration of unemployment and the share of the unemployed who were long-term unemployed increased as the economy moved into recession. Obviously, the prospect of quitting and becoming unemployed becomes a much more costly prospect when the economy is not at full employment.
• Also in recent downturns, the share of workers quitting declined substantially as unemployment rose, while the share climbed as the economy recovered. Thus, a worker’s ability to quit and an employer’s ability to fill a vacancy are not independent of the unemployment situation.
• Most workers find a new job by directly switching employers, rather than finding a new job after becoming unemployed or leaving the labor force, and data show that a higher unemployment environment adversely affects workers’ ability and willingness to switch employers. Compounding this constraint is the fact that switching jobs is an essential component of receiving higher wages.

Unemployment also changes employer behavior. When unemployment is higher employers are able to fill job vacancies more quickly and with less effort; their recruitment activities—choice of methods, expenditures on help-wanted ads, screening of job applicants—differ according to the level of unemployment. Moreover, when unemployment is elevated and employers can more readily find qualified workers, employers opportunistically raise the expected credentials for new hires. In the 2007–2010 downturn, for instance, employers increasingly required a bachelor’s degree for physician assistant jobs but retreated from this requirement as unemployment fell.

Finally, there is substantial evidence that higher unemployment lowers wage growth, especially for low-and moderate-wage workers and for Black and Hispanic workers. One indicator of the overall shift in power against workers is that in the last recovery from 2009 to 2019 boosting wages required lower levels of unemployment than before.

Workers in the aggregate experience full employment only occasionally, and millions of workers never experience it at all, ever. The presence of excessive unemployment—beyond full employment—tilts the power balance toward employers. Just acknowledging high unemployment leads one to recognize that in many, if not most, circumstances employers can far more readily replace a worker than a worker can find a comparable job. To believe otherwise is to live in a world without access to windows or newspapers, and it is curious and unsettling that claims of freedom of contract have been made when there was, or had recently been, very high unemployment. Simply acknowledging the persistent absence of full employment for many workers renders the freedom-of-contract framework a flawed basis for assessing employment relationships and arrangements.

Introduction

Embedded in U.S. employment law is the presumption that the employer and the employee have equal power, that either can as readily walk away from an employment relationship as the other, and that the employee can as easily find an equivalent job as the employer can find an equivalent worker. In other words, each is free to contract—to agree to an employment arrangement—on equal terms, without constraint or coercion. This assumption of equal power is pervasive but also insidious, and it undercuts our ability to have adequate statutory and common law workplace protections (Bagenstos 2020).

This is an assumption similar to the one economists make when they assume “full employment.” In the economics case, however, one can relax an assumption and model how outcomes change. In the legal case the law applies at all times. The freedom-of-contract formulation in the law is oddly applied to employer unilateral changes to contract terms for already-employed workers, as if there is a new contract each day.

Not only do common sense and observation tell us that employees can rarely walk away from their jobs as readily as employers can find replacements, but documenting this fact is easily accomplished by looking at employer and employee behavior. As business cycles proceed and as economies boom and bust, unemployment rises and falls. The economy is rarely at full employment, and even on the rare occasions that it is large segments of the workforce still face substantial unemployment and difficulty finding quality jobs. Blacks, Hispanics, and those without college degrees endure a permanent recession. Less-than-full employment manifests itself in employee behavior through lower quit rates, fewer transitions to new jobs, and longer spells of unemployment between jobs.

Unemployment also changes employer behavior. When unemployment is higher employers are able to fill job vacancies more quickly and with less effort; their recruitment activities—choice of methods, expenditures on help-wanted ads, screening of job applicants—differ according to the level of unemployment, and employers raise hiring standards when unemployment is higher. Also, when unemployment is elevated and employers can more readily find qualified workers, employers opportunistically raise the expected credentials for new hires. In the 2007–2010 downturn, for instance, employers increasingly required a bachelor’s degree for physician assistant jobs but retreated from this requirement as unemployment fell.

Last, there is substantial evidence that higher unemployment lowers wage growth, especially for low-and moderate-wage workers and for Black and Hispanic workers. One indicator of the overall shift in power against workers is that in the last recovery from 2009 to 2019 boosting wages required lower levels of unemployment than before.

There are many other reasons besides the business cycle and higher unemployment that workers, individually, have less power than their employers. For example, individual workers as a rule have little or no wealth to fall back on, they may be locked into an employer for their health coverage, they may have limited transportation options, and child care responsibilities may constrict their scheduling options (Edwards 2022). There is also evidence from the emerging literature on monopsony that quitting is insufficiently powerful to restrain employer exploitation, as evidenced by the fact that even when employers reduce wages only a small share of employees actually quit (Naidu and Carr 2022). Nevertheless, the simple acknowledgment of the difficulty in finding a job when unemployment exceeds full employment is sufficient to show how otherworldly is the assumption of equal power and the claim that freedom of contract produces optimal outcomes that regulations or institutions should not disturb.

What is the freedom-of-contract framework?

In the freedom-of-contract framework, employers and employees have equal power, and their negotiated arrangements are optimal and should not be altered or regulated by external forces such as government-set labor standards or unions. But this presumption of equal power willfully ignores the fact that workers rarely enjoy full employment, meaning that employers enjoy plentiful access to willing new workers while employees face more difficulties and costs in finding alternative comparable employment. By itself, the absence of full employment creates a power asymmetry between employers and employees.

Bagenstos (2020) explained the freedom-of-contract and employer-employee equality assumptions underlying the at-will employment doctrine:

[The at-will] doctrine authorizes both employers and employees to terminate the relationship at any time. The Supreme Court expressly relied on this supposed equality when it gave constitutional significance to at-will employment in its Lochner-era decisions. In Adair, Justice Harlan wrote that “the right of the employe to quit the service of the employer, for whatever reason, is the same as the right of the employer, for whatever reason, to dispense with the services of such employe.”1 He went on to say that “the employer and the employe have equality of right, and any legislation that disturbs that equality is an arbitrary interference with the liberty of contract which no government can legally justify in a free land.”2 And he declared, “it cannot be…that an employer is under any legal obligation, against his will, to retain an employe in his personal service any more than an employe can be compelled, against his will, to remain in the personal service of another.”3

Richard Epstein (1984), in his iconic defense of the at-will doctrine, also relied heavily on the freedom-of-contract framework and the presumed equality between employer and employee:

One manifestation of that position was the prominent place that the common law, especially as it developed in the nineteenth century, gave to the contract at will. The basic position was well set out in an oft-quoted passage from Payne v. Western & Atlantic Railroad:

[M]en must be left, without interference to buy and sell where they please, and to discharge or retain employees at will for good cause or for no cause, or even for bad cause without thereby being guilty of an unlawful act per se. It is a right which an employe may exercise in the same way, to the same extent, for the same cause or want of cause as the employer. (pp. 947–8)

Further, Epstein wrote, under an at-will arrangement:

The employer is free to demand whatever he wants of the employee, who in turn is free to withdraw for good reason, bad reason, or no reason at all. (p. 966)

The freedom-of-contract framework was central to the Supreme Court’s majority opinion in 2018 in Epic Systems,4 which determined that the Federal Arbitration Act providing for individualized arbitration proceedings must be enforced, and that neither the Arbitration Act’s saving clause nor the National Labor Relations Act suggests otherwise.5

Justice Gorsuch opened the majority opinion with these questions:

Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration? Or should employees always be permitted to bring their claims in class or collective ac­tions, no matter what they agreed with their employers?

Justice Gorsuch presumes there is no basis for interfering with any seemingly voluntary employer-employee agreement and that the Federal Arbitration Act predominates over the National Labor Relations Act’s (NLRA) guarantee of employee collective actions (such as class actions in private arbitration proceedings), a guarantee that was affirmed by the National Labor Relations Board in 2012.

In her dissent, Justice Ginsburg noted:

To explain why the Court’s decision is egregiously wrong, I first refer to the extreme imbalance once preva­lent in our Nation’s workplaces, and Congress’ aim in the NLGA [Norris-LaGuardia Act] and the NLRA to place employers and employees on a more equal footing [emphasis added].

The Epic Systems case highlighted the disagreement within the court about the freedom-of-contract framework and the assumed equality of power between employers and employees. The majority accepted the freedom-of-contract framework even though employers imposed the forced individual arbitration agreements on employees long after they had negotiated for, and accepted, employment.6

Notably absent from any of these arguments and cases relying on the freedom-of-contract framework is any consideration of the business cycle or the fact that workers, because they typically face unemployment higher than that prevailing at full employment, are rarely on equal footing with their employers.

Indeed, unemployment was or had been excessively high at the time of these key court cases and writings. In the three years leading up to the Adair decision (1906–1908), unemployment in manufacturing, transportation, building trades, and mining (the only historic data available) rose from 5.9% to 6.9% to 16.4%.7 In 1984, the year of publication of Epstein’s famous analysis, the economy was emerging from the greatest economic downturn (at that time) since the Great Depression, with unemployment falling from 9.7% in 1982 to 9.6% in 1983 and to 7.5% in 1984 (still far above full employment).8 The 2018 opinion in Epic Systems followed the recovery from the financial crisis of 2007-2009 and the lowering of unemployment from a peak of 10% in October 2009 to just 3.9% in the summer of 2018.9

This willful ignoring of unemployment trends is essential to the presumption, perhaps the pretense, that employee-employer employment agreements are optimal, characterized as occurring between equal parties, one as willing as the other to depart the arrangement. Yet, as documented below, excess unemployment severely weakens the relative bargaining position of workers.

What is full employment?

This paper argues that the economy is rarely at full employment and sometimes never so for large segments of the workforce. To measure whether the economy is above, below, or at full employment requires an operational, measurable definition of the concept. This is a challenge, as there is no consensus on the definition of full employment, and the unemployment rate considered full employment shifts over time. The benchmark used in our analysis is setting full employment at 5%, slightly below

One approach is to categorize unemployment by reason, separately identifying those unemployed due to cyclical, structural, or frictional unemployment. As defined by the Congressional Research Service (CRS 2020), cyclical unemployment is the extra unemployment resulting from the ups and downs of the business cycle; structural unemployment is “unemployment resulting from a mismatch of skills or interest between workers and the jobs available,” due to trade, technological change, or shifts in consumer preferences; frictional unemployment is “short-term unemployment due to job searching or transition.” Full employment, in this scheme, occurs when “the economy is operating at its full potential, cyclical unemployment is zero and the unemployment rate is roughly equal to the sum of structural and frictional unemployment” (CRS 2020). However, estimates of the amount of cyclical, structural, and frictional unemployment are not readily available to operationalize this definition.

Similarly, the Full Employment Action Council, the advocacy group that campaigned to pass the Humphrey-Hawkins Full Employment Act in the 1970s, describes full employment as the absence of involuntary unemployment—everyone who wants a job can get one.

The freedom-of-contract framework presumes an equality between employers’ concerns over vacancies and workers’ fears of becoming unemployed. In this light, a balanced labor market is one where vacancies equal the number of unemployed and where outside options are comparable: Workers and firms, respectively, have equal and ready access to a replacement job or worker. This framework is comparable to an analysis of the standard macroeconomic model of unemployment.10 Certain measures of vacancies (i.e., job openings) and unemployment allow us to gauge when the two are in balance. Davis, Faberman, and Haltiwanger (2013), who provide such data (including data made available on their website) from 2001 through June 2017, find that in no month in that period did job openings exceed unemployment; on average, there were 2.7 unemployed for every opening. Even in the periods of the lowest unemployment (the first halves of 2001, 2007, and 2017), when unemployment was 4.5% or less, there were 24-49% more unemployed than job openings. This evidence suggests that the full employment rate needed to balance openings and unemployment is certainly less than 4.5%.

Much economic analysis over the last few decades has chosen as a definition of full employment the non-accelerating inflation rate of unemployment (NAIRU), or the rate below which inflation will begin to accelerate.11 There have been many critiques of the NAIRU (Galbraith 1997; Staiger, Stock, and Watson 1997; Baker 2000; Bernstein and Baker 2013a), and inflation has not accelerated when the unemployment rate has fallen (sometimes far) below it (Crump et al. 2019). For instance, unemployment averaged 3.7% in the last half of 2019, a rate below the Congressional Budget Office (CBO)’s estimate of NAIRU of 4.5% for that period, without any sign of accelerating inflation. Crump et al. (2019) “estimate that the natural rate of unemployment was about 4.0 percent toward the end of 2018.” Bernstein and Baker (2013b) detail the lack of inflation acceleration in the late 1990s boom despite unemployment falling to 4.0% in 2000, far below the 5.2% NAIRU estimated by CBO for that year. CBO, which provides an estimate of NAIRU back to 1949 and uses it to estimate potential output and the corresponding fiscal consequence of departures from full capacity, estimates that the NAIRU averaged about 5.3% over the entire 1979–2019 period and just 4.9% from 2000 to 2019.

For the 1979–2019 period the analysis below employs a somewhat arbitrary 5.0% as the full employment benchmark, a bit below the 5.3% estimated by CBO though close to the 4.9% of 2000–2019. There are three reasons for choosing 5.0% rather than 5.3%. One is simplicity. Second, experience shows that the NAIRU overstates the unemployment level corresponding to actual acceleration of inflation. Third, as discussed above, the unemployment rate that equates vacancies and unemployment is substantially below 5.0%. Choosing a 5% full employment benchmark is a conservative choice. Regardless, the choice of 5.0% rather than 5.3% does not materially affect any of our conclusions: The economy is rarely at full employment, and large segments of the workforce never experience full employment.

It should be acknowledged that the unemployment rate does not fully capture the many dimensions and negative consequences of underemployment: workers working part time but wanting full-time work; workers who have stopped looking for work and left the labor force; and workers employed at jobs for which they are overqualified. At any given rate of unemployment, there are many more workers suffering from various types of underemployment than there are unemployed workers. The selection of a particular unemployment rate as the full employment benchmark may be appropriate for designating periods of full employment and slack, though it does understate the number of workers adversely affected by slack conditions.

The employee side of higher unemployment

The share of the labor force that is unemployed is a good indicator of the labor market climate or labor market slack. Unemployment, as officially measured by the Bureau of Labor Statistics (BLS), reflects “people who meet all of the following criteria: were not employed during the survey reference week; were available for work (except for temporary illness); had made a specific, active effort to find employment sometime during the 4-week period ending with the survey reference week” (BLS 2018, 3-4). This is considered an activity measure, since unemployment is equated with not having a job and actively looking for work. The unemployment rate is measured as, “The number of unemployed people as a percentage of the labor force,” and the labor force is the sum of the employed and the unemployed (BLS 2018, 4).

This paper relies on the BLS measures of unemployment to examine trends in overall labor market slack and the unemployment experiences of specific demographic groups, as well as to illustrate the impact of unemployment on worker behavior (i.e., quitting, switching jobs), employer behavior (i.e., recruiting intensity), and labor market outcomes such as wage growth. But, as noted above, unemployment does not capture the full extent of underemployment in the labor market and therefore substantially underrepresents the extent of labor market slack at any point in time and for the persons affected.

Aggregate unemployment

The basic trends in the unemployment rate are presented in Figure A, which shows the ups and downs of the quarterly unemployment rate from 1973 through 2019. The line at a presumed full employment rate of 5% illustrates how frequently unemployment remained above full employment. The average unemployment rate over this period was 6.25%, meaning that the economy averaged 1.25 percentage points of unemployment above (a presumed) 5% full employment rate. Table 1 shows that, in the 188 quarters comprising the 1973-2019 period, in only 50 of them was unemployment at 5% or less, or 26.6% of the time (equivalent to 12.5 of the 47 years). Unemployment exceeded 6% for 85 quarters, or 45.2% of the time, equivalent to 21.5 of the 47 years from 1973 to 2019. In other words, the economy of the last five decades was infrequently at or below an unemployment rate of 5%,12 and full employment is far from the norm.

Figure A

Table 1

Unemployment for specific demographic groups

Not only is the unemployment rate frequently greater than that associated with full employment, but the unemployment rate experienced by many demographic groups never achieves full employment, ever. Table 2 presents the distribution of unemployment over the months from 1979 through 2019 for demographic groups delineated by education and race/ethnicity.13 These tabulations illustrate some regularities (reflecting our institutions and systems of discrimination) in the unemployment realm: Workers who are Black or Hispanic have higher unemployment at every level of education, and workers with less educational credentials (e.g., high school graduates) have higher unemployment than those with more credentials (e.g., college graduates). This can be seen in the average unemployment rates presented in the last row of Table 2. Blacks and Hispanics experienced unemployment rates of 11.9% and 8.6% on average, respectively, over the 1979–2019 period, far greater than whites, whose unemployment was 5.1%. This means that the norm for whites was a roughly full employment economy, while Blacks had unemployment twice as high and Hispanics 70% higher than whites.

Table 2

Of course, the averages for particular race/ethnic groups obscure the much higher unemployment for those in the working class of each race/ethnic group. This can be seen by examining the average unemployment of high school graduates in each group: Black, 12.8%; Hispanic, 8.2%; and white, 5.7%. The entire group with less than a four-year college degree (those with some college, a high school degree, or less than a high school education) experiences high unemployment, and this group comprises 81% of the Black workforce over the 1979–2019 period. Blacks without a high school degree averaged 21.4% unemployment, and those with some college (including those with a two-year degree) averaged 9.7%.

Table 2 also illustrates how rarely certain demographic groups enjoy full employment by showing the share of the months over the 1979–2019 period at which specific ranges of unemployment rates prevailed.14 For instance, there was no time over the 1979–2019 period when the Black unemployment rate was 5% or less, or even 6% or less. Blacks, on average, never experienced anything near full employment. Meanwhile, Black high school graduates faced unemployment rates of more than 10.1% for roughly 81% of the 1979–2019 period. Hispanic high school graduates experienced unemployment rates of 5% or less in only 18 (3.7%) of the 492 months in the 1979–2019 period; they faced unemployment exceeding 6.0% in 82.5% of the months. In contrast, college graduates enjoyed long periods of full employment (of 5% or less), though it was more common for white college graduates (99.6% of the time) than for Black (61.4% of the time) or Hispanic (79.7% of the time) college graduates.

In sum, full employment is a rare experience, and even when the aggregate economy has full employment large groups (primarily Blacks and Hispanics and those lacking a four-year college credential) still face excessive unemployment. Employers persistently enjoy an uneven playing field tilted to their advantage simply because workers face excessive unemployment and other types of underemployment.

How high unemployment shapes workers’ options

High unemployment carries consequences for workers and changes their behaviors and outlook. When unemployment is higher workers face greater difficulties switching jobs, have longer spells of unemployment if they become unemployed, and believe that it is harder to find a job. Accordingly, workers are far less likely to quit when unemployment is high. The idea that workers can as readily walk away from a job as an employer can replace a worker does not hold if workers do not consistently enjoy a full employment environment.

Length of unemployment spells. Unemployment rises in recessions as more people are laid off and then stay unemployed for longer spells because jobs are difficult to find (Elsby, Sahin, and Hobijn 2010; Davis, Faberman, and Haltiwanger 2011). The BLS unemployment duration data can be used to demonstrate the general pattern of the lengthening of unemployment spells in recessions, as unemployment escalates.15 Higher unemployment, in fact, arises from more workers becoming unemployed after losing jobs rather than unemployment spells lasting longer.

Table 3 uses the 1979–1983 and 2007–2009 downturns to show how the duration of unemployment (average and median) and the share of the unemployed who are long-term unemployed (greater than 26 weeks) increases as the economy moves from the cyclical peak (low unemployment) into a recession. It shows, for instance, that the duration of unemployment, both average and median, nearly doubled between 1979 and 1983, and both also increased remarkably during the 2007–2009 downturn. The share of workers experiencing long spells of unemployment (exceeding 26 weeks) also spiked. Obviously then, the prospect of quitting and becoming unemployed becomes a much more costly prospect for workers when the economy is not at full employment.

Table 3

Workers find “jobs hard to get” when unemployment rises. Not surprisingly, the share of workers who say in the Conference Board’s Consumer Confidence Survey that they find “jobs hard to get” closely follows the rise and fall of unemployment (Figure B).16 In the periods of high unemployment in 1975, 1983, 1991, and 2009, about half the respondents said it was hard to find a job, up from around 11% in 2000, when unemployment was low, and from about 20% in 2007, before the financial crisis.

Figure B

Quits. It has long been established that the scale of workers quitting their jobs is tightly related to the level of and changes in unemployment. In fact, 30 years ago Akerlof, Rose, and Yellen (1988), using BLS data from manufacturing over the 1948–1981 period to document the procyclical nature of quits, opened their paper by writing: “One indisputable [macroeconomic] regularity is the highly procyclical nature of quits: many more people voluntarily leave their jobs when unemployment is low than when it is high.”

Davis, Faberman, and Haltiwanger (2011) combined data from two BLS data sets—Business Employment Dynamics (BED) and Job Openings and Labor Turnover (JOLTS)—to trace quits from 1990 to 2010; they extended the series to 2019 using more recent JOLTS data (Figure C).17 These data clearly show the substantial decline in quits in the downturns of the early 1990s and early 2000s and from 2007 to 2009, as well as the increase in quits in the recoveries of the late 1990s, 2003–2007, and 2009–2019. The willingness and ability to quit are tightly linked to the level of unemployment. Therefore, a worker’s ability to quit work and the ability of an employer to fill job vacancies (more on this below) are not independent of the unemployment situation, a situation that generates a substantial power asymmetry between employers and employees, contrary to the assumptions of the freedom-of-contract framework. Whatever power the ability of workers to quit has on restraining employer exploitation is diminished when unemployment exceeds the levels prevailing in the relatively rare moments of full employment.

Figure C

The relationship between quits and unemployment in downturns and recoveries is illustrated in Table 4 using Davis, Faberman, and Haltiwanger quits data since 2001.18 One conclusion from Table 4 is that there are a large number of quits each year: For instance, the 45.0 million quits in 2019 represented 29.8% of total jobs held. Second, quits fluctuate a great deal and much more so than unemployment. For instance, unemployment rose 1.9 million in the 2001–2003 downturn but quits diminished far more, by 8.2 million. Likewise, the downturn of 2007–2009 caused unemployment to rise by 7.2 million but quits declined by 15.7 million. Unemployment declines in recoveries, but quits increase much more: In the 2003–2007 and 2009–2019 recoveries the change in quits were, respectively, 3.3 and 2.6 times the fall in unemployment.

Table 4

Quit rates in years of relatively low unemployment (2001, 2007, and 2019) reveal that there is no strong secular trend in quitting. The quit rate was higher in 2001 than in 2007 (31.6% versus 28.5%) but increased only slightly from 2007 to 2019 (from 28.5% to 29.8%).

Much recent research has also identified the procyclical nature of quits, i.e., falling in downturns and rising in recoveries. Elsby, Sahin, and Hobijn (2010) note that “the quit rate moves procyclically.” Davis, Faberman, and Haltiwanger (2012a) find “strongly pro-cyclical movements in quit rates even after conditioning on the employer’s growth rate,” and “the main story for quits appears to involve worker responses to outside labor market conditions [i.e., unemployment]” rather than a cross-sectional relationship to establishment growth rates.

The changes in quits affects far more workers than those who actually quit. Increases (and decreases) of quits affect the motivation of employers to retain their staff. That is, a fall in quits will affect the employment conditions of those who stay. This is an important mechanism by which higher unemployment affects a large segment of the workforce.

The logic of how unemployment affects quits and wages was ably described by Faberman and Justiniano (2015):

The fact that quits are procyclical makes intuitive economic sense. Quits reflect job switching. People are more likely to switch jobs during economic expansions. During these times, there are more jobs available and labor markets are tighter. A tighter labor market implies that em­ployers are more willing to offer higher wages to attract new workers. These higher wages provide a greater incentive for workers to leave their current posi­tion and move up what is often referred to as the job ladder. During recessions, labor markets are more slack. There are fewer available jobs and unemployment is higher, so workers have less bargain­ing power to obtain a better wage offer.

Elsby, Michaels, and Ratner (2020) emphasize that quits generate “replacement hiring” by employers needing to fill vacancies, and this need in turns lures workers from other firms, thereby generating even more quits in a “vacancy chain”; this replacement hiring can account “for a large fraction of aggregate hiring in the U.S. economy.” As Akerlof, Rose, and Yellen (1988) noted, “Quits increase as opportunities expand; the opportunities for job switching are significantly greater when unemployment is low than when it is high.” This process enables workers to obtain better jobs and compensation, as shown by Faberman and Justiniano (2015).

Switching employers. Quits reflect employees leaving their employment voluntarily (with the exception of retirements or transfers to other locations). Researchers have focused on one component of quits that is strongly linked to wage growth—employment-to-employment transitions involving switching employers. Quits, in fact, are dominated by those switching employers rather than those entering unemployment (Elsby, Sahin, and Hobijn 2010).19 This section examines the relationship between the rate of job switching and changes in unemployment.

Fallick and Fleischman (2004) pioneered the measurement of month-to-month labor flows between unemployment, employment, and “not in the labor force” using the BLS Current Population Survey (CPS). However, Fujita, Moscarini, and Postel-Vinay (2021) identify changes in the CPS in 2007 that led to a sizable understatement in employer-to-employer switching significant enough to force an evaluation of previously identified trends (specifically, CPS data suggested there was no secular decline in employer switching over the last 15 years). Their research has focused on an increased (nonrandom) incidence of missing answers to a key survey question on whether the respondent had the same employer. They correct the data with imputations to develop an alternative series, which is what is used in this section.20

Figure D and Table 5, drawing on the Fujita, Moscarini, and Postel-Vinay data, show the changes in levels and rates at which workers switch employers and experience unemployment.21 Figure D shows the rate of employment-to-employment switching rising as unemployment falls and declining as unemployment spikes in a downturn. Table 5 elaborates these trends by examining the rise and fall of job switching over recoveries and downturns. The table shows first that there is a substantial amount of job switching each year. In years of low unemployment, such as 2000 or 2007, those switching employers amounted to 30% or more of employment (there were 43.2 million job switches in 2007). Second, employment switching, like quitting, falls in downturns and rises in recoveries. For instance, employer switching fell from a 33.0% rate in 2000 and to 27.4% in 2003, a 5.6 percentage point decline (17% of the 2000 switching rate). In the 2000 to 2003 downturn an additional 3.4 million workers became unemployed but 7.6 million fewer workers switched jobs. Similarly, the switching rate fell 4.5 percentage points during the financial crisis in 2007–2009. The number of workers added to the unemployment rolls (up 8.4 million) equaled the decline in job switchers (8.5 million). In recoveries there is a larger increase in employment-to-employment switching than there is a decline in unemployment. Looking over the longer term at years of low unemployment reveals a decline in job switching between 2000 and 2007 (from 33.0% to 29.6%) but relative stability between 2007 and the end of the recovery in 2019.

Figure D

Table 5

These data show that the level and changes in unemployment greatly affect the rate and amount of employment-to-employment switching. Most workers find a new job by directly switching employers, rather than finding a new job after becoming unemployed or leaving the labor force, and a higher unemployment environment adversely affects workers’ ability and willingness to switch employers.

Researchers have established that switching jobs is an essential component of workers receiving higher wages. Fujita, Moscarini, and Postel-Vinay (2021) recently wrote that “on-the-job search by, and competition between firms for, employed workers are a natural source of worker bargaining power.” Direct moves from one employer to another have also been shown to be a major source of earnings growth (Topel and Ward 1992), and being thrown off the ”job ladder” can drastically reduce lifetime earnings (Davis and Von Wachter 2011).22

Moscarini and Postel-Vinay (2017) have identified changes in employer switching as more important to wage growth than changes in unemployment:

We thus find no empirical evidence to support the view that workers, when negotiating their wages, have a credible threat to quit to unemployment, whose continuation value naturally depends on how easy it would be to then find alternative employment. Our evidence is instead consistent with a credible threat to quit, hence an ability to extract a wage raise, only once an alternative offer has arrived, or is likely to arrive soon.

Another interpretation is simply that a key way that higher unemployment affects wage growth is by eroding opportunities, which are reflected in reducing both quits and employer switching.

The employer side of higher unemployment

In contrast to employees, the situation of employers becomes more favorable as unemployment rises: Employers recruit less intensively, fill vacancies more quickly, and generally find qualified workers more easily. Employers also use periods of high unemployment to elevate their demands for skills, requiring workers to offer more credentials for similar rates of pay. One can summarize this pattern of evidence as employers increasing their power relative to workers, especially low- and middle-wage workers, in the common instances when unemployment exceeds its full employment level.

We rely heavily on the innovative research by Davis, Faberman, and Haltiwanger (2012a, 2012b, 2013) and Faberman and Justiniano (2015), as well as the BLS JOLTS data, to illustrate key indicators reflecting the employer side of the hiring process. Davis, Faberman, and Haltiwanger build on and improve the JOLTS data on job openings, quits, etc. and extend various data series back to the early 1990s (JOLTS data started in late 2000) using the BED microdata.23

Recruitment intensity

Davis, Faberman, and Haltiwanger (2013) provide a recruiting intensity index that “summarizes, in a quantitative manner, the intensity of employer efforts to recruit for, and fill, their open job positions,” and describe24 what their metric attempts to capture:

Employers with open job positions take several actions and decisions that affect how quickly those positions are filled. Examples include the choice of recruiting methods, expenditures on help-wanted ads, how rapidly employers screen job applicants, their hiring standards, and the attractiveness of compensation packages they offer to prospective new hires.

Recruiting intensity is shorthand for the instruments employers use to influence the pace of new hires—e.g., advertising expenditures, screening methods, hiring standards, and the attractiveness of compensation packages. These instruments affect the number and quality of applicants per vacancy, the speed of applicant processing, and the acceptance rate of job offers.” The authors note that their metric is an indirect one due to data limitations.

The trends in recruiting intensity per vacancy are presented in Figure E for the years 2001–2017. The metric fell about 13% from the low-unemployment first quarter of 2001 to the unemployment high point of the second quarter of 2003; it grew modestly during the ensuing recovery (up just 3.9% by the second quarter of 2007) but then fell sharply, by 17.8%, in the financial crisis downturn through 2009.25 By the second quarter of 2017 (the latest data available) recruiting intensity per vacancy was still slightly below its 2007 peak. Clearly, recruiting requires and receives less effort by employers as unemployment rises.

Figure E

Employer efficacy in filling jobs and the duration of vacancies

Employers may exert less effort recruiting workers as unemployment rises, and they are definitely more successful in filling vacancies when unemployment is higher. This can be seen in the vacancy duration measure, which “quantifies the average number of working days taken to fill vacant job positions,” developed by Davis, Faberman, and Haltiwanger (2013)26 and presented in Figure F.

Figure F

The average days to fill a vacancy, or job opening, in early 2001 was 22.5 days, but it fell to just 18.1 days at the recession’s unemployment high point in 2003. As the economy recovered from 2003 to 2007, the days needed to fill a vacancy grew back to 23.3, a bit above the early 2001 level. Not surprisingly, as the economy descended during the financial crisis, the days required to fill a vacancy fell by 7.2 days (a 30.7% drop) to just 16.2 days. In the second quarter of 2017, when the unemployment rate had fallen to 4.4%, it was taking much longer, 29 days, to fill a vacancy, many more than observed in the series’ starting date in 2001.

Another way to observe the ease with which employers fill jobs is by examining the “job-filling rate,” the number of new hires compared with the number of vacancies, or job openings, in the prior month, as shown in Figure G using JOLTS data.27 These data draw on the same data as Figure F, though scaled to the number of days in a month available to fill a vacancy; therefore, Figure G’s measure of the job-filling rate is another way to illustrate the vacancy duration. Employers hired 1.07 workers for every job opening in early 2001 but were able to hire 1.45 workers per prior job opening at the unemployment trough of the early 2000s recession in the second quarter of 2003. Hiring per job opening slowed down by the time the recovery ended in 2007, to 1.13, but escalated to 1.56 by the summer of 2009, when unemployment was high due to the financial crisis. At the end of the recent recovery, in late 2019, with unemployment down to 3.6%, employers were only roughly half as efficient in filling job openings—a rate of 0.82—as in the very high unemployment year of 2009.

Figure G

Employers clearly are more able to recruit workers, and do so more quickly, when unemployment is higher than when it approaches full employment.

Employers know that it is easier to recruit at higher unemployment

The National Federation of Independent Business publishes a survey, Small Business Economic Trends (SBET), that tracks small businesses’ assessments of the hiring process and outcomes.28 The SBET data demonstrate the cyclicality of business assessments of the quality of labor and the difficulty in obtaining qualified workers and filling job openings. Figures H, I, and J present the NFIB quarterly data as far back as they go (to 1973 for unfilled job openings and “labor quality as the single most important problem,” and to 1993 for lack of qualified job applicants) through 2019. Though the SBET samples are relatively small (514 respondents in the March 2021 survey, but 1600-1700 in January, April, July, and October of each year), the data do provide insights on time trends over business cycles.

One can readily see in Figure H that the share of firms with unfilled job openings is greatest in years of low unemployment (1973, 1979, 1989, 2000, 2007, 2019), and there are fewer job openings when unemployment is high (1975, 1982–1983, 1992–1993, 2003–2004, 2009–2010). In fact, the share of firms with an unfilled job opening fell from 24% in the fourth quarter of 1979 to just 8% in 1982:4, and it fell from 33.3% in 2000:4 to just half as many, 16.3%, in 2003:2. It is certainly easier for firms to fill openings when unemployment is greatest, according to the small businesses themselves (who are generally the last in line to obtain new hires).

Figure H

The ability to find qualified job applicants also seems to be far easier when unemployment is high. The trend in whether a firm is seeing “few or no qualified applicants” (aggregating two series) is also clearly related to the level of unemployment (Figure I). These data show that nearly half (48.9%) of small firms reported trouble finding qualified applicants in 2000 but only a third did so in 2003:2 after unemployment peaked in the recession. Similarly, the 43.3% of small firms challenged to find qualified applicants in 2007 was reduced to just 24.7% in 2009:4 when unemployment had risen to 9.9%. Thus, higher unemployment allows firms to fill openings and do so with qualified applicants relative to times of low unemployment.

Figure I

Finally, small firms assessing “labor quality” as their single most important problem seems be at its highest when unemployment is low but is greatly minimized when unemployment is very high, as in 1982–1983, 1992–1993, and 2009–2010 (Figure J). High unemployment seems to be associated with small businesses being readily able to fill openings with qualified applicants and satisfy their needs for “labor quality.”

Figure J

Employers opportunistically ask for more credentials when unemployment rises

Evidence from the Great Recession shows that employers take advantage of their easier access to new workers when unemployment is high to require greater credentials for low- and middle-wage jobs (Modestino, Shoag, and Balance 2020). This research confirms what a CareerBuilder (2014) survey in 2013 found, that “almost one-third of employers said that their educational requirements for employment had recently increased, and specifically that they were hiring more college-educated workers for positions previously held by high school graduates” (Modestino 2019). So, employers not only fill openings more readily and do so with qualified candidates when unemployment is high, but they are also able to opportunistically require greater credentials (without increasing pay) than they previously did when unemployment was lower.

Modestino, Shoag, and Balance (2020) use the near-universe of online job postings (roughly 159 million total) aggregated by Burning Glass Technologies to document that the share of job postings requiring greater credentials—both a college degree (or more) and four or more years of experience—spiked between 2007 and 2011–2012 and then declined as unemployment declined in the recovery. Moreover, the upskilling was largely temporary for occupations in the middle- and low-skill sectors, prevailing when unemployment remained high but mostly reversing once the labor market tightened (by 2017, the latest data) (Burke et al. 2020). This opportunistic upskilling occurs within occupations and in occupations in the same firm and does not “simply reflect a shift in the composition of employers or the positions that they seek to fill” (Modestino, Shoag, and Balance 2020). Researchers found that “the increase in employer skill requirements was greater in areas where the unemployment rate rose more dramatically and the decrease was larger in areas where the unemployment rate fell more swiftly during the recovery. These effects are very robust, showing up within specific occupations and even job titles. For example, only 15% of physician assistant jobs required a Bachelor’s degree or higher in 2007. That share jumped to 35% in 2010 and has since fallen to just 12% as of 2017” (Modestino and Shoag 2018).

This pattern of evidence confirms that this opportunistic credential upskilling reflected employers’ increased power relative to low- and middle-wage workers when unemployment escalated in the Great Recession. As unemployment receded, employers were forced to normalize the credentials they required, retreating to what they asked for before the recession.

The bottom line: Higher unemployment leads to lower wage growth, especially for low- and middle-wage workers

It has long been established that higher unemployment leads to lower wage growth (Phillips 1958) and does so particularly for those with the least power in the labor market. This uncontested fact alone validates the importance of recognizing the persistent divergence of actual unemployment from full employment as it pertains to the supposed equal power of workers and their employers.

Mishel and Bivens (2021) review the impact of excessive unemployment—the degree to which unemployment exceeds full employment—on the wages of low- and middle-wage workers. They first note the degree to which unemployment departed from full employment over the last few decades:

These contractionary policies caused unemployment to remain 0.8 percentage points above even a conservative estimate of full employment (the NAIRU)—5.5%—between 1979 and 2017, a sharp contrast from the 0.51 percentage points that unemployment remained below the NAIRU in the prior 30 years.

They also estimate the corresponding wage impact, drawing on the lower bound of estimates from Bivens and Zipperer (2018)29:

The impact of excessive unemployment…reduced wages for the median worker by 10.0% between 1979 and 2017. Adjusting for the “flattening of the Phillips curve since 2008, as we do here, lessens the impact of higher unemployment on wage growth; without this adjustment the impact would have been 12.2%. If the unemployment rate had been held lower, say to 5% on average, then median wages would have been about 18.3% higher by 2017. Of course, a 5.5% target for full employment is a modest goal, and if policymakers had achieved a reasonable target of 4.5% the impact of excessive unemployment would be double the 10.0%” adverse wage impact on the median worker.

Excessive unemployment had a somewhat larger impact on low-wage than middle-wage workers. Had unemployment averaged 5.5% rather than the 6.3% that prevailed over the 1979–2017 period, the wages of the 10th percentile [low-wage] worker would have been 11.6% higher….[T]hese estimates take into account the “flattening” of the Phillips curve post-2008. We would note that the impact of higher unemployment would be twice as large if full employment was assumed to be 5.0%.

Mishel and Bivens note that these estimated wage impacts are far below those of Katz and Krueger (1999, Table 8), whose Phillips curve estimates using a 1973–1998 time series were double those of Bivens and Zipperer (2018) at the median and three times those at the 10th percentile.

In sum, higher unemployment has consequential adverse wage impacts for middle-wage workers and even more so for lower-wage workers.

Conclusion

The freedom-of-contract view of the world, and the assumption of equal power between employers and employees, ignores the obvious and basic truth about labor markets: The economy is rarely at full employment, and many workers never experience full employment. The presence of excessive unemployment—beyond full employment—tilts the power balance toward employers. Just acknowledging high unemployment leads one to recognize that in many, if not most, circumstances employers can far more readily replace a worker than a worker can find a comparable job. To believe otherwise is to live in a world without access to windows or newspapers, and it is curious and unsettling that claims of freedom of contract have been made when there was, or had recently been, very high unemployment. Simply acknowledging the persistent absence of full employment for many workers renders the freedom-of-contract framework a flawed basis for assessing employment relationships and arrangements.

About the author

Lawrence Mishel is a distinguished fellow and former president of the Economic Policy Institute. He is the co-author of all 12 editions of The State of Working America. His articles have appeared in a variety of academic and nonacademic journals. His areas of research include labor economics, wage and income distribution, industrial relations, productivity growth, and the economics of education. He holds a Ph.D. in economics from the University of Wisconsin at Madison.

Acknowledgments

The comments and data provided by the following are greatly appreciated: Josh Bivens, Jason Faberman, Shigeru Fujitay, Andrew Heritage, Wilma Liebman, and David Ratner. Melat Kassa and Jori Kandra provided excellent and needed research assistance.

Notes

1. Adair v. United States, 208 U.S. 161, 174–75 (1908) [citation in original].

2. Id. at 175 [citation in original].

3. Id. at 175–176 [citation in original].

4. Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018).

5. See the SCOTUS blog, “Epic Systems Corp. v, Lewis.”

6. Justice Ginsburg points out in the second footnote: “The Court’s opinion opens with the question: ‘Should employees and employers be allowed to agree that any disputes between them will be resolved through one-on-one arbitration?’ Ante, at 1. Were the ‘agreements’ genuinely bilateral? Petitioner Epic Systems Corporation e-mailed its employees an arbitration agreement requiring resolution of wage and hours claims by individual arbitration. The agreement provided that if the employees ‘continue[d] to work at Epic,’ they would ‘be deemed to have accepted th[e] Agreement.’ App. to Pet. for Cert. in No. 16–285, p. 30a. Ernst & Young similarly e-mailed its employees an arbitration agreement, which stated that the employees’ continued employment would indicate their assent to the agreement’s terms. See App. in No. 16–300, p. 37. Epic’s and Ernst & Young’s employees thus faced a Hobson’s choice: accept arbitration on their employer’s terms or give up their jobs.”

7. See Table 4, “Unemployment in Manufacturing, Transportation, Building Trades, and Mining, 1897-1926,” as estimated by Paul H. Douglas, from Real Wages in the United States, 1890-1926, in the Committee on Economic Security report.

8. BLS data on unemployment from series LNS14000000.

9. BLS data on unemployment from series LNS14000000.

10. In particular, an economic analysis of the Beveridge curve (Beveridge 1942), which focuses on vacancies being equal to openings at full employment. David Ratner pointed this out to me.

11. According to Crump et al. (2019): “This natural rate of unemployment, ut *, is broadly defined as the unemployment rate such that, controlling for supply shocks, inflation remains stable.”

12. If the analysis had used 5.5% as the benchmark for full employment, then an additional 11.5% of the quarters would have had full employment (36.8% overall), but there were still no quarters in which Blacks experienced full employment, and there were just 3.5% more quarters of full employment for Hispanics.

13. The data are tabulations of the basic BLS monthly Current Population Survey microdata available in the EPI State of Working America Data Library.

14. Bernstein and Jones (2020) present a similar analysis for all workers, Blacks, and whites by quarter.

15. The BLS measure of unemployment duration is flawed, however, because it is a point-in-time measure of not-yet-completed spells of unemployment (Horrigan 1987; Valletta 2002). Valletta (2002) describes the biases: “The upward bias occurs because longer spells, purely by virtue of their length, are more likely to be in the monthly unemployment sample than are shorter spells. The downward bias arises because the use of in-progress spells precludes measurement of completed spell durations.”

16. This is one of the eight indicators included in the Conference Board Employment Trends Index. I am greatly appreciative of the Conference Board’s sharing of these data.

17. The analysis relies on the Davis, Faberman, and Haltiwanger data because it improves on the available JOLTS data. The authors’ 2013 paper showed that the JOLTS survey understated worker churn at very high/very low growth establishments. Thus, their series differs from JOLTS at the start of the 2000s. The differences disappear by 2017, however. Correspondence form Faberman explains: “the shrinking difference comes from a combination of using the OLS regression as a quick prediction rather than the micro data, [and] the fact that JOLTS people at the BLS responded to our paper (and a couple others on JOLTS measurement) by getting better at capturing the worker churn at very high/low growth establishments over time (for example, they introduced a birth/death adjustment in there at some point).”

18. The quit rates are those developed by Davis, Faberman, and Haltiwanger (2012a) and updated in June 2021. Jason Faberman graciously provided the data and answered numerous questions. These data correct for some understatement of worker churn in the JOLTS data in the earlier years. JOLTS and the Davis, Faberman, and Haltiwanger data are similar in 2019. Unemployment from BLS. The quit level uses the quit rate and the employment level implicit in the JOLTS data (annual quit level divided by the annual quit rate).

19. Another possibility is quitting to leave the labor force.

20. “We uncover a drastic increase in the incidence of missing answers to the pertinent survey question (SAMEMP) starting in January 2007, predating by about a year the full introduction of new interviewing policy, the Respondent Identification Policy (RIP). We provide evidence that these answers are not missing at random, and these interviewing changes caused a serious permanent downward bias in the standard measure of employer-to-employer transitions. We propose a model of selection by observable and unobservable worker characteristics, and build on it to impute the missing answers to recover the true aggregate employer-to-employer monthly transition probability. We show that its decline observed during the Great Recession started about a year later and was much less dramatic than the raw, biased series indicates, and had fully recovered by 2016, if not earlier” (Fujita, Moscarini, and Postel-Vinay 2021, 42).

21. Shigeru Fujita kindly provided the updated data and answered questions.

22. Fujita, Moscarini, and Postel-Vinay (2021) elaborate on the earlier research.

23. The Davis, Faberman, and Haltiwanger indicators can be found at https://www.dice.com/indicators/.

24. These are from the Q&A offered at the website presenting their indicators.

25. Davis, Faberman, and Haltiwanger (2012b) note an even stronger decline, 21%, from December 2007 to the trough of the Great Recession.

26. Rothstein (2012) offers some useful caveats regarding these data. “A more important concern is that measured job openings data and the openings-to-unemployment ratio are only loosely related to the efficiency of the economic matching process, particularly in an unprecedentedly long period of labor market weakness.” For instance, firms “might hold out for better-qualified workers, extending its search, or might be less choosy in order to hire more quickly (Diamond 2013). Either decision affects the number of measured job openings and the job filling rate, but neither reflects changes in labor market matching efficiency.”

27. The data series developed by Davis, Faberman, and Haltiwanger (2013) and provided at their website or by Jason Faberman directly does not include job openings. We, therefore, use the BLS JOLTS data.

28. The SBET data were kindly provided by Andrew Heritage. Findings and methodological details are in Wade and Heritage (2020).

29. Bivens and Zipperer (2018) find that a 1 percentage point drop in unemployment results in annual wage growth 0.5–1.5 percentage points faster for workers at the 10th percentile. For example, if annual real wage growth is 1%, then a 1 percentage point fall in unemployment would result in annual real wage growth rising to 1.5% to 2.5%. For workers near the median of the wage distribution, wage growth is faster by 0.4–0.9 percentage points, and for workers at the 90th percentile it is 0.3–0.5 percentage points faster. These estimates indicate that excessive unemployment generates increases in the wage gaps between low- and middle-wage workers and between middle-wage and higher earners.

References

Akerlof, George A., Andrew Rose, and Janet L. Yellen. 1988. “Job Switching and Job Satisfaction in the U.S. Labor Market.” Brookings Papers on Economic Activity, 1988, no. 2: 495–582.

Bagenstos, Samuel. 2020. “Lochner Lives On: Lochner Presumption of Equal Power Lives in Labor Law and Undermines Constitutional, Statutory, and Common Law Workplace Protections.” Unequal Power series. Economic Policy Institute.

Baker, Dean. 2000. NAIRU: Dangerous Dogma at the Fed Financial Markets Center. Center for Economic Policy and Research.

Bernstein, Jared, and Dean Baker. 2013a. “Getting Back to Full Employment: A Better Bargain for Working People.” Center for Economic Policy and Research.

Bernstein, Jared, and Dean Baker. 2013b. “The Unemployment Rate at Full Employment: How Low Can You Go?” Economix (New York Times), November 12.

Bernstein, Jared, and Janelle Jones. 2020. The Impact of the COVID19 Recession on the Jobs and Incomes of Persons of Color. Center on Budget and Policy Priorities.

Beveridge, William. 1942. Social Insurance and Allied Services. London: H.M. Stationery Office.

Bivens, Josh, and Ben Zipperer. 2018. The Importance of Locking in Full Employment for the Long Haul. Economic Policy Institute.

Burdett, Kenneth, and Dale T. Mortensen. 1998. “Wage Differential, Employer Size, and Unemployment.” International Economic Review 39, no. 2: 257–73.

Bureau of Labor Statistics (BLS). 2018. Current Population Survey: Handbook of Methods. Last updated April 2018.

Burke, Mary A., Alicia Sasser Modestino, Shahriar Sadighi, Rachel B. Sederberg, and Bledi Taska. 2020. “No Longer Qualified? Changes in the Supply and Demand for Skills Within Occupations.” Federal Reserve Bank of Boston, Working Paper No. 20-3.

CareerBuilder. 2014. “Education Requirements for Employment on the Rise, According to CareerBuilder.” Press release, March 20.

Congressional Research Service (CRS). 2020. Introduction to U.S. Economy: Unemployment.

Crump, Richard K., Stefano Eusepi, Marc Giannoni, and Aysegul Sahin. 2019. “A Unified Approach to Measuring u*.” Brookings Papers on Economic Activity Conference draft, Spring, 143–238.

Davis, Steven J., Jason Faberman, and John C. Haltiwanger. 2011. “Labor Market Flows in the Cross Section and over Time.” National Bureau of Economic Research, Working Paper No. 1729.

Davis, Steven J., Jason Faberman, and John C. Haltiwanger. 2012a. “Labor Market Flows in the Cross Section and Over Time.” Journal of Monetary Economics 59, no. 1: 1–18.

Davis, Steven J., Jason Faberman, and John C. Haltiwanger. 2012b. “Recruiting Intensity During and After the Great Recession: National and Industry Evidence.” American Economic Review 102, no. 3: 584–88.

Davis, Steven J., Jason Faberman, and John C. Haltiwanger. 2013. “The Establishment-Level Behavior of Vacancies and Hiring.” Quarterly Journal of Economics 128, no. 2: 581–622.

Davis, Steven J., and Till Von Wachter. 2011. “Recessions and the Costs of Job Loss.” Brookings Papers on Economic Activity, 2011 (Fall): 1–72.

Diamond, Peter. 2013. “Cyclical Unemployment, Structural Unemployment.” IMF Economic Review 61: 410–55.

Edwards, Kathryn. 2022 (forthcoming). “The Economic Vulnerability of Workers.” Unequal Power series. Economic Policy Institute.

Elsby, Michael W.L., Ryan Michaels, and David Ratner. 2020. “Vacancy Chains.” Federal Reserve Bank of Pennsylvania, Working Paper 20-28.

Elsby, Michael W.L., Aysegul Sahin, and Bart Hobijn. 2010. “The Labor Market in the Great Recession.” Brookings Papers on Economic Activity, 2010 (Spring): 1–48.

Epstein, Richard A. 1984. “In Defense of the Contract at Will.” University of Chicago Law Review 51, no. 982: 947–63.

Faberman, R. Jason, and Alejandro Justiniano. 2015. “Job Switching and Wage Growth.” Chicago Fed Letter (Federal Reserve Bank of Chicago), no. 337.

Fallick, Bruce, and Charles A. Fleischman. 2004. “Employer-to-Employer Flows in the U.S. Labor Market: The Complete Picture of Gross Worker Flows.” Board of Governors of the Federal Reserve System Finance and Economics Discussion Series, no. 2004-34.

Fujita, Shigeru, Giuseppe Moscarini, and Fabien Postel-Vinay. 2021. “Measuring Employer-to-Employer Reallocation.” National Bureau of Economic Research, Working Paper No. 27525.

Galbraith, James K. 1997. “Time to Ditch the NAIRU.” Journal of Economic Perspectives 11, no. 1: 93-108.

Horrigan, Michael W. 1987. “Time Spent Unemployed: A New Look at Data from the CPS.” Monthly Labor Review (July): 3–15.

Katz, Lawrence, and Alan Krueger. 1999. ”The High-Pressure Labor Market of the 1990s.” Brookings Papers on Economic Activity 1999, no. 1.

Mishel, Lawrence, and Josh Bivens. 2021. “Identifying the Policy Levers Generating Wage Suppression and Wage Inequality.” Unequal Power series. Economic Policy Institute.

Modestino, Alicia Sasser. 2019. Is the Skills Gap Real? Changes in the Employer Skill Requirements During the Great Recession. EconoFact, March.

Modestino, Alicia Sasser, and Daniel Shoag. 2018. “When the Economy Is Good, Employers Demand Fewer Credentials.” Harvard Business Review: 1–8.

Modestino, Alicia Sasser, Daniel Shoag, and Joshua Balance. 2020. “Upskilling: Do Employers Demand Greater Skill When Workers Are Plentiful?” Review of Economics and Statistics 102, no. 4: 793–805.

Moscarini, Giuseppe, and Fabien Postel-Vinay. 2016. “Wage Posting and Business Cycles.” American Economic Review 106, no. 5: 208–13.

Moscarini, Giuseppe, and Fabien Postel-Vinay. 2017. “The Relative Power of Employment-to-Employment Reallocation and Unemployment Exits in Predicting Wage Growth.” American Economic Review, Papers and Proceedings 107, no. 5: 364-68.

Naidu, Suresh, and Michael Carr. 2022 (forthcoming). “If You Don’t Like This Job, You Can Always Quit?” Unequal Power series. Economic Policy Institute.

National Federation of Independent Business (NFIB). 2021. “Small Business Job Openings Hit Record Level in March.” Press release, April 1.

Phillips, A.W. 1958. “The Relationship Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957.” Economica 25, no. 100: 283–99.

Rothstein, Jesse. 2012. “The Labor Market Four Years into the Crisis: Assessing Structural Explanations.” Industrial Labor Relations Review 65, no. 3: 467–500.

Staiger, Douglas, James Stock, and Mark Watson. 1997. “The NAIRU, Unemployment and Monetary Policy.” Journal of Economic Perspectives 11 (Winter): 35–50.

Topel, Robert, and Michael Ward. 1992. “Job Mobility and the Careers of Young Men.” Quarterly Journal of Economics 107, no. 2: 439–79.

Valletta, Rob. 2002. “Recent Trends in Unemployment Duration.” FRBSF Economic Letter (Federal Reserve Bank of San Francisco), no. 35.

Wade, Holly, and Andrew Heritage. 2020. Small Business Problems and Priorities. National Federation of Independent Business.