Rebuttal for another "free market exploits worker" case

Economics Economics Questions
1

Good evening everybody,

it may be somewhat impolite to start asking questions before introcuding myself, but as an Austrian neophyte, so to speak, I’m running against a wall I can’t pass right now.

At first, some information regarding the problem. I’m based in Germany and we have a special government agency to help people get work, the employment agency, let’s call it EA. Since jobs become increasingly rare, due to all kinds of Keynesian-interventionist measures, the EA decided to cooperate with third party agencies who specialize in finding contract work that generally lasts for just a short period of time. It became necessary to get involved with those contracting agencies because the EA is only allowed to offer work according to the labour laws that, for example, give specific long-term dismissal protection while the contracting agencies, which, in bureaucrats’ terms, operate in a “specific sector” of the labour market, are allowed to bypass labour laws in their contracts and therefore, the employers’ lobbying groups pushed on implementing them. What happens is, the contract workers do the same work as their labour-law-protected colleagues, but for lower salaries, more hours per day and less protected against actions of the employer. Almost noone gets a labour-law-contract after their first short contract time is over (which was the initial hope that made politicians allow breaking the labour laws in the first place), and contract workers feel abused because they worked harder than the regular employees for less money.

Now socialists and interventionists step in and call it a market failure because the “better work” of the contract workers is not rewarded, they receive less than their protected colleagues. If you point out that maybe labour laws and union activity raised wages and decreased working time to a level that doesn’t meet the market equilibrium and in fact, these contract workers receive the fair rewarding, they respond by claiming the individual cannot defend against the powers of the market and needs government plus union support to adjust the wages and working time. As proof, they cite the case above. They further explain that if government conditions of working were too rough for the employer who now ‘abuses’ contract work, he would’ve left the country already, but as a matter of fact, he does employ people with ‘normal’ working contracts. So, they conclude, while there was an equilibrium that allowed him to hire protected workers before, the cheaper work force is now gladly misused for his personal profits, which shows free market is only good for exploiting the workers on behalf of the employer.

Obviously, it is true the employer could afford protected workers before. That means you can’t call the labour laws destructive because they still provided the employer an incentive to hire. The only thing I could think of is the “full employment” argument which says that artificially high wages create unemployment which is, after all, the reason for contracting agencies to exist, however, people don’t want to hear that one because it means they are living beyond their means.

Any ideas on how to approach the subject from your perspective? Thanks in advance.

2

Umm, wait, they cite as proof for the need of government the problems that government intervention caused? They need to get their goddamn heads out of the holes they’re stuck in. Maybe they’re just evil and enjoy watching people suffer, who knows. Either way, their claim is unsubstantiated nonsense. How do any of these moronic eggheads even determine what is ‘better work’? Just because a firm could hire some workers at higher salaries than they are worth does not mean that the economy suffers no losses in productivity because of it. If workers are so hellbent on being overpaid, they can unionize.

3

In America there are many firms which specialize in supplying temporary employees for short-term work. We typically call them temp agencies. I’m not sure on the pay of temp workers themselves, but the value they bring to the business is typically less than an employee hired through ordinary means. This is because the temp agency takes a portion of the worker’s salary. In return, the business gains a way to quickly hire people on short-term basises, where the normal, lengthy hiring process is inefficient.

From your description, it sounds like the firms cannot afford to hire more employees at labor-law rates. If they could, employees would all be able to demand labor-law contracts. Since this is not the case, many employees are left unemployed because the marginal productivity they bring to the firm is less than their cost. Those left unemployed would naturally try to lower the costs of employing them by dodging the labor laws.

I wonder if those people who believe that dismissal protection aids workers have ever actually worked in a collaborative environment? The inability to fire or demote an employee can often have negative externalities on everyone around that employee. Its common for both bosses and low-laborers to be fired because they are simply difficult to work with (i.e., they’re assholes or just don’t get along with their coworkers). If you interfere with this, you’re naturally going to get more disgruntled employees stuck working with people they hate, and thats not good for anyone.

4

There is probably one detail I should’ve explained more elaborately so you can see the main point of their concern. Complaints like that do not apply to contracting agencies only, but to the economic state of affairs in general. Basically, what interventionists claim is:

Before the cheap contract work got introduced, employers were forced to hire protected workers for higher wages for any job to be done. Of course, employer A could’ve avoided the employment and then make an already existing employee do the additional work, but if any other employer B decided to hire an auxiliary worker, his performance would improve and customers would choose him because of the better product or service available. Now you point out customers might also choose the cheaper alternative of A over the more expensive service of B, but they counter by admitting there might be preferences regarding price and service, however, both camps could be satisfied by the market with both employers hiring protected workers. A just hires one less and B one more. No need to have competition in payment.

Now, as the contract work gets implemented, employers will most certainly choose cheaper workers to do the job. Interventionists claim, and one can confirm that by comparing the numbers, the total rate of employees did not increase, but those protected workers whose contracts run out get fired and replaced with cheaper work force. It’s not like Grant assumed, the service provided by companies does not reach new heights in most cases, it’s just the workers that are replaced. Consequently, profits for employers increase while rewards for workers decrease. One might argue that the extra capital can now be invested rather than paid as a salary and therefore, business expands and provides better service. Interventionists then say that better service is in vain if employees are paid too little to afford it. The Austrian responds prices will adjust to the new level of payment in the market and noone gets hurt, but interventionists complain that’ll cause the economy to spiral downwards, making it less competitive in international comparison than when government and unions helped keeping the wages and buying power high.

They regurgitate that argument whenever a company announces high profits. “But workers don’t profit, so it’s all pointless because the wealth is not being fairly distributed !”

I can’t really disprove their claim because after 50 years of adding regulations, it is hard to forecast what one shift towards free market will do. The jungle has become so thick that cutting one vine might rather hurt than benefit you. Do you see any way out of the dilemma?

5

The last argument is pure nonsense. Lower prices make exports more, not less attractive. Falling prices have next to nothing to do with a ‘downward’ spiral, they are a phenomenon that should occur in any industry enjoying productivity gains.

6

The corporate-labour unions tend to focus their energies on promoting this type of stuff; the AFL-CIO is essentially today’s modern slave-labour league.