In honor of the Labor Day holiday coming up this Monday, I want to talk about the biggest obstacle for America’s workers that never gets brought up in discussions about challenges for laborers: flexibility. Everyone should have access to the same yoga classes as the elite! No, not that kind of flexibility. The most difficult thing about finding work or getting paid what you’re worth is flexibility in who you work for and where you do it.
If you’re a professional athlete negotiating a salary with a sports team, they have to pay you what you’re worth (constrained by a salary cap in some leagues) because if they don’t, someone else will. It is, in its most basic form, an auction. Highlight reels don’t exist for accountants, though, and there aren’t detailed stats available for programmers to help every potential employer evaluate them in the same way. The information that rival companies have to make their hiring decisions are mostly those which an applicant places on their resume, LinkedIn profile, or personal website.
In many cases, corporations take advantage of this information asymmetry by paying their employees less than they are really worth because they know they have that information advantage. The market is not completely efficient because information is not fully distributed (a key assumption for economists). The US actually does have one of the most dynamic labor marketplaces in the world, but the counter-intuitiveness of the solution for this information asymmetry has caused it to undergo a bit of decay.
So, how can we encourage companies to take more risks on paying employees more money? We can make it easier to fire people. In the post-financial crisis economy of the past decade we saw the power of this solution. The US recovered years before Europe despite the fact that we were the epicenter of said crisis. When we make it more difficult to fire employees, the risk of hiring someone is much higher. It becomes a much more expensive process, so employers take more precautions before growing their labor force.
Here in the US, we have other creeping cracks in this previously strong foundation, though. The fact that our healthcare is mostly linked to our employers means that employees are afraid to take risks by going into business on their own or starting a new career. Growing licensure requirements in all sorts of careers – even for jobs like florist – means that starting a new path has become that much more difficult. Vines are growing across the trail and branches are beginning to obstruct the view. We need to maintain the many paths to varying careers for our workers so that they do not get caught up in lower-productivity work that does not pay them what they deserve.