Employment: An important instance of contracts
n talking about social exchange institutions, we've been talking about contracts-- which are not markets.
A major category of contracts is employment contracts. Also a substitute for markets. I know, I know-- so not "new economy." But let's consider why they were invented.
Without employment contracts, you can purchase goods produced and sold in shopfronts, or you can hire an hour or a day's labor at a day-labor site, So why wouldn't you?
1. You can't tell the quality of the good or the competence of the worker at a glance, and quality counts.
2. You don't want to risk unavailability of the good you want-- maybe it has special features, and/or general demand for it is so low that people seldom or never make it on spec.
3. You don't want to risk unavailability of workers or of workers with particular readily-detectable qualifications.
4. You need workers with specialized knowledge, talent, or reliability that's not readily detectable.
5. You want your workers to have knowledge that can only be imparted by you / your firm (also not a market), and you need to have the same people available to get the advantage of your investment in ther education.
6. You want your workers to have product-specific or process-specific information that you want to keep private from other producers.
7. Your production process involves teams, and teams communicate and work more effectively when their members know each other.
8. Even if the relevant abilities, skills, and temperament of potential workers are readily observable, even if there is no concern about the availability of workers to hire for very short periods, it may be desirable to employ worker and have them around if the to and fro of going to hire and negotiate payment daily is too costly*.
There may be other reasons I'm not thinking about right now. But that's quite a few.
--
Across time, civilizations, and individuals, by and large humans do not like to be employees.
I'm not just talking about people griping about how stupid their employers, companies, coworkers, and jobs are. Empirical findings have regularly demonstrated that self-employed people earn considerably less than people employed to do substantially the same work. About thirty percent less, I uncitingly and non-currently recall. This strongly suggests that people are willing to take a pay cut not to be employees.
A major obstacle to wistful employers through millennia was the availability of vacant land people could graze flocks on or move to and farm-- and also the availability of fish and game. In the colonial Americas, where land was plentiful and many property rights were not individually assigned, indentured servants and enslaved persons regularly fled to the frontiers, where they were often kindly received by American tribes, and formed maroon societies.
There's rugged individualism for you, by gum!
*Remember, in economic thought cost is always fundamentally opportunity cost-- the value of the net best choice one could have made. So using time and other resources to search for workers is a cost in itself. We class it as a transactions cost.
Facebook posts incorporated:
Why were employment contracts invented?
Another reason for labor contracts
A little history of employment: opportunity cost
A major category of contracts is employment contracts. Also a substitute for markets. I know, I know-- so not "new economy." But let's consider why they were invented.
Without employment contracts, you can purchase goods produced and sold in shopfronts, or you can hire an hour or a day's labor at a day-labor site, So why wouldn't you?
1. You can't tell the quality of the good or the competence of the worker at a glance, and quality counts.
2. You don't want to risk unavailability of the good you want-- maybe it has special features, and/or general demand for it is so low that people seldom or never make it on spec.
3. You don't want to risk unavailability of workers or of workers with particular readily-detectable qualifications.
4. You need workers with specialized knowledge, talent, or reliability that's not readily detectable.
5. You want your workers to have knowledge that can only be imparted by you / your firm (also not a market), and you need to have the same people available to get the advantage of your investment in ther education.
6. You want your workers to have product-specific or process-specific information that you want to keep private from other producers.
7. Your production process involves teams, and teams communicate and work more effectively when their members know each other.
8. Even if the relevant abilities, skills, and temperament of potential workers are readily observable, even if there is no concern about the availability of workers to hire for very short periods, it may be desirable to employ worker and have them around if the to and fro of going to hire and negotiate payment daily is too costly*.
There may be other reasons I'm not thinking about right now. But that's quite a few.
--
Across time, civilizations, and individuals, by and large humans do not like to be employees.
I'm not just talking about people griping about how stupid their employers, companies, coworkers, and jobs are. Empirical findings have regularly demonstrated that self-employed people earn considerably less than people employed to do substantially the same work. About thirty percent less, I uncitingly and non-currently recall. This strongly suggests that people are willing to take a pay cut not to be employees.
A major obstacle to wistful employers through millennia was the availability of vacant land people could graze flocks on or move to and farm-- and also the availability of fish and game. In the colonial Americas, where land was plentiful and many property rights were not individually assigned, indentured servants and enslaved persons regularly fled to the frontiers, where they were often kindly received by American tribes, and formed maroon societies.
There's rugged individualism for you, by gum!
*Remember, in economic thought cost is always fundamentally opportunity cost-- the value of the net best choice one could have made. So using time and other resources to search for workers is a cost in itself. We class it as a transactions cost.
Facebook posts incorporated:
Why were employment contracts invented?
Another reason for labor contracts
A little history of employment: opportunity cost