Does Market Power Affect Optimal Worker Safety?
By David Henderson
The possibly surprising answer is “No.”
In an earlier post, I showed that in a free market and under certain assumptions, even workers who are poor will get what is, from their viewpoint, the optimal amount of safety.
One commenter seemed to suggest (I’m not sure) that if an employer has market power, employees will get less than the optimal amount of safety. In one sense, this is true. An employer with market power will pay less than the optimal amount of compensation. So if, as I have assumed earlier and as is amply justified by historical and current data, safety is a normal good, the lower compensation will mean that workers will “demand” less safety. In other words, safety is less than it would be if the employer were not a monopsony.
But the safety component of the compensation package is still optimal given the amount of overall compensation. That is, with the compensation that workers get from a monopsony employer, they want the amount of safety they get. Were the employer to increase safety but decrease monetary pay, the workers would be less satisfied than they would be with less safety and more pay.
Why does this matter?
It’s not just a theoretical nicety. It matters because if people believe that workers get less than the optimal amount of safety, their inclination is to advocate that a government mandate an increased level of safety. Ignore all the real problems about how the government could do this and whether such a mandate would be effective. If the mandate is effective, it will make people who work for a monopsony employer worse off.
Daniel Kuehn argues below:
I do maintain as I did in the other comment thread, though, that we need to distinguish between what economists call “optimal” and other perspectives on it. Restricting ourselves to economic optimality I largely agree with you, but I don’t think that’s what people have in mind when they’re advocating minimal standards consistent with their view of human dignity.
The problem is, as noted above, that minimum standards above the economists’ optimum make people worse off. I don’t think that’s particularly dignified.
Now back to my vacation at my cottage, far from Wi-Fi.