Employment Regulation and Youth Employment: A Critical Perspective

By Verkerke, J. H. | Harvard Journal of Law & Public Policy, Summer 2015 | Go to article overview

Employment Regulation and Youth Employment: A Critical Perspective


Verkerke, J. H., Harvard Journal of Law & Public Policy


An important body of legal and economic scholarship considers whether, and to what extent, employment regulations increase firms' firing costs and reduce their demand for labor. (1) Researchers have debated this question for decades without reaching a definitive conclusion. In their contributions to this panel, Professor Heriot and Professor Epstein advance a decidedly anti-regulatory thesis. (2) They argue that U.S. employment laws harm American workers by significantly impairing the efficiency of U.S. labor markets. According to their account, firms would react to the repeal of existing labor regulations by hiring more workers, and, especially, by employing more young people.

In this brief essay, I offer a critical perspective on their hypothesis. First, the neoclassical economic theory on which they rely rests on several empirical assumptions that are at odds with the reality of contemporary labor markets. Indeed, no economic theory can provide a compelling a priori reason to repeal any of these regulatory measures. Second, concerns other than economic efficiency quite properly influence public policy. Plausible non-efficiency justifications support many current U.S. labor regulations and may trump the efficiency goals that Professors Heriot and Epstein wish to promote. Finally, the available empirical evidence casts considerable doubt on the argument that labor regulations in the United States dramatically reduce employment opportunities for young people, though most studies suggest that minimum wage laws modestly diminish youth employment.

I. ECONOMIC THEORY IS INCONCLUSIVE

Critics of employment protective legislation often rely on the neoclassical argument that these legal rules distort employers' decisions and interfere with labor market efficiency. (3) This line of argument, however, rests on several contestable assumptions. The theory requires a perfectly competitive market, in which no one exercises either monopoly or monopsony power. Workers also need reasonably full information about the characteristics of jobs and firms, and they must be able to move freely between jobs, in order to impose market discipline on those firms that treat workers poorly or fail to pay them well enough. Finally, there must be no externalities arising from employment and no subsidies that distort labor supply or demand.

These conditions are rarely, if ever, satisfied. Although traditional company towns are now, admittedly, quite unusual, scarce job opportunities undoubtedly give the dominant employer in certain local areas at least some market power. More broadly, features common to every labor market significantly impede job mobility. Location-specific investments--such as homeownership, family ties, and spousal employment--prevent many workers from relocating to take advantage of better opportunities elsewhere. Moreover, the lock-in effect of company-provided health insurance has long deterred workers with preexisting conditions from changing jobs, though provisions of the Affordable Care Act have now largely eliminated this problem. (4)

The other neoclassical assumptions fare no better. Information about firms can sometimes be adequate, but it is often incomplete and imperfect. And many subsidies and externalities influence both labor supply and demand. For example, the earned income tax credit, food stamps, and other income supports, as well as the charity care provided by most hospitals, distort workers' labor supply decisions. These cash and in-kind transfer payments allow firms to pay lower wages than the market would require in the absence of such social insurance measures. Similarly, companies of all kinds receive a vast array of subsidies--both direct payments and tax incentives--that dramatically alter their demand for labor. Political actors are extremely unlikely to eliminate most of these payments regardless of which party controls Congress, the presidency, or both.

That real world labor markets depart so dramatically from the assumptions of neoclassical economic theory undermines the claim that employment regulations distort a preexisting, efficient, competitive equilibrium. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Employment Regulation and Youth Employment: A Critical Perspective
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.