The textbooks on labour markets

The fine pieces (found here and here) by Felicity Lawrence in yesterday's Guardian on the horrors of work in British food factories reminded me of another scandal: the failure of the mainstream economics textbooks to offer a theoretical framework to explain what Ms Lawrence terms "a race to the bottom in terms of labour standards". The articles describe "physical and verbal abuse and degrading working conditions", endured "under threat of the sack", of people "being denied toilet breaks and forced to endure the humiliation of bleeding and urinating on themselves".
  In the fantasy world presented in the textbooks, perfect competition reigns supreme in labour markets. Employers are powerless, unable even to choose the wage they will offer workers; there is a 'market wage' that everyone must accept. Among other things, the theory also implies that workers can quit and immediately get a new job if a manager kicks them or throws things at them. The "threat of the sack" is no threat at all. "Exploitation" is a meaningless word.
  As we point out in The Economics Anti-Textbook, it's easy to come up with a simple theoretical model in which employers have 'market power' and in which the "threat of the sack" is a real threat. It requires a diagram with two lines crossing. Instead, every single mainstream textbook -- if it even considers a model where employers have some power over the wage -- paints it as a rarity, like an isolated mining town, where there's only one employer.
  This is no isolated failure to acknowledge power and injustice. That failure is systematic. However, one thing that we did not do in The Economics Anti-Textbook was to try to explain why most of the textbooks are like this. Perhaps that's something we should tackle here in this blog.
RH

"Prosperity Without Growth: Economics for a Finite Planet"

Questions about economic growth are typically left to macroeconomics, so we don't deal much with them in The Economics Anti-Textbook; it's focused on microeconomics. We do point to the evidence (in Chapter 4) about the apparent lack of any significant relationship between growth in per-person incomes and measures of well-being such as happiness and satisfaction with life. We also note the negative effects that conventional economic growth has in terms of its effects on climate change in particular. However, a proper discussion of the question of whether long-term economic growth is compatible with the finite nature of many of the resources we need for that growth was beyond the scope of our book.
   In the most recent Guardian Weekly, I read a review of a new book, Prosperity Without Growth: Economics for a Finite Planet, by Tim Jackson, that tackles some big questions and seems well worth a look. The review is also available on The Guardian's main site:
http://www.guardian.co.uk/books/2010/jan/23/properity-without-growth-tim-jackson

RH

Textbook nonsense about "Fair Trade"

One of the purposes of this Economics Anti-Textbook blog is to examine some of the bad features of current economics textbooks by looking at specific examples. Recently, a dismayed colleague pointed out to me the nonsense about Fair Trade products that is in the most recent Canadian edition of the widely-used McConnell & Brue text. (I don't have the American original, but I assume that the content is unchanged; the Canadian co-author, my former colleague, Tom Barbiero, likely had little leeway in altering such content.)
  As we note in The Economics Anti-Textbook, any discussion of Fair Trade products is rare indeed, but the way it's done here is very instructive. The general argument is that those who buy Fair Trade products have their hearts in the right place, but that what they're doing is futile and may even be counter-productive. The approach fits perfectly the rhetorical devices used in conservative attacks on progressive policies, as identified by the distinguished economist Albert O. Hirschman in his 1991 book The Rhetoric of Reaction.
  Let's see how they do it.
  First, McConnell and Brue (M&B) write: "Because workers in many low-income countries are highly immobile, have few employment options, and are not unionized, the large dominant sellers can supposedly keep an undeservedly large portion of the proceeds from added exports for themselves ... while simultaneously denying a fair share to their workers (by keeping wages low). To counter this purported problem ..." and later "the purported benefits of fair trade..." (my italics). The use of 'supposedly' and 'purported' makes it clear that they don't believe fair trade has any real merit. Note that if the situation they describe is accurate, economic theory would predict that employers (or buyers, more generally) would have a lot of monopsony power, a topic they discuss elsewhere in the book. So what's wrong? Are workers really mobile? Are there really not large dominant buyers of coffee beans? They don't say.
  Second, M&B make claims about what the professional consensus is about Fair Trade. They write: "most economists question the overall effectiveness of the fair-trade approach..." and "the consensus among economists is that fair-trade purchasing ... simply shifts demand within low-wage countries (or among them). It does not increase the average pay of the workers within a particular low-wage nation." "Some economists say that other action ... might benefit the low-income nations more effectively than fair-trade purchasing."
  There is not a single reference anywhere to the professional literature -- the vast body of writing in academic journals and books by which economists communicate with each other. Their claims about "most economists" or "the consensus among economists" is entirely unsupported. The line "some economists say" is a classic way for the authors to voice their own opinions. (This sad display -- which would get an 'F' in an undergraduate essay -- is actually typical of how the texts ignore the literature which they are supposed to be reflecting. Compare with any introductory psychology text, for example.)
  Third, and worst of all, is M&B's misleading description of what Fair Trade is about. (For the facts, see the website of Fairtrade Labelling Organizations International: http://www.fairtrade.net/aims_of_fairtrade_standards.html). People may care not only about the physical characteristics of the products they buy, but also about how the product was produced. As a glance at Fair Trade standards confirms, it's about promoting economic democracy by buying from producer co-operatives and about promoting the rights of hired labour by ensuring that the goods are produced by workers who have "access to collective bargaining processes and freedom of association of the workforce, condition of employment exceeding legal minimum requirements, adequate occupational safety and health conditions and sufficient facilities for the workforce to manage the Fairtrade Premium."
  By providing people with believable information about how the product was produced, the Fair Trade labelling organizations are improving the efficiency of markets. Why? Because with that believable information, a consumer could now buy a product which she would not have otherwise had the opportunity of buying. To use the language of the texts: a mutually-advantageous trade can now take place that would otherwise not have taken place. I get a bag of coffee beans produced in a way that I approve of and for which I am willing to pay a premium; the producers get a better and more stable price.
  Yet M& B write (attributing the following nonsense to "some economists"): "price and wage setting by advocacy groups is based on highly subjective views of fairness that may be at odd with economic realities. Distortions of market prices and wages invite inefficiency and unintended consequences. (Recall our discussion of government price floors in Chapter 3.)" This, to be polite, is drivel.
RH

Self-defence against the textbooks

One reason that we wrote The Economics Anti-Textbook was to help instructors deal with the bad features of the typical microeconomics textbook: the questions that are not asked, the attitudes that are insinuated, the hidden value judgements that lurk between the lines. As Tony's last post pointed out, the textbooks provide lots of room for a lecturer who is so inclined to comment critically about their content. The Economics Anti-Textbook provides some textual support to increase the credibility of the critique.
One of the main motives for me in working on this book was to write something to help students defend themselves against the formidable persuasive apparatus deployed against them. I should know; I fell for it myself when I was a student.
RH