A common error in popular expressions of political economy is the presumption that all
firms oppose ... regulations because these edicts raise costs. The flaw in this presumption
arises from an exclusive focus ... on the “direct effects” of regulation ... (T)he often
pronounced heterogeneity among firms [also] gives rise to ... “indirect effects” - the
competitive advantages that arise from asymmetrical distributions of regulatory effect
among different groups offirms and workers. It is extremely important to recognize that
for many firms and workers the indirect effects of regulation can outweigh ... the direct
effects. (Bartel and Thomas, 1987, pp. 239-240.)
Our own research and experience with the issue of unjust dismissal indicate that
employers and employer organizations have almost always opposed unjust-dismissal
legislation. Except for the state of Montana, we know of no instances in which employers
have taken the initiative to propose legislation in response to judicial decisions modifying
the employment-at-will doctrine. (Stieber and Block, 1992, p. 792.)
No other kind of labor legislation [as workers’ compensation] gained such general
acceptance in so brief a period in this country. (Weiss, 1935, p. 575.)
Does anyone seriously believe that an efficient balance can be achieved through a
political process? The flexibility to respond to the demands of market competition yields
enormous benefits, but such benefits, because they tend to be diffused and delayed, have
no organized constituency. So policies that restrict labor market flexibility create costs
that are largely ignored politically. But these restrictions typically concentrate the
benefits of security (protection from competition) on politically organized groups that
will notice them and lobby hard for them, always in the name offairness. (Lee, 1996, p.
103.)
I. Introduction
In this paper we discuss the political economy of labor regulation in the United States. As
a practical matter, the subject has been neglected by labor economists who have almost
exclusively focused on the effects of legislation. The determinants of regulation have
tended only to be investigated in the context of potential omitted variables and
simultaneous equations bias. The role of rent seeking in the political market place has
rarely been carefully analyzed in the area of labor regulation. Rather, the tendency has
been to assert and at best to infer such influence. In the cases of unemployment insurance
and workers compensation, for example, the cross subsidization involved - respectively,
from low- to high-unemployment industries and from low- to high accident industries -
has been argued to create incentives for those so subsidized to engage the polity,
underscored by the phenomenon of rational ignorance. Similarly, it has been