Labour Cases

Labor Law is normally but erroneously understood as the law that governs a particular kind of relationship, namely the relationship of (subordinate) employment. Such an approach yields insuperable definitional problems, invites strategic manipulation, and risks obsolescence of the field. Labor law should instead be understood as the set of techniques and practices for intervention into particular kinds of markets, specifically, markets that will reach suboptimum results without such interventions, because individuated actors cannot overcome collective action problems. While the techniques and practices vary with legal systems, they normally include devices for permitting collective actors to negotiate and agree; special institutions to encourage informal and formal bargaining and resolve disputes; and legally-set minimum terms. While these practices were first developed for intervening into employment markets, their value is not limited to such markets and they may be usefully employed in others.

Typical situations potentially calling for application of labour law

(1) inelasticity of supply;
(2) collective action problems;
(3) low trust and opportunism that prevent the formation of efficient long-term contracts;
(4) inadequate incentives for investment in human capital;
(5) information asymmetries;
(6) monopsonistic buyers;
(7) bilateral monopolies;
(8) cognitive disabilities resulting from individuals' use of decisional heuristics or other rational refusals to invest in information. Deciding whether, for example, physicians should be able to use labor law to form unions to negotiate with health insurance companies, calls for economic analysis of these market failures (if any), rather than the resemblances and dissimilarities of the underlying relationship to 18th century employment.