Thursday, August 04, 2005

Column on Employment at Will

Free Employment Relations and its Benefits

Tibor R. Machan

In the discipline in which I do much of my teaching, business ethics,
there is a heated debate about whether employment ought to be a matter of
free exchange between the parties involved or whether government ought to
set the terms of the employment relationship. The latter position is now
widely embraced by some of the most prominent business ethics teachers and
promoted in some of the most prestigiously published business ethics text
books and scholarly papers.

The label for the free exchange position is ?the employment at will
doctrine.? The idea is that when one is hired, unless otherwise agreed
upon, one may be fired and laid off without any reason having to be
given?at will?just exactly as one is free to walk away from the job once
it is completed. (Actually, one may even walk away before then, although
one may not be able to collect payment for the work done.)

This is indeed the norm in most private employment situations. If someone
is hired to mow another person?s lawn or clean another?s home, whenever
either party wishes to discontinue the employment relationship, there is
no requirement to justify the decision. The person hired or the person who
did the hiring is free to walk away from the deal.

Those who reject this for employment in larger industries will, of course,
argue that much more is at stake therein, so it shouldn?t be left to the
discretion of the employers, although I am aware of no one who defends the
idea that employers ought to be prevented from walking off the job if they
choose to do so, which of course millions do all the time. The reason for
this is, in the main, that in the 19th century many political economists
regarded workers as lacking bargaining power. Karl Marx, who relied
heavily on Thomas Malthus?s theory of population explosion within the
working classes, laid the basis of the case for special treatment for
employees. He believed, wrongly, that they were subject to easy
exploitation unless provided with special protection.

In the United States of America the case for employment at will has had
some success because of the widespread belief in a free market in the
labor market, although even here there are many laws regulating the
employment relationship. Still, it is much, much easier to fire or lay off
people in American than in Germany, France or Spain where socialist ideas
tend to be very influential. In these countries those in the labor force
as well as others pay a very heavy price for this protectionism. That
price is the far greater level of unemployment there than in a more free
market oriented USA. The reason is quite simple: When employers are
coerced to provide employees with job security and other benefits, the
level of economic entrepreneurship suffers. People just do not start up
businesses as willingly when they may not respond to market forces in
their hiring and firing policies as they do when they are free to do so.

It is one of the myths about free markets that firms just hire and fire
people at their arbitrary will. Even if there is complete freedom to hire
and fire, it is rarely done simply ?at will.? Sure, firing at will is not
prohibited in a free market but it is generally a dumb idea. One usually
fires those who fail to advance the enterprise or whose services are not
in sufficient demand by the customers of a firm. The pink slip is, as it
were, something sent to an employee by a shrinking market, not by one?s

In any case, in recent months the French government has finally gotten the
message about the employment at will doctrine and the recently appointed
prime minister, Dominique de Villepin has helped to enact several measures
easing France?s rules on hiring and firing. Predictably, opposition party
politicians and the trade unions are all up in arms about this. On the
other hand, surprisingly, President Jacques Chirac?s popularity has
climbed since these new measures, initiated by his new prime minister,
have gone into effect.

The general lesson from this is that not only is the employment at will
doctrine just but, quite unsurprisingly, it is also beneficial to workers.
A free market in employment encourages entrepreneurship and economic
development. Perhaps this lesson should be learned by the US Supreme Court
so next time the issue of private property rights comes up, another
bulwark against government economic regimentation, they will recognize
that freedom is the best path to economic development, not the abuse of
the eminent domain law.

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