Regulating the balance of power between employer and employee is a continuous and ongoing battle for the government. With the decline of unions and the rise of outsourcing, employees have lost a great deal of power that they once held. The government has been slow to react to this change in power dynamics and some would say with good reason; employers and employees are reliant on each other, and therefore have equal footing in negotiating their relationship. However this view does not address the relative size of the employer and employee, nor does it look at the pool size that each may pull from. With the U.S. unemployment rate at over 7%, and the rise of skilled laborers in developing countries, employers have a nearly unlimited pool of potential employees to pull from. Employees on the other hand, do not have the same ease of mobility across the country, let alone the world, can only draw from the pool of companies who currently need their expertise and once employed become dependent on their employer. These factors combine to form an uneven balance of power in most employer-employee relationships.
However, how should the government regulate this power balance, and if it tries, how effective will it be? If for example, a law is passed making mass lay-offs more difficult, this could be seen as a good thing because it will increase job security for many Americans. However this added difficulty will make it more difficult for failing companies to downsize in order to save the core of a business and may also discourage new companies from locating inside specific states or the U.S. in general as has happened in Greece.
The government should seek to regulate employment practices to discourage rent-seeking behavior by employers in-so-far that the long-run loss of jobs does not outweigh the short-run gain for current employees. However this balance is hard to judge especially when the long-run disadvantages are so hard to measure, which is doubly true when one considers that each new regulation makes it easier for more regulations to be passed, meaning that one must decide what small portion of all future legislation’s negatives and positives the current legislation is responsible for causing. In other words, If the current legislation is not passed, what other bills that will be passed would not have been passed and what bills would have been passed but now will not be? On top of this, most of this regulation will not affect companies acting in foreign countries, making other countries that already have lower labor costs and looser regulations even more attractive. Not only can increased regulation increase the advantages of offshoring, but they can also decrease the advantages of opening new companies in America, again affecting the labor markets as well as the financial markets.
As large corporate profits in recent years combined with a drop in the real value of wages seems to indicate, it can be profitable to undervalue employees. If this is so, is it ever beneficial for a company to value its employees highly and reward them in a manner that is equal to that high value? While the above may lead us to conclude differently, some companies have found that by giving their employees a high value, they are actually far better off in the long run. Google has been incredibly effective at rewarding its employees, so much so that one of the main complaints inside the company is that it has an abundance of overqualified employees. With benefits such as free food, gym memberships, and continued pay for the families of deceased employees for ten years, Google has been able to attract and retain high quality employees, one of what it considers its main factors in growing a company from a thesis paper idea in 1996, to $57 billion in revenue in 2013. When undervaluing employees has become the norm, doing the opposite can prove profitable. In light of Google’s and other companies’…