Regulations also act as a commitment mechanism. I might threaten to quit my (hypothetical) job if the wage is too low, but I would have a lot more to lose by quitting than my employer, so the threat isn’t credible. However, if I manage to get a minimum wage law passed that’s higher than my current wage, then I have to quit if I don’t get a raise; as long as it’s still profitable to employ me at the higher wage, the employer will give in. It’s like ripping out your steering wheel when playing chicken.
I would have a lot more to lose by quitting than my employer
Why? You’ll need to find a new job, which implies downtime, search costs, and possibly overhead for moving. Your employer will need to find someone to replace you, which implies downtime, search costs, and retraining costs. Either one of you might ultimately end up with a somewhat better or worse deal than they had before, depending on what exactly the market looks like and a luck factor. Why do you expect the employer to pay less of a price on average?
Money doesn’t scale linearly with respect to utility: Your employer (presumably) has much more money than you do, so if it costs, say, $5000 to each of you for you to find a new job and your employer to acquire a new employee, you lose more utility than your employer does.
Regulations also act as a commitment mechanism. I might threaten to quit my (hypothetical) job if the wage is too low, but I would have a lot more to lose by quitting than my employer, so the threat isn’t credible. However, if I manage to get a minimum wage law passed that’s higher than my current wage, then I have to quit if I don’t get a raise; as long as it’s still profitable to employ me at the higher wage, the employer will give in. It’s like ripping out your steering wheel when playing chicken.
Why? You’ll need to find a new job, which implies downtime, search costs, and possibly overhead for moving. Your employer will need to find someone to replace you, which implies downtime, search costs, and retraining costs. Either one of you might ultimately end up with a somewhat better or worse deal than they had before, depending on what exactly the market looks like and a luck factor. Why do you expect the employer to pay less of a price on average?
When you lose your job, you usually lose 100% of your income.
When you lose an employee, you usually lose only a fraction of your production capacity.
That’s what I meant.
Money doesn’t scale linearly with respect to utility: Your employer (presumably) has much more money than you do, so if it costs, say, $5000 to each of you for you to find a new job and your employer to acquire a new employee, you lose more utility than your employer does.