...because anyone who voluntarily chooses those terms and also supports the ban must be being inconsistent somehow...
If trees could get together and set a limit on how tall any one tree is allowed to get, they would be better off (by expending fewer resources on growing large trunks and more resources on reproducing), even though they’re all individually better off violating any limit.
Robert H. Frank uses this idea to justify several types of labor regulations in his columns and books. I just want to point out the principle here and note that similar behaviors aren’t necessarily irrational.
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.
There’s a nice paper by Bengt Holmstrom (Review of Economic Studies, 1999) that has a story about inefficienty high (but still voluntary) work effort in the absence of a policy that limits effort, such as a maximum hours restriction. The idea is that no one worker can cut back effort to the efficient level without appearing to be of low ability, and this is true even though employers know that all the workers aren’t as good as they appear (their high output is largely due to the fact that they work too hard, not to how good they are).
If trees could get together and set a limit on how tall any one tree is allowed to get, they would be better off (by expending fewer resources on growing large trunks and more resources on reproducing), even though they’re all individually better off violating any limit.
Robert H. Frank uses this idea to justify several types of labor regulations in his columns and books. I just want to point out the principle here and note that similar behaviors aren’t necessarily irrational.
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.
There’s a nice paper by Bengt Holmstrom (Review of Economic Studies, 1999) that has a story about inefficienty high (but still voluntary) work effort in the absence of a policy that limits effort, such as a maximum hours restriction. The idea is that no one worker can cut back effort to the efficient level without appearing to be of low ability, and this is true even though employers know that all the workers aren’t as good as they appear (their high output is largely due to the fact that they work too hard, not to how good they are).
Indeed; see also Race to the bottom.