Losing Leverage: Employee Replaceability and Labor Market Power

Workers’ labor market power matters enormously to their lives at work and beyond. And most workers have too little of it. This Essay highlights one underappreciated set of factors in the decline of workers’ labor market power and explores policy levers that might help to rebalance the bargaining field. This Essay begins with the fairly self-evident observation that workers’ labor market power is a product in part of the ease with which employers can replace employees. That points to the importance of several trends in the organization and technology of work—including both fissuring and automation—that make it easier for private sector employers to replace employees either with other workers or with machines. The central argument here is that the proliferation of employee-replacement techniques helps to explain workers’ shrinking labor market power. That leads to the question of what, if anything, to do about it. The idea of rebalancing bargaining power through regulation (as opposed to redistributing income through tax-and-transfer schemes) is controversial among economists; but it has long been central to the law of work. This Essay proceeds to describe how current U.S labor and employment law does and doesn’t constrain firms’ employee-replacement options. Finally, it considers some alternative policy options for rebalancing bargaining power by constraining employee replacement—chiefly, job security protections and institutions of codetermination, including works councils—along with some empirical evidence of their likely economic effects