The Economics Of Labor Coercion

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Executive Summary

The majority of labor transactions throughout much of history and a significant fraction of such transactions in many developing countries today are "Coercive", in the sense that force or the threat of force plays a central role in convincing workers to accept employment or its terms. The authors propose a tractable principal-agent model of coercion, based on the idea that coercive activities by employers, or "Guns", affect the participation constraint of workers. They show that coercion and effort are complements, so that coercion increases effort. Nevertheless, coercion is always "Inefficient", in the sense of reducing utilitarian social welfare.

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