Labor Markets and Labor Law Compared with Capital Markets and Corporate Law

Abstract

This essay sketches some differences between labor and capital markets and between labor and corporate law. This is a natural comparison because labor and capital are two different factors of production in all firms. Despite the obvious appeal of this comparison, it has largely been ignored in the existing literature. Two assumptions seem to me-a nonspecialist in the field-to underlie much of contemporary labor law: (1) employers, left to their own devices, will oppress workers; and (2) this problem of worker exploitation is best handled by a federal labor policy administered by an administrative agency. Corporate law, by contrast, makes the opposite assumptions. Firms are for the most part free to adopt whatever institutional arrangement they choose; and state, not federal, law controls. What accounts for these fundamental differences? While some differences between labor and capital markets do exist, I argue that they do not justify the differences between labor and corporate law. In particular, the tendency of firms to reach efficient contractual arrangements, and to economize on transaction costs by choosing to be governed by a particular set of standard-form contractual terms embodied in state law, is relevant to both labor and capital markets. In Part I, I discuss the incentives of firms and workers (or investors) to enter into contracts that work to the mutual benefit of both; Part II touches on the probable superiority of state over federal regulation of labor (or investor) relations. In Part III, I focus on several controversial aspects of labor-management relations-the role of unions, contracts terminable at will, the right to strike, and labor constituent directors-as examples of the principles developed in the first two sections. Finally, Part IV discusses some distributional arguments that might be used to justify differ-