Regulating Wages in Kind: Theory and Evidence from Britain

Abstract

Workers in many countries receive part of their wages in kind. The International Labor Organization criticizes this practice by citing the exploitative truck system in industrializing Britain, which paid wage advances in cash and company store goods. This article finds that truck did not reduce British wages by as much as is believed, and that employers' ability to earn rents from hiring was limited. Company store premiums are interpreted as the cost of employer credit, and workers benefited from truck because most of the time independent credit cost at least as much. Firms earned rents from riskless loans to employees and avoided holdup by independent outlets at minimal transaction costs. The British truck system was mutually beneficial, and the evidence does not support the call to abolish similar practices today. Copyright 2006, Oxford University Press.