Slavery Versus Labor

Abstract

Under what conditions would a principal choose to buy a slave rather than to hire a free worker? First, slaves cannot leave at will, which reduces turnover costs; second, slaves can be subjected to physical punishments, which reduces enforcement costs. In complex tasks, relation-specific investments are responsible for high turnover costs, which makes principals prefer slaves over workers. At the other end of the spectrum, in simple tasks, the threat of physical punishment is a relatively cheap way to produce incentives as compared to rewards, because effort is easy to monitor, which again makes slaves the better alternative. The resulting equilibrium price in the market for slaves affects demand in the labor market and induces principals to hire workers for those intermediate tasks. A thorough analysis of the historical evidence confirms this pattern. The relative prevalence of slaves over workers further depends on the slave supply, the turnover costs and the cost of applying sticks. These comparative statics are used to shed light on cross-society differences in the use of slaves and on diachronic trends. Finally, the analysis sheds light on current policies to fight slavery and warns that some of them might have negative effects on the welfare of remaining slaves.