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May 05, 2009

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Peter

Doesn't this theory presuppose every corporation in a field isn't engaging in the same kind of nannyism? If corporations move in lockstep, either through actual agreement or collusion, or by the push of market forces, the "go find another job" solution is either unavailable or much less valuable.

Todd Henderson

Peter -- to be sure, if firms are monopsonists, either individually or through (implicit or explicit) cartelization, then the discipline of the market is reduced. The same, of course, is true of governments. If every city bans smoking . . .

Moreover, if every firm bans smoking, then this is probably telling us something about the social value of smoking. If smokers are not net costs on firms/society, then we should see, in a well-functioning market, firms attracting them through their work rules. If they aren't, then why should we care? And, if there are good reasons to care, then government can always legislate to prevent dead weight losses from privately beneficial but socially destructive behavior.

A final point is that we just don't see firms copying in this way. There is huge heterogeneity in the labor market on numerous dimensions, and I think it is unrealistic to hypothesize the world you imagine. If it does come, however, the outcome is either the socially efficient one or can be changed by legislation.

Drew Navikas

Mightn't it be the case that heterogeneity in corporate approaches to nannyism reflects something other than a diversity of intentions?

For example, uncertainty about the relevant employment discrimination legal regime could lead firms to nanny differently based on different risk profiles.

Or, alternatively, firms could rely on multiple levers to achieve identical outcomes. For example, three firms could have three approaches to smoking: (1) Never. (2) Not at work. (3) Everywhere. And, three correlated compensation schemes: (1) Cheap healthcare for all. (2) Increased premiums for smokers. (3) Extra-increased premiums for smokers. Looking at only one variable, we wouldn't realize that the firms were compensating along other vectors. Thus, a worker hell-bent on suicide (smoking) could exit toward a firm with a more liberal smoking policy, but run up against a reduction in compensation that neutralized any welfare gain.

States could still regulate even this kind of "sophisticated" corporate behavior. After all, the SEC regulates the stock market. And, in fact, we do see states regulating the ability of firms to control their costs by controlling the behavior of their employees: http://www.ncsl.org/programs/employ/Off-DutyConduct.htm. Some of those states have exceptions for increased insurance premiums, and others don't. Where states cannot adjust insurance premiums, is there any other way for them to return to the free contract equilibrium? Discrimination in hiring or promotion (which entail separate legal concerns)? Carrots for good behavior? Or, proxies for either good or bad behavior, e.g. lung capacity?

If its true that there's more than one way to skin a cat, then these kind of regulations are likely to be inefficient, at least at the margins. But, I suppose that observation is not really a novel contribution.

Reading between the lines, I think the real answer is not that politics can police the market, but rather that the market will police itself. And, if the electorate thinks that there is reason to protect the right to be obese--in effect to offer social insurance for obesity--then the law can make its best effort to raise the costs of corporate discrimination against obese employees. The assumption being that, on net, the losses from imperfect legislation to this effect will be less than the losses of more sweeping impositions on the freedom of contract.

What I find to be problematic is blanket legislation that protects many liberties related to "lawful products" or "lawful activities" at once. This makes me worry not about the collusion of firms, but about the dynamics of interest group politics. If the right to smoke, ride your motorcycle without a helmet, and to be obese are all lumped together, then it is harder as a voter to express a belief that one or the other is an improper grounds for employment discrimination. When a broad law is combined with no exception for variations in insurance premium, then we have acknowledge that the liberty interest being sacrificed is that of only having to pay for your own healthcare--like Ronald Coase said, sort of: everything goes both ways.

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