|The freedom to pee is not in your contract!|
The debate started with an excellent article by the folks at Crooked Timber, detailing how the libertarian philosophy, which chooses to focus only on government, overlooks the ways in which employers restrict the freedoms of their employees. This is one instance of what I've called "the liberty of local bullies", so I'm very sympathetic to the idea. Tyler Cowen then argued against the Crooked Timber post, basically making three points, which were: 1) employees agreed to workplace restrictions on freedom when they made their employment contracts, 2) most of the violations of workplace freedom cited by Crooked Timber are not objectionable, and 3) employee shirking and theft are just as significant as bosses' abuse of power.
I do not agree with Tyler.
I want to ask two questions about workplace restrictions. First, do they decrease liberty? And second, do they decrease utility?
Liberty first. There are many definitions of liberty. For example, consider the "liberty" to walk down the street without seeing an Armenian person. John Locke wouldn't consider that a natural right, nor would most modern Americans. But why not? Only because of people's feelings. Only because of their opinions. We've realized that for centuries. People feel that the liberty to walk down the street without seeing an Armenian is less important than an Armenian's liberty to walk down the street, and that is the only reason we prize one over the other. (Feel free to argue otherwise in the comments, but try to do so without resorting either to A) impenetrable jargon, or B) arguments from authority, and you'll see how incredibly hard it is.)
So here is my argument that workplace restrictions can violate liberty: People often feel that they violate liberty. When you really need to pee, and the boss forbids you from going to pee, chances are you will feel that your liberty has been violated, even if it's perfectly legal and in your contract. For quite a lot of people, the liberty to enter into long-term binding contracts is less important than the liberty to pee.
Of course, I have not proven my case yet, because to do so I would have to take a poll. But that's all I'd have to do. The relative value of different types of liberty is a matter of opinion (or, if you prefer, it's axiomatic). And many people feel that workplace restrictions - especially arbitrary ones, decided day to day by individual bosses with respect to individual employees - make them less free.
Note that in terms of liberty, Tyler's argument about employee shirking doesn't hold much water. The reason is simply power asymmetry; the employee who shirks is breaking the rules, whereas the boss who legally abuses an employee is not. The reality of theft does not equal the freedom to steal.
Now, on to the question of utility. Miles makes a number of good arguments on this front, mostly related to agency problems within the firm. But let me add a couple of my own.
First, there is the question of dynamic inconsistency. Why do we not allow indentured servitude? Because people make choices that they later regret. In your impetuous youth you may sell yourself into servitude, imagining that it's a good deal, and then wake up one day ten years later and say "Dang, I wish I hadn't done that." By banning indentured servitude, our government prevents people from making binding choices that they are highly likely to regret.
Second, there is the idea of adverse selection. When you consider going to work for an employer, you don't know precisely what your's going to get. Your boss might be nice or he might be mean, and you can't always tell in advance. Libertarians often argue that you always can tell in advance, because of reputation. But although reputation does exist, it doesn't always work, whatever libertarians claim. So in reality there is a certain chance that when you agree to go work for someone, you are purchasing a lemon. In a rational world, adverse selection causes markets to break down (which is bad from a utilitarian perspective). But in the real world, people are often just tricked. That is also bad from a utilitarian perspective.
So whether you care first and foremost about liberty, or whether you are a utilitarian, you can probably see why (depending on the situation) there could be a good reason for government to restrict the liberty of employers to do certain things to their employees, even if those things are permitted by contract. Of course, if you are a modern American libertarian, you may value a highly counterintuitive hierarchy of freedoms in which the liberty to pee is always subordinate to the liberty to sign away your right to pee. But your definition is no more or less arbitrary than anyone else's, and quite possibly has the side effect of convincing normal human beings that you are - in the parlance of our times - a bit of a schmuck.