Recall the contracting schema in section 4 of Chapter 1, where nodes A, B, and C are distinguished. The main implications of the transaction cost ap-proach to labor organization, as developed in this chapter, may be summarized with reference to that schema as follows:
- Labor market transactions located at node A are ones for which human’ assets are Accordingly:
- Specialized governance structure for those labor transactions is unneeded. Discrete market contracting will characterize transactions of that kind. Migrant farm labor is an example.
- Since the organization of nonspecific (fungible) labor affords no econo mies, management (acting as the agent of capital) will normally resist efforts to Unions, if they appear at all, will be organized late in such industries and often will require the support of the political process.
- The governance structures (ports of entry, promotion ladders, grievance procedures, seniority rules, and the like) will be relatively primitive whether labor of this kind is organized or not.
- Labor market transactions of the node B kind expose specialized human assets to expropriation hazards and are unstable.
- Workers will accept such jobs only upon payment of a wage premium.
- Jobs of this kind are apt to be Either the idiosyncratic attributes will be sacrificed (in which case the job will revert to node A) or protective governance structure will be devised (the attributes will be protected under node C).
- Labor market transactions of the node C kind are those for which collective organization (often in the form of a union) has been mutually agreed to. Such structure protects labor against expropriation hazards, protects management against unwanted quits, and permits adaptations to changing circumstances to be made in an uncontested (mainly cooperative) way.
- Jobs of this kind are candidates for early unionization, since mutual gains can thereby be realized.
- The governance structures associated with such jobs will be highly elaborated.
But while the transaction cost approach to labor organization is the source of numerous refutable implications, it is not by itself adequate to deal with all the relevant issues with which the study of labor organization. is legitimately concerned. For one thing, the matter of power is underdeveloped. Additionally, while the importance of dignity is admitted, the cal- culative/efficiency-oriented approach maintained by transaction cost economics cannot encompass the full set of issues that a concern for dignity introduces. Finally, possible disequilibrium features are ignored.
Source: Williamson Oliver E. (1998), The Economic Institutions of Capitalism, Free Press; Illustrated edition.