Research Handbooks in Law and Economics series
Edited by Cynthia L. Estlund and Michael L. Wachter
Chapter 1: Introduction: the economics of labor and employment law
The law governing the employment relationship and labor relations is a natural field for the application of economic analysis. At bottom, labor and employment law governs voluntary contractual relations within labor markets and firms. That law is often bound to affect both the price and the cost of labor – whether or not it aims to do so – and thus to affect both the supply of and demand for labor. The price, cost, supply and demand for labor are all crucially important for firms, workers and the society at large. So it might seem inevitable and uncontroversial that economic analysis would make up a major part of legal scholarship in this area. Although the integration of these two disciplines may have been inevitable, it was hardly uncontroversial. The entry and gradual integration of neoclassical economic analysis into the field of labor and employment law, beginning some 30 years ago, looked very different from the perspective of the two disciplines – law and economics. One reason for early controversy was that the two disciplines were far more distinct 30 years ago than in today’s cross-disciplinary era. The first foray of modern economic analysis into labor law came from a particular wing of economics – one that was far more sanguine about the competitiveness of labor markets, and more critical of the body of labor and employment law that had evolved since the New Deal, than the median labor economist, not to mention the majority of labor law professors. The latter were especially disposed to stress the differences between labor markets and other markets.