The study of economics depends on clear, logical thinking expressed in clear, logical terms free from euphemism or doublespeak. A sloppiness in language is responsible for more than one damaging popular misconception. For example, the implied analogy between a budget deficit and the so-called “trade deficit” has led otherwise sensible men into the ridiculous notion that imports are somehow damaging to economic growth. The consequence of these misconceptions can be catastrophic when it comes to setting public policy. How many tradesmen have been ruined by import quotas, and how much the citizenry would have benefited from the increased competition and lower prices of free trade can only be guessed at.
Even worse, however, is the untold misery resulting from wild linguistic confusion over the term “employer.” To employ someone is to purchase their labor, or the product thereof. This transaction can be small or large, short term or long term. The labor can be commissioned beforehand, or rewarded after the fact. It matters not, so long as the labor of one person is purchased by another. Therefore, an employer is anyone who commissions a good or service from another individual for a price.
It is a longstanding mistake of economics to attempt to divide things which are not divisible. The artificial separation between microeconomics and macroeconomics; the confusion involving exporters and importers, and the distinction between consumers and producers are all fallacies that lead to mistaken conclusions.
Individuals may act in a variety of ways, and wear many different hats, but this does not mean that the same person should be classified differently in an economic model, as though these different functions were in fact different actors. That a single person acts in different ways does not imbue him with multiple personality disorder. He is still one man, and should be treated as such by economics. In this case, there has been a particularly egregious misconception that holds that there is a meaningful difference between a customer and and employer. In reality, these two terms refer to the same thing.
It is easy to see why this is so if we examine what it actually means to be an employer or a customer. Suppose you own a business, making widgets, let’s say, and you pay someone a regular wage to stand behind the counter and work the register for forty hours a week. In this case, it is clear that you are acting as an employer. You are purchasing this young man’s labor in order to obtain a service.
Now, suppose someone comes into the shop and purchases a widget. Everyone would agree that this person would be a customer. He has exchanged his money for a good on a one-time basis. Yet that money is what pays your salary, as the widget maker. The money is being exchanged for your labor in manufacturing the widget in the first place. Without customers, you have have no income. While you may refer to yourself as “self-employed,” this is a misnomer, since you can’t commission your own labor. In reality, the entrepreneur is employed by those people willing to pay for his effort, namely, his customers.
Let’s take a more nuanced example to make the point more clear. A man decides to hire himself out as a gardener, and someone pays him to tend their flower beds and pull weeds for a weekend. Is the owner of the garden the gardener’s employer, having provided him with work and payment, or is she his customer, having purchased a service he had on offer? Clearly, the answer is both. In this case, the seemingly obvious distinction between the two terms blurs until it is unrecognizable. The case of salaried workmen and retailers is no different, but convention has trapped us into using inexact language to describe them.
In the popular mindset, the false distinction between employer and customer usually rests on the length of the contract in question. If you pay someone continuously over a long period of time for services rendered, you are classified as an employer. If your payment is infrequent, irregular and small, you are called a customer. Yet there is no obvious reason why this distinction should matter.
Whether someone chooses to continually seek small amounts of employment from many customers, or a large amount of steady employment from a single patron is largely a matter of personal choice, tolerance for risk, time preferences, and initial levels of capital. As a distinction, it has no bearing on public policy whatsoever.
The problem is that a large number of public policies do, in fact, hinge on this arbitrary classification system. Employers are subject to a wide variety of regulations that customers escape. For example, it is illegal for an employer to discriminate on the basis of race: you can’t hire a white person just because he is white. Well, actually you can, as long as you are hiring the aforementioned gardener, or choosing a barbershop to patronize, or hiring a plumber, or an electrician, or a contractor. In all of these cases, you are offering employment to someone, but because the government doesn’t officially recognize you as an “employer” the regulation doesn’t apply (not that it could realistically be enforced anyway.)
Discrimination is just one example of numberless hypocrisies in the system. In the United States, employers with more than a hundred employees are required to buy health insurance for them. Well, I, as an individual, have well over a hundred employees. I employ a grocer, a banker, a taxi driver, numerous bar owners and restaurateurs, a barber, a dry cleaner and countless others. During the course of an average day I offer employment to three or four people just by partaking of their services. It is fortunate for me indeed that I am not required to insure all these people, but most unjust for the small businessman on which this regulation arbitrarily falls.
In many cases, employers are forbidden to fire their employees without documenting how and why that person failed in their duties. At the very least, the employer opens himself up to a lawsuit by failing to do so, even in the absence of an explicit contract, or what is known as “at will” employment . Yet I can stop patronising any of the above businesses at any time and without explanation, without any fear of legal reprisal. What is the difference? The gardener depends on my business just as much as the office clerk depends on his employer. Why is one situation different from another?
The identical nature of customers and employers works the other way too. In several recent cases, business owners have gotten into trouble for refusing to serve customers based on a philosophical opposition to gay marriage. This kind of discrimination has, in many cases, been deemed illegal. But a consistent application of principles leads to some surprising conclusions. Since customers are the same as employers, this means that if a baker can be forced to serve customers whom he does not wish to serve, a typist can equally be made to type for someone she does not want to work for. Are we comfortable with forcing a homophobic typist into the employ of a gay manager against her will? I should certainly hope not, and yet there is no difference between her situation and that of the baker.
It will be argued that the activity of the customer is too diffuse to effectively police, that we cannot detect and punish every act of discrimination from the individual consumer in the same way that we can the monolithic employer. This may be true, but it is not an argument from principle. Either we must admit that we would like to regulate these people, although we cannot, or that we would be wrong to try, in which case we are equally wrong to regulate employers as we currently do. I doubt there are many – although there are undoubtedly some – who would like to see their individual purchasing behavior subject to the same constraints as those put on employers.
It will further be argued that “employees” in the traditional sense need more protection than the entrepreneur. If a business owner loses a customer, he has many others to rely on. If a worker loses an employer, he has no other source of income, so the argument goes. The increased element of risk on the part of the worker commands a premium in the form of job security, just as a risky investment returns a higher interest rate. On the contrary, I would argue that the entrepreneur’s position is far riskier than that of the humble office drone.
The office worker has a skill to market, whether it be typing, customer service, design, management, or anything else. These are skills that are in demand by every office in the world, and thus if the worker loses his position, he should be able to find another buyer for his skills, although this admittedly may take some time depending on general economic conditions. In accepting employment, the worker risks nothing of his own.
The entrepreneur, on the other hand, has risked a large amount of his own time and capital, often taking out expensive loans, to invest in an idea that may or may not pay off. If he misreads consumer demand, he loses not only his employment, but his initial investment as well. The entrepreneur is therefore in a far more precarious position than the salaried worker, and it is unclear why the latter should be the subject of special protection.
Then there is the case of the independent contractor. His employment not only rests on the whim of consumers, like the entrepreneur, but his client base tends to be small, like the salaried worker. The paychecks for this unhappy individual will be intermittent and unpredictable, hardly a comfortable lifestyle, and yet the law offers this hapless tradesman none of the protections of the salaried worker. Furthermore, there is nothing preventing the salaried worker from diversifying his customer base by taking on additional employment on the side. The failure to do so represents a life choice, not an accident of fate deserving of special exceptions in public policy.
The discriminatory fashion in which employer-centric policies are applied is hypocritical, unprincipled, and damaging to economic growth and job creation. It disincentivizes entrepreneurship, innovation and risk taking, resulting in market distortions that reward consumption over production.
The artificial distinction between employer and customer prevents policymakers from being able to think clearly and logically about the structure of the labor market, and the result is predictably confused regulations. Worse yet, the misunderstanding has percolated down into the public at large, leading the average man to accept a flawed premise that colors his every economic decision.
George Orwell properly recognized the way that words can be used to manipulate our thinking and keep us from seeing the truth. As students of economics, it is our duty to cut through the fog of confusion and shine a light on the true nature of things. A sensible, consistent approach to policy requires that we say what we really mean, always.
Source: Mises Canada
Logan Albright is a writer and economist in Washington, DC.
The Ludwig Von Mises institute of Canada (“Mises Canada”) was founded in November of 2010 in order to spread the teachings of the Austrian School of Economics to Canada. It is an independent organization making up one of the many Mises Institutes now operating in over 20 countries.
It is the mission of Mises Canada to educate the public on the importance of placing human choice at the center of economic theory, to encourage a revival of critical historical research, and to advance the Misesian tradition of thought through the defense of the market economy, private property, sound money, and peaceful international relations.