The Economics of Labor Coercion

Abstract

The majority of labor transactions throughout much of history and a significant fraction of such transactions in many developing countries today are "coercive," in the sense that force or the threat of force plays a central role in convincing workers to accept employment or its terms. We propose a tractable principal-agent model of coercion, based on the idea that coercive activities by employers, or "guns," affect the participation constraint of workers. We show that coercion and effort are complements, so that coercion increases effort, but coercion always reduces utilitarian social welfare. Better outside options for workers reduce coercion because of the complementarity between coercion and effort: workers with a better outside option exert lower effort in equilibrium and thus are coerced less. Greater demand for labor increases coercion because it increases equilibrium effort. We investigate the interaction between outside options, market prices, and other economic variables by embedding the (coercive) principal-agent relationship in a general equilibrium setup, and studying when and how labor scarcity encourages coercion. General (market) equilibrium interactions working through the price of output lead to a positive relationship between labor scarcity and coercion along the lines of ideas suggested by Domar, while interactions those working through the outside option lead to a negative relationship similar to ideas advanced in neo-Malthusian historical analyses of the decline of feudalism. In net, a decline in available labor increases coercion in general equilibrium if and only if its direct (partial equilibrium) effect is to increase the price of output by more than it increases outside options. Our model also suggests that markets in slaves make slaves worse off, conditional on enslavement, and that coercion is more viable in industries that do not require relationship-specific investment by workers.

Human Trafficking: Definitions, Data, and Determinants

“…While it is true that political instability and a general lack of human security have been shown to drive displacement and increase the risks of trafficking (Adhikari 2013;Wylie and McRedmond 2010;Yousaf 2018), the research clearly shows that a number of factors in strong, stable states also contribute to human trafficking. For example, the structure and (un)regulation of labor markets in strong states can incentivize employers to engage in labor trafficking (Acemoglu and Wolitzky 2011;Anderson and Davidson 2003;Bilger, Hofmann, Jandl 2006). Similarly, political institutions in strong states, such as border and migration policies, affect the prevalence and costs of human trafficking (Frank and Simmons 2013;Joarder and Miller 2014).…”

“…Others focus on demand side factors at the community or country level. Acemoglu and Wolitzky (2011) provide a theoretical model that is useful for understanding how labor scarcity and wages shape the incentives for an employer to utilize coercion (and therefore to engage in labor trafficking). In a study conducted for IOM, Anderson and Davidson (2003) examine employer demand for domestic workers and consumer demand for commercial sex services in Denmark, Italy, Thailand, India, and Japan.…”

Testing for Repugnance in Economic Transactions: Evidence from Guest Work in the Gulf

“…Economists typically use labor coercion to mean deliberate removal of outside options for the coerced worker by another agent (Naidu 2010;Acemoğlu and Wolitzky 2011;Naidu and Yuchtman 2013).…”

“…It thus addresses the labor economics literature on repugnant contracts in general (Naidu 2010;Acemoğlu and Wolitzky 2011;Naidu and Yuchtman 2013) and the literature on the e ects of temporary labor migration in particular-which "has often been ignored in the economic literature on migration" (Dustmann and Görlach 2016). Few studies have been able to establish a credible counterfactual (Gibson and McKenzie 2014b;Dinkelman and Mariotti 2016;Clemens and Tiongson 2017).…”

Testing for Repugnance in Economic Transactions: Evidence from Guest Work in the Gulf

“…1 o er evidence from a natural quasi-experiment, addressing the separation of correlation from causation, about whether guest work in the Gulf systematically causes repugnant outcomes. It thus addresses the labor economics literature on repugnant contracts in general (Naidu 2010;Acemoğlu and Wolitzky 2011;Naidu and Yuchtman 2013) and the literature on the e ects of temporary labor migration in particular-which "has often been ignored in the economic literature on migration" (Dustmann and Görlach 2016). Few studies have been able to establish a credible counterfactual (Gibson and McKenzie 2014b;Dinkelman and Mariotti 2016;Clemens and Tiongson 2017).…”