Competition as Worker Protection

A popular criticism of capitalism is that it doesn’t do enough to protect workers. Unions and various kinds of regulation are allegedly needed to ensure that workers are paid enough and treated well on the job. But these critics tend to overlook how competition serves to protect workers. Milton Friedman writes, “The most reliable and effective protection for most workers is provided by the existence of many employers…Competition for his services—that is the worker’s real protection.”

To understand Friedman’s point, ask yourself this (admittedly strange) question: “What’s my protection against bad pizzerias?” Think of it this way. You try out a new pizza place that just opened up nearby, but you’re disappointed because the staff was rude, the pizza was subpar, and the price was too high. Are you doomed to eating at bad pizzerias? Of course not. You have a simple solution—eat at a different one. To paraphrase Friedman, the most reliable and effective protection for most pizza eaters is the existence of many pizzerias.

Of course, there are limits to this analogy. Most importantly, it’s a lot easier to change pizzerias than to change jobs. Still, the basic insight remains—workers are well served by robust competition for their work. So to protect workers, we should pursue reforms that make it easier to start new businesses and to offer and take jobs. For instance, we should get rid of occupational licensing, which requires many people to get a license before they can get to work. Eliminating restrictions on new housing construction would increase the supply of affordable housing and thereby enable more people to move to areas with better job prospects. We should also cut the red tape on starting businesses and reduce taxes that disincentivize entrepreneurial activity. Increased immigration will also help workers, as immigrants are roughly 80% more likely than native-born citizens to start a business.