A Microeconomic Analysis of Slavery in Comparison to Free Labor Economies
AbstractIn addition to supervision costs, the labor cost of an enterprise (plantation) in the system of slavery consists of the cost of acquiring the slaves and the subsistence compensation given out to the slaves. In this paper, we leave aside the issue of supervision costs previously taken up in the theoretical literature on slavery, and focus on these two peculiar components of labor costs. We analyze the implications of this cost structure on the levels of profitability, efficiency and determination of equilibrium wages, and compare them to systems with free labor markets, along a continuum of demand side Cournotic competition. For this purpose, we first use a model characterized by a decreasing returns to scale technology, and show, parallel to the findings of Vedder, et. al. (1990), that the equilibrium subsistence wage in the system of slavery is strictly lower than the marginal product of labor. We then extend the model, given the same technology and preferences, to free labor markets covering possibilities ranging from monopsony to perfect competition in the limit, and obtain a second and perhaps more striking result: Differently from equilibria in imperfectly competitive free labor markets, slavery and perfect competition equilibria are Pareto optimal. Furthermore, our comparisons across labor market scenarios suggest that the resistance of slaveholders to the abolishment of slavery is directly related to the expected level of demand side competition in the free labor market which would replace slavery. Finally, we show that the conclusions derived from our analysis would remain generally valid under a constant returns to scale technology as well.
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Bibliographic InfoPaper provided by Bilkent University, Department of Economics in its series Departmental Working Papers with number 978.
Date of creation: 1997
Date of revision:
Economics of Slavery vs. Free Labor Systems; Labor Economics; Perfect Competition vs. Oligopsony and Monopsony in Labor Markets;
Other versions of this item:
- Haluk I. Ergin & Serdar Sayan, 1997. "A Microeconomic Analysis of Slavery in Comparison to Free Labor Economies," Economic History 9710001, EconWPA.
- N31 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: Pre-1913
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- P51 - Economic Systems - - Comparative Economic Systems - - - Comparative Analysis of Economic Systems
- J42 - Labor and Demographic Economics - - Particular Labor Markets - - - Monopsony; Segmented Labor Markets
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
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- Schaefer, Donald F & Schmitz, Mark D, 1979. "The Relative Efficiency of Slave Agriculture: A Comment," American Economic Review, American Economic Association, vol. 69(1), pages 208-12, March.
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- Chwe, Michael Suk-Young, 1990. "Why Were Workers Whipped? Pain in a Principal-Agent Model," Economic Journal, Royal Economic Society, vol. 100(403), pages 1109-21, December.
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- Roger L. Ransom and Richard Sutch., 1988. "Capitalists Without Capital: The Burden of Slavery and the Impact of Emancipation," Economics Working Papers 8867, University of California at Berkeley.
- Wright, Gavin, 1979. "The Efficiency of Slavery: Another Interpretation," American Economic Review, American Economic Association, vol. 69(1), pages 219-26, March.
- David, Paul A & Temin, Peter, 1979. "Explaining the Relative Efficiency of Slave Agriculture in the Antebellum South: Comment," American Economic Review, American Economic Association, vol. 69(1), pages 213-18, March.
- Fogel, Robert W & Engerman, Stanley L, 1980. "Explaining the Relative Efficiency of Slave Agriculture in the Antebellum South: Reply," American Economic Review, American Economic Association, vol. 70(4), pages 672-90, September.
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