In 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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Paper provided by EconWPA in its series Economic History with number
9710001.
Length: 26 pages Date of creation: 01 Oct 1997 Date of revision: Handle: RePEc:wpa:wuwpeh:9710001
Note: Type of Document - Word for Windows 6.0; prepared on IBM PC ; to print on HP Laser Jet IV; pages: 26 ; figures: Request from Author. On line version of Bilkent University Economics Department Discussion Paper No. 97-08 Contact details of provider: Web page: http://129.3.20.41
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Find related papers by JEL classification: N31 - Economic History - - Labor and Consumers, Demography, Education, Income, and Wealth - - - 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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