|M.Sc Student||Kogus Ayelet|
|Subject||British Labor Legislation in the 19th Century:|
An Economic Interpretation
|Department||Department of Industrial Engineering and Management||Supervisor||Dr. Benjamin Bental|
|Full Thesis text|
Since the beginning of the 19th century a series of Labor Laws granting protection to workers had been passed by the British Parliament. While it might be claimed that this process was motivated by humanitarian reasons supported at the time by physicians and intellectuals, the thesis argues that the development is consistent with economic efficiency. This may explain why reforms regarding labor's rights came about despite their unpopularity among employers and the ruling classes and despite the fact that Labor was not represented in Parliament until the beginning of the 20th century.
The argument is based on a model developed by Bental and Demougin (2010). In that model, while the private interest of employers is to reduce workers' bargaining power as much as possible, a benevolent social planner may want to increase that power in order to partially resolve moral hazard in labor relations and enhance effort. On the other hand the social planner recognizes that in order to induce investment, investors' profits cannot be reduced too much. Optimal “pro-labor“ intervention balances negative investment effects against effort enhancement. Moreover, in that model the optimal balance shifts in favor of labor as the moral hazard problem becomes more severe.
The thesis shows that moral hazard in labor relations in Britain, particularly in the cotton industry, has become a serious problem due to the industrialization process which severed the cottage-industry direct relationship between effort and output. While the impact of other social forces cannot be ruled out, the enactment of the Labor Laws is therefore consistent with the model's predictions. Furthermore, the thesis shows that labor productivity increased during the years 1820-1850 and argues that this increase in TFP is not explained by macro inventions such as the railways and the steam-engine. Thus, that increase which coincided with the enactment of the Labor Laws is also consistent with the model's prediction. Finally labor share in income had increased, as predicted by theory.