EXTRACCIÓN DE LECHE MATERNA

The theory of labor market segmentation (Harris and Todaro, 1970; Reich et. al, 1973)50 suggests, inter alia, that the labor market can be divided into primary and secondary types (better encapsulated by the term, ‘dual labor market theory’). While the former requiring skills, stability, high wages and the existence of job ladders; the secondary market is characterized by low wages and workers’ morale, high turnout, unskilled labor under complete control, barriers to job mobility and poor working conditions.

Most labor intensive industries, like coal mining are run on the secondary labor market. Their empowerment levels, broadly defined, are far lower than the primary sector laborers. If workers suffer from low education, extreme poverty, inhuman working conditions and decades of subjugation, they have little economic independence and are naturally more prone to exploitation than the ones from the primary labor market. This paper and hypotheses pertains specifically to the secondary labor market.

That public and private sector unions are divergent, both in their behavior and outcomes, is well established (Freeman, 1986, 1988). Freeman offers an illuminating study of how public sector unions affect the demand for labor rather than just wages, and have significantly higher non-wage effects than their private counterparts. They are also found to possess militant attitudes, being in favor of strikes and the like (Reid and Kurth, 1990). Their numbers/memberships have been increasing around the world, as compared to private sector unions.51 The political power of public unions is much greater as well, owing to their proximity with the government. Consequently, public sector unions have higher access to politicians, and are more easily able to mobilize resources for election campaigning.

In addition, unlike in private corporations, public sector contract negotiations may not be adversarial in nature. Most government-managers have little personal stake in such negotiations and the government may also want to keep the unions happy, lest they lose their vote bank in succeeding elections. The governments never run out of business (theoretically), which offers stability to the union without much effort. These hypotheses could therefore be more reliably tested against unions in public sector. As will be shown, the case for coal mining in India exemplifies it amply.

50 _{See however, Wachter (1974)} 51 _{For the USA, see, Edwards (2010).}

3.1. Labor shortage, Metering and Labor Market Intermediaries

The conceptualization of the metering problem by Alchian and Demsetz (1972) provides a useful starting point for theory of labor intermediaries (who as I show, eventually became union leaders in the Jharia coalfields). The authors show that a key issue in an economic organization (say, a firm) is to be able to meter input productivity and rewards (p. 778). Metering in this sense means both measuring and controlling (footnote 1, p. 778). The problem of metering is characteristic in a team where marginal individual team member productivity is unobservable without incurring a cost. Since rewards stimulate productivity (p. 779), and individual productivity can be distinguished only at a cost, the employer decides to incur this cost if: (a) the costs of shirking are higher through (b) someone who specializes in such monitoring at a lower cost. This monitor need not be monitored further if her/his incentives are aligned with that of the employer as the monitor can receive the residual awards (p. 782). By corollary then, the monitor (residual claimant) must have power over the individual contracts of the team members. Therefore, the team members may ‘assign to the monitor not only the residual claimant right but also the right to alter individual

membership and performance on the team’ (p. 782).

The essence of a classical firm exhibiting a metering problem thus features a contractual structure with joint input production. One party, which is common to all contracts in the joint inputs, and which has the right to renegotiate any input’s contract independently of contracts with other input owners (p. 783). Notice that at a general level, the monitor’s primary task is not defined by being able to meter, but by being able to act as the contractual party. The monitor is therefore an intermediary between the principal employer and the team involved in production.

Labor intermediaries, who are tied to the firm, could act as such monitors.52 From a transaction cost perspective, intermediaries can help firms save enormous costs since they specialize in information and disciplining of labor (Osterman, 1999). In an environment of labor shortage, labor intermediaries can fulfill the role of these monitors and claim residual rewards, against procuring, organizing and metering laborers as inputs.

More importantly, in labor markets driven by social forces (Granovetter, 1985; Powell, 1990), intermediaries are embedded in social relationships with workers and firms simultaneously, in

52 _{In contemporary markets, research on labor intermediary focuses on temporary help agencies (Parker, 1994; Rogers,}

2000) or job trainers (Osterman and Lautsch, 1996). Other efforts to understand their behavior is by Osterman (1999), Kazis (1998), Benner et al (2003).

ways which are ‘socially constructed and politically mediated’ (Benner, 2003, p. 627). The intermediaries create and control networks that are crucial for both employers and workers (ibid.). These networks are extremely important for workers in getting jobs, learning, skill-development, improving earnings intra-firms, dealing with layoffs and the like (Piore, 1980; Granovetter, 1985; Wial, 1991; Fernandez and Weinberg, 1997; Herzenberg et al, 1998).

Intermediaries form the organizational network infrastructure, which is highly valuable in unstable labor markets where employment opportunities are changing rapidly (Benner 2003, p. 628). The unskilled workers of the secondary market have ‘poor-quality’ social networks and are therefore especially dependent upon these intermediaries (ibid.; Harrison and Weiss, 1998).

Intermediaries could be tied to a firm and act as its permanent employee, if the demand for labor is fluctuating and cyclical (Benner 2003, p. 628). This will encourage the employer to keep intermediaries tied up with firms who act as cushions during the oscillating labor demand periods. Intermediaries help hedge varying labor and employment risks for both the employer and laborers by acting as the platform where labor demand and supply are met, and price levels are sustained.

Hypothesis 1: Labor intermediaries emerge to fulfill labor shortage, and they begin determining labor relations in an industry suffering from a metering problem.

3.2. Agency Theory of Labor Unions

General economic (and other) models53 of union behavior assume that both union leaders and members face the same objective function which they want to maximize. Therefore, when collective bargaining takes place, union leaders always reflect the preferences of their members. Secondly and consequently, the assumption is that the labor union leader is a benign individual who will always make efforts to fulfil the promises s/he has made to the members of the union.

To assume unions as a homogenous mass, and therefore lend simplicity to the modeling exercise, is a valuable academic exercise, but may be far from reality. If we open the black box of unions – just like corporations – we find a web of incentives, structures and agency issues. This view of benign managers has been successfully challenged by principal-agent relationship models, which have demonstrated that managers, like any other individual, are rational beings, attempting to

53 _{The seminal work was initiated by Dunlop (1944). Later McDonald and Solow (1981) introduced the Nash}

maximize their own interests. Agency theory in a union is a surprisingly major oversight then. We can observe the union leaders as agents of the principals, and the union members as agents. The information asymmetry is reflected in the union leader (agent) possessing more knowledge about the status of employment, given her/his closer proximity to the employer, involvement in negotiations and knowledge of the firm’s labor policies, existing labor supply and wages. Faith and Reid (1987) remains one of the few good scholarships which has systematically explored the agency issue present in unions.54

In what kind of scenarios would agency problems be high in a labor union? Indeed, if the union leaders are elected from outside, the likelihood of diverging interests between the union leader and union members could be high. ‘Outside’ here may refer firstly to dissimilar groups that the leader and members belong to. In India for instance, the former may develop in caste linkages. If workers belong to a particular caste and the leader to another, there is a possibility that their interests will diverge. A nontrivial body of research has shown that the empowerment of lower castes is possible through their direct representation in politics. Secondly, the labor leaders may not necessarily emerge from existing members.

But then, labor members may be able to oust a non-performing leader in the next elections. A second question therefore is why workers wouldn’t remove a corrupt union leader? The answer is located in some form of benefits or threats that the workers receive from the leader. The labor union leader may devise various strategies to tie the laborer’s loyalty with his candidature. If workers seem to receive some short-term benefits from the incumbent, they may continue to vote for him. Alternatively, an incumbent’s exit may pose a material threat to workers’ wellbeing. This threat could be exhibited in the removal of a benefit that was earlier afforded. In a worker cohort, homogeneously belonging to a certain caste, it is easy to bond workers through caste-based frameworks and indebtedness, which compels them to conform to a certain expectation, including the way they vote. The deviants may be punished by their own community, as Akerlof (1976) describes through his model of caste and statistical discrimination.

54 _{Among the scanty and earlier work that has addressed agency issues in a union are that of Herberg (1943), Ross}

(1950), Berkowitz (1954) and Atherton (1973), who have touched upon the internal organization of the union. Pemberton (1988), Besancenot and Vranceanou (1999) and Jones (1989), have also looked at the specific role of the leaders. That the issue has been always important is reflected from seminal works briefly touching upon it. For instance, Dunlop (1944) advised that racket unions may be analyzed within the regular model of the business firms, while Ross (1956) explicitly negates the possibility of self-interested union leaders, but does recognize its existence in some abnormal cases. Becker (1959) shows how union leaders expropriate producers’ surplus by illustrating the racketeering problem in the context of an upward sloping labor supply curve.

Hypothesis 2 (a): A labor union may have high levels of agency problem, if union leaders come from outside (another caste or profession).

Hypothesis 2 (b): A non-performing leader may continue to be chosen if s/he has bound labor through various informal arrangements.

3.3. Nationalization and the Power of Unions

Consider nationalization of a labor intensive industry like coal mining. This process essentially leads to ownership change, which alters the incentive structures of the players involved. In situations as these – and British coal nationalization is a classic example (Baldwin, 1955) – the welfare of laborers assumes vital importance and consequently the power of unions is enhanced. Across the world, industries left in the hands of the State always have a higher degree of labor mobilization and union power than those in private hands (Murillo, 2001).

Labor unions may develop into a more systematic and powerful organization in a State-owned set up due to endogenously embedded labor relations. One can view this process in the following way: shackles of owner’s control are reduced, thus offering more maneuverability to the unions. At the same time, this maneuverability is the product of the internal organization of the unions that existed before nationalization. In other words, the extent to which the power of unions enhances after nationalization is dependent upon its existing inter-labor relationship. If the union sentiments were weak before nationalization, they may not necessarily develop suddenly after it. Nonetheless, the labor relations which are embedded in the local context are aided with the process of nationalization. Its impact therefore, can be better understood once we understand the local context.

This idea is akin to that of institutional inertia (Acemoglu and Robinson, 2006). Regardless of the process of institutionalization, the stickiness of institutions makes it impossible to replace an existing institutional relationship entirely. This is more so in the case of labor relations. Labor unions have been shown to possess a high degree of monopoly power.55 _{This power and its rent}

55 _{This was mentioned as early as 1932 by celebrated economist John Hicks, “monopolistic combination is common}

enough in all parts of the economic system; very much the same motive which drives the businessmen to form rings and cartels drive their employees to form unions” (Hicks 1932, p. 137). See also, Lewis (1951); Lande and Zerbe

(1985); Meltzer (1965); Oswald (1985); Farber (1986); Addison and Chilton (1997). Labor unions are also part of rent extraction (Sapsford and Tzannatos, 1993, pp. 325-338; Booth 1995, ch. 3-5). Even in their influential work What do

unions do, which builds a strong case for the net positive impact of unions on society, Freeman and Medoff (1984)

seeking characteristics will depend not only on the ownership of industry, but also the kind of labor relations existing while nationalization is taking place. Hence:

Hypothesis 3: The increase in power of labor unions post-nationalization depends, inter alia, on the social structure in which existing labor relations are embedded.

Through exploring labor relations and mafia institutions prevalent in the coal mines of Dhanbad, we now test these hypotheses and show, why it is pertinent to view labor unions in certain settings rather differently.