Labour Rights, Full Employment, Mental Model Choice and a Dynamic Market Economy

I model how labour rights, providing workers and management with effective voice, combined with full employment contributes to a dynamic, more productive and efficient market economy. Contrary to the ‘mainstream’ view adhered to by both conventional and many ‘heterodox’ economists, that an empowered labour force negatively impacts the economy, I argue that this can have the opposite effect. I model a reasonable scenario whereby higher wages incentivizes firm members to work more efficiently and to engage in higher levels of technological change. This modelling suggests, consistent with Adam Smith’s insights, that tight labour markets are vital to a dynamic capitalism. It is also consistent with a market economy that is fairer and more equitable. Even so, this need not affect policy change if decision-makers believe (based on false mental models) that higher wages and fairness will result in economic collapse. Therefore, changing mental models is critically important to developing a fairer and more vibrant market economy.