See the previous two installments of this series here and here. Recall where we ended: we wanted to know how workers respond to a wage increase or decrease depending on the social conditions around them.
The idea that the employment relationship is composed of more than a (wage, effort) contractual agreement between the worker and employer is not new, even in the neoclassical canon. The theoretical notion of an implicit labor contract, which was first developed in the 70s and 80s by theorists interested in the dynamics of asymmetric information (and separately, the economic effects of unions), admits that notions of trust, reciprocity, and authority are key ingredients of the formal employment relationship. Nevertheless, the neoclassical tradition has for the most part taken these factors as exogenous. To wit: theorists have traditionally assumed that trust, reciprocity and so on are ingredients of the labor relationship and then looked at the impact of those factors on wages, productivity, and so forth.
Relatively little has been done on endogenizing (i.e. explaining the actual origins of) trust, reciprocity, and other institutional features of the labor contract. This question is arguably the more important one: rather than examine how informal institutions impact some kind of optimal relationship, shouldn't we look at the actual origins of informal institutions? Shouldn't the question of optimality be relegated to second-place status given how unrealistic it often is? Theory has begun to open up to these questions, but because such work usually involves "fuzzy" notions of informality with connotations of sociology, anthropology and other "soft" sciences, they are rarely accepted by economists, and always with a good deal of reluctance. A recent (accessible!) paper by Daron Acemoglu highlights some of the important work needed to be done in the mainstream if they are to make progress on the important issues.
But for someone steeped in a more radical political economy tradition, the study of the origins of informal institutions such as trust, reciprocity, and conflict is old news. Quantitative studies of the impact of such institutions on economic outcomes, however, is a little less explored. That is where the end contribution of my paper lies (hopefully): giving an account of how political economic conditions shaped the contours of class conflict in early America and tying it to worker behavior on the job to see how such conflict manifested itself.
And this is ultimately where the informal contracts literature needs to go -- it needs to integrate work in other social sciences or else it will never be able to give a good account of the economic effects of institutions. Providing some empirical support is the first step. The particulars of class conflict as an institution arise from political and economic "objective" conditions, including the legal framework in which contracts are drawn up, the distribution of property in society (i.e. who owns the means of production), the availability of labor in reserve, the technology being used, and so on. Those particulars then shape economic outcomes -- wage rates, productivity -- in the firm. It becomes immediately evident that understanding these connections is absolutely crucial for understanding capitalist economic growth.