A Microeconomic Analysis of Slavery in Comparison to Free Labor Economies

Bilkent University Dept. of Economics WP 97-08

25 Pages Posted: 15 Mar 1998

See all articles by Haluk I. Ergin

Haluk I. Ergin

Massachusetts Institute of Technology (MIT)

Serdar Sayan

Bilkent University; Ohio State University

Date Written: July 1997


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.

JEL Classification: N31, J31, P51, J42, L13

Suggested Citation

Ergin, Haluk I. and Sayan, Serdar, A Microeconomic Analysis of Slavery in Comparison to Free Labor Economies (July 1997). Bilkent University Dept. of Economics WP 97-08, Available at SSRN: https://ssrn.com/abstract=62685 or http://dx.doi.org/10.2139/ssrn.62685

Haluk I. Ergin

Massachusetts Institute of Technology (MIT) ( email )

50 Memorial Drive
Cambridge, MA 02139-4307
United States

Serdar Sayan (Contact Author)

Bilkent University ( email )

Department of Economics
Bilkent University
Bilkent, Ankara 06800
(90-312) 290-2071 (Phone)
(90-312) 266-5140 (Fax)

HOME PAGE: http://www.bilkent.edu.tr/~sayan

Ohio State University ( email )

Department of AED Econ
2120 Fyffe Road
Columbus, OH 43210-1067
United States
(614) 893-1949 (Phone)
(614) 292-4749 (Fax)

HOME PAGE: http://www.aede.osu.edu/people/display2.php?user=sayan.1

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