Free or Enslaved Labor

Slavery was a dominant institution in labor markets for thousands of years. While nowadays illegal around the world, modern slavery still exists in various forms. This paper is an attempt to understand why slavery has been such a persistent institution. The model outlined is based on the theory of reservation wages, and proposes that slavery is an institution resorted to in contexts where the reservation wages for engaging free workers are high. Factors that contribute to such a scenario include the outside opportunities available to free workers, and the disamenities associated with the particular tasks to be undertaken. This paper argues that all key predictions from the model fit well with what is known about historical slavery, and for many of the dominant forms of modern slavery. The model can also be used to generate policy recommendations to better combat surviving forms of modern slavery.