Equilibrium and Optimization to the Unequal Game of
Capital-labor Interest
Ming-liang Wang, Yu Lu
Guangdong University of Technology, Guangzhou, Guangdong,510520
(E-mail: wmljsr@126.com)
Abstract - Imbalance of labor-capitals’ interests is the
inevitable result of both employers and employees unequal
game. Labor for the respect of the existing distribution
system just because they have no better choice. The key to
reverse the imbalance in the distribution of labor interests is
to strengthen labor game ability. Formation of autonomous
trade unions will increase the labor collective game
capabilities, and specific training will help to expand the
labor game resources to enhance the ability of the individual
game; a sound social security system will help to ease the
worries of the failure of labor negotiations, thus improve the
labor’s tolerance to the
time costs for labor-capital
consultation, strengthen the credibility of labor "threat".
Meanwhile, the sound signal-transformation mechanism is
helpful to build the reputation of incentives to stimulate
corporate social responsibility.
Keywords - Imbalance of labor-capitals’ interests;
unequal
game;
signal-transformation
mechanism;
multi-dimensional network coordination mechanism
I.A labor-capital relation is a unequal game with "strong
capital and weak labor "
At this stage, the distribution of labor-capital benefits
is severely uneven. According to preliminary estimates,
China's Gini coefficient has been over 0.5. How to adjust
the distribution to prevent polarization and share the
results of the reform has become a hot topic of the current
social. Generally speaking, the domestic academic
interpretation of reason to the imbalance are mainly the
following: First, that China's current economic and
population structure led to the imbalance of the interests,
which was exacerbated by the economic globalization ;
second is that China's trade unions and other legal
deficiencies in the system resulted in imbalance ; the third
is that it mainly due to government, whose over-emphasis
on the investment environment caused damage to the
workers’ interest; the last one is that the imbalance
stems from the differences between employers and
employees capacity to safeguard the rights [Qi apricot hair,
2008]
.
____________________
Fund Project: The article is the achievement of the humanities
and social science planning project of the Ministry of education
( project number:10YJAZH079), Natural Science Fund Project
of Guangdong Province ( project number: 10151009001000003),
Guangzhou society and" eleven five" planning fund project
( project number:10Y73).
According to game theory , in market economy
conditions, the distribution to the labor-capitals’ benefits
depends on both employers and employees’ game
power, and Imbalance of labor-capitals’ interests is the
inevitable result of the unequal game. In theory, under the
existing conditions, the decisive factors to the game
power include the resources they have, the credibility of
the threat, risk aversion and time preference [Jack Knight, 2009].
"Strong Capital and weak labor" is an objective fact,
which can be said is a worldwide phenomenon. This is
determined by the system of market economy in the
modern times. As the distribution subject, the corporate
system, which dominated by the principle of "absolute
ownership", is still dominated by the "shareholders
center” [Ming-Liang Wang, 2008]. At the same time, from
employers and employees’ market attributes, the
incompetence of the labor market and capital flows
around the world further exacerbates the worldwide
imbalance of laborgame capacity [Daniel A.Zaheer,2003].
Based on the principle of freedom of contract in
market economy, labor contract is seen as the one which
employers and employees freely negotiate and deal with
their respective interests, the labor interests’ distribution
is also seen as the outcome of the game, which can be a
one-time or repeated several times. Macroscopically
speaking, existence of market economy depends on the
minimum cooperation of employers and employees and
thus, the labor relations in the market economy is a
long-term competition and cooperation , a bargaining
relationship on the distribution of benefits; but from the
micro level, the specific employment relationship may be
a non-cooperative relationship at random . Reflected in
the labor contract, short-term labor contract (or one-time
labor contract) means that the one-off game, or
non-cooperative relationship between employers and
employees; long-term contract (or non-fixed term labor
contract) means repeated game, or competition and
cooperation between the two parties. Employers and
employees concern about the overall benefits in the
Long-term labor contracts, and thus there is the
possibility to adjust their game strategy, and it can inhibit
the "short-sighted behavior" of the game subject to a
certain extent. When the interests of labor-management
cooperation and win-win cooperation is over the inputs
(such as special human capital investment),
labor-management cooperation will become the norm.
In addition to the above factors, the general
industrial labor supply far exceeds the market demand in
our country, which determines the congenital weakness of
labor in the game .Meanwhile, low labor skills, absence
of the autonomic trade union and the deletion of
methods such as "strike" and "threat" , as well as
defection of unemployment insurance, all compress the
game strategy space of the labor, and reduce labor
tolerance to time cost required for labor-capital
consultation and the credibility of the means. Thus,
relative to other developed countries, labor game of
power even more unbalanced in China. Determined by
the stage of economic development, homogenous
competition among cooperation is intense (e.g the price
competition), enterprises lack the power and capacity to
improve labor rights, and labor rights lack protection.
Therefore, our labor respect a serious injustice
distribution system, not because they endorse, nor is a
Pareto improvement, but simply because they have no
better choice. it is inevitable to adjust the pattern of labor
game and strengthen the ability of labor game in order to
pursue better social justice, optimize the allocation
pattern, avoid the deterioration of labor relations and
achieve the stable development of the market economy.
It must be clear that emphasizing the balance of
labor interests is not said to fundamentally reinvent the
wheel, but is the proper adjustment of distribution of
labor benefits under the socialist market economy. In
essence, it is appropriate optimization to the game
framework with "strong capital and weak labor” to
achieve sustainable economic development and create a
harmonious social environment
II. Balance of the capital- labor interests in the unequal
game
The unfair distribution of labor interests is from
unequal game power. It is significant to explore the
theory to realize balance in the unequal game. Assume
that Player A and Player B are on behalf of employers and
labor, the game strategy combination as the following
table, then, we can make the following analysis on
strategy equilibrium of the game.
PlayerA(Capital\Employer
)
L
R
PlayerB(Labor\Employee
)
L
R
ΔA，ΔB
x，x+εB
x+εA，x
ΔA，ΔB
In this model, ifΔA ， B<x, then, there will be two
equilibrium results, namely (R, L) and (L, R). Δ value
indicates the payment which the perpetrator will get when
he fails to reach an equilibrium outcome, or failure value.
εA，B>0，ε is said as the advantages of distribution of
behavior.
If ΔA=ΔB, failure values are equal, that means it is a
peer-to-peer game. If ΔA>ΔB , or ΔB>ΔA, that means an
unequal
conditions. In such repeated games with
incomplete information
A ‘s probability (employer) to select R is:
(x+εB-ΔB)/( 2x+εB-2ΔB);
probability to select L is: (x -ΔB)/( 2x+εB-2ΔB).
Accordingly, B (Labour)probability:
If, p=(x+εB-ΔB)/( 2x+εB-2ΔB), then B (Labour)
have no preference between L and R.
If, p>(x+εB-ΔB)/( 2x+εB-2ΔB), then B (Labour) will
be preferred to select L, and receive less income x. p is
the subjective probability of protocol beween the weak B
(Labour) and the strong A (employers).
Further, it can be deduced:
 p/  ΔB =εB /( 2x+εB-2ΔB)2
The significance of the equation is that starting point
value also increases with the increase of the failure value.
This means that with the decline of the failure value of
perpetrator, proportion of strong man whose preference
for strategy L also falls. This suggests that the weak labor
prefer to adopt the strategy of L whlie strong employers
are more likely to adopt strategies R in the game with
strong capital and weak labor.
Tolerance to the time costs and the credibility of a
threat to stop negotiation may also affect the game
subject's choice. To measure time preference by d, if d is
greater than x/(x+εB), the weaker B (labor) will choose L
in the bargaining model. The second is the "threat".
Credibility of the strong A (employers) will be greater
than that of the weak B (Labour) In the unequal
bargaining. If the strong A (employers) impose penalties
C on the weak B (Labour), which will change the income
of the balance of (L, R) (ΔB>x+εB-c). In order to avoid
further reduction in revenue, L will become the weak B
(Labor)’s main strategy. As retaliation (such as
resignation) is expensive, if there is no external remedies
(such as unemployment insurance), it will be difficult for
weak B (Labor)to implement retaliation strategy, and it
will not be able to influence the choice of the strong A
(employers) for the R .
The above analysis shows that even if the labor is
not sure about the employer’s strategy, when the labor
knows he is the weak, he is more likely to accept the
other conditions. The attitude of labor depends on the
judgment in the strong position of capital, the higher
probability he makes, the greater chance to yield. The
weaker labor force is, the higher effective the employer’s
strategy is. A employer with more game recourses will be
less dependent on labor consultation results, and more
patient to bear the time cost which translates into
consultations advantage for employer to influence the
outcome of the game. In the game, the "threat" of
employers is more credible than that of labor according to
the different game resources, influencing weak labor
choice and prompting labor more vulnerably to accept the
conditions mentioned by the employer.
III. Allocation mechanism of labor interests based on
collective bargaining
There is no doubt that labor relations in the market
economy exists congenital defect of “strong capital
weak labor”. How to take appropriate measures to
reverse unfavorable situation of the labor and coordinate
capital-labor interests is the common problem faced by
all market economy countries. The academic community
discussed much and put forward a variety of theoretical
models and policy recommendations, which can be
summarized as the following:
The first is the new classical school. It abandons
ethical factors in classical economics, emphasizing that
the natural order of the market and economic exchange is
the main way to resolve labor conflicts. It advocates
mobilizing labor enthusiasm for production through the
adoption of wages, bonuses and other incentives to realize
capital-labor win-win situation. The second is the
management school .It sees the limitations of "pure
market” regulation and labor conflicts triggered and
emphasizes the common development of both employers
and employees on the basis of the same interests. The
third is the new system school. It believes that
capital-labor conflict of interest can be solved by
constructing
common
interests
and
advocates
establishment of a diversified economy and political
system to ensure the bargaining right between employers
and employees and independent trade unions to ensure
the labor’s interest and eliminate labor conflicts through
institutionalized ways. The fourth is freedom of reform
school. It advocates the establishment of strong trade
unions, develop a strict legal to regulate labor relations .It
also believes that the government should implement
positive economic and social policies to restrict and
change the recurrent negative impact on the market
economy. The fifth is the new Marx school. It maintains
that a system should be established so that the labor
becomes the owner and manager to participate in
corporate decision-making and profit-sharing [Xiao Shi Zhao,
2009]
. All the above make certain sense and to some extent,
reflect the basic requirements of the labor relations
adjustment under market economy conditions, and are
adopted in some countries.
From the practice in the world, the adjustment
models of labor relation are various and different. As a
result of congenital defect, "strong capital and labor weak
",of the market economy, all countries have the same
objective which is to strengthen the labor game ability, let
the government and other social subjects play appropriate
ole in coordination and prevent excessive imbalance.
Among them, allocation mechanism of labor interests
based on collective bargaining has become the
mainstream to solve imbalance.
The unequal bargaining model shows that the hinge
to decide the labor force are the game resources, time
preference and the credibility of the "threat". Therefore,
the key to optimize labor allocation pattern is to
strengthen the game ability of labor and optimize labor
game structure. Achieve above goals, the following steps
should be taken. One is to enhance individual labor game
ability. Theory and Western experience have shown that
the level and specialization of labor skills connects
closely with the game capacity."Asset specificity" decides
comparative advantage of the parties. [Williams,
2002]
Therefore, strengthening school education, vocational
training and work skills training is critical to enhance
labor game capabilities. The second is the formation of
the labor collective game force. Reform the existing trade
union structure, strengthen the union representative, and
actively build autonomous trade unions in the enterprises,
progressively develop the industrial trade union to
strengthen the capacity of the labor collective game, at
the same time, improve labor "threat" power. Draw on
Western experience and moderate trade unions power of
“limited monopoly” and "orderly lay-off", improve the
unemployment insurance and other social security
measures to alleviate the worries of labor, and strengthen
the credibility of the labor policy of the "threat" to
enhance the labor tolerance to the time for the negotiation
process. The third is to establish Dynamic Labor
Standards, develop appropriate laws and regulations,
timely adjust game expectation, form a new "focal
point" of labor game to promote the labor interests of the
coordination to a higher level.
With the rapid development of knowledge-based
economy and globalization, "mass customization" has
increasingly become multinational prevailing production.
It strengthened the advantages of technological
innovation of the developed countries and promoted the
process of industrialization in developing countries; on
the other hand, it formed the imbalanced value in the
international industry division, reconstructed the
international labor relations. For the reputation, the
multinational companies launched the "Production Code"
to constraint the foundry company's employment
practices. The strategy which compete to the bottom
among developing countries weakened the government’s
ability to coordinate labor interests and gave birth to
various types of labor rights protection organizations
(NGOs). At the same time, the relocation of production
processes also led to domestic structural unemployment
in developed countries. In order to ease domestic political
pressure, the developed countries began to strengthen the
global labor standards. All of these mean that labor
relation is undergoing a fundamental change in the
world[Mingliang Wang,2011]. Therefore, we must actively adjust
the concept of social management and give full play to
the community, smooth information disclosure channels,
improve the delivery mechanism of the "signal", let
concerning subjects play an active role , and effectively
connect informal mechanisms such as labor game with
legal and other formal mechanisms, to build
multi-dimensional network coordination mechanism
based on the labor collective bargaining[Aoki, 2001] .
In short, the imbalance of labor interests is an
objective reality, and it is necessary to optimize t
distribution of benefits. The importance and complexity
of labor relations determines that the adjustment of labor
interests needs all kinds of formal and informal
mechanisms of coordination and cooperation. Strengthen
the labor ability through various means and build the
labor collective bargaining system and improve the labor
game platform. Meanwhile, play government’s role, make
up market failures, mobilize all parties to build a
multi-dimensional network coordination mechanism
based on a labor collective bargaining and achieve
capital-labor long-term cooperation and win-win.
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