Labor relationships have debt-like features
Labor relationships have a debt-like feature in the sense that they are difficult to get rid of or reduce. Businesses are generally reluctant to lay off workers and even more reluctant to cut wages. They end up reducing hiring instead, which in a sense is like consumers choosing to avoid taking on further debt after reaching a critical level of indebtedness. This leads to economic fluctuations with some not-so-nice features, in the same way that debt leads to relatively disastrous bank failures. These are “hard” failures – things suddenly break, and drastic action must be taken to stay afloat. It’d be great if there were some other way of navigating these situations. In the banking it probably involves higher capital requirements, with an emphasis on funding assets with equity rather than debt. In the labor market, it would require forging more flexible labor relationships, even more so than the “at will” stuff that we’re so used to in certain industries.