Why Capital Suppliers (Usually) Hire Workers : What We Know and What We Need to Know

A fundamental question for economics is why large firms in market economies usually assign control rights to capital suppliers rather than labor suppliers. A diverse collection of answers can be found in the literature. But unfortunately little theoretical consensus has emerged, and few attempts have been made to resolve this issue through systematic empirical investigation. This paper reviews a number of different hypotheses clustering around work incentives, the financing of firms, and collective choice. We identify the strengths and weaknesses of each approach, filling in theoretical gaps where necessary, and conclude with some suggestions for empirical research