The key difference between the employment relationship and other mutually agreed contracts is simple: high switching costs that are mostly asymmetrical. Losing your job is extremely disruptive to an work, much more so than losing an employee is to a corporation[1]. Because of this, the labor market is in a constant monospony situation.<p><a href="http://en.wikipedia.org/wiki/Monopsony" rel="nofollow">http://en.wikipedia.org/wiki/Monopsony</a><p>This is unlike, say, the market for going out to eat at a restaurant. There are very low switching costs for customers with regards to restaurants (and vice versa), so the market is efficient.<p>[1] Of course in some situations the opposite applies: highly skilled workers are very costly for a corporation to replace and generally have no trouble finding other work. So their bargaining position is excellent and they tend to get market wages. For example, programmers.