labour-market

labour-market In a labour-market, human effort (or labour power) is made into a commodity, which is bought and sold under terms which in law are deemed to constitute a contract. The purchase and sale of formally free labour developed extensively with capitalism, but alternative paths to industrialization (such as real socialism) have entailed wage employment, though not strictly a free market for labour. Economists argue that, as with other factors of production, the market for labour can be understood as a special case of the general theory of prices, with the price (wages or salaries) being determined by supply and demand. However, research on actual labour-markets has shown that, in practice, many of the basic conditions assumed by price theory are usually absent. Mobility of workers between jobs is often sluggish or non-existent; the anarchic structure of earnings differentials bears only the loosest relation to labour supply and demand; discrimination, labelling, racism, and sexism are rife. Economic explanations of labour-market processes have to be supplemented, and sometimes replaced, by sociological analysis, creating a promising field for interdisciplinary research.

Neo-classical economic theory views exchanges in the labour-market as voluntary, and engaged in because, for each party, the results of the exchange are better than their other options. The labour-market is a competitive market because there are many potential buyers for each seller and vice versa. The supply of labour from existing and potential workers and the demand for labour from employers interact so as to reach an equilibrium price for labour. If the price of labour rises above equilibrium level for any reason, for example due to a national minimum wage or strong trade-union bargaining, employers will reduce the number of jobs offered. If the price of labour falls, employers will increase the number of jobs offered, all other things being equal. Economic theory of the labour-market also posits that both monopolies and discrimination will disappear in the long run, and are thus unlikely to be enduring constraints to individuals. On the other hand, economic models of the labour-market see workers forming a queue for the available jobs, with employers choosing the best first: people with higher qualifications, more experience, and wider skills will be offered jobs before those with less to offer. It follows that the unemployed will always consist of those with few or no qualifications, fewest skills, and least employment experience; and that people with social, psychological, or other problems will be less readily hired. So the model allows for certain forms of rational discrimination.

Many economic models assume that people have perfect information with which to make rational decisions within given constraints, and adjust their offer and demand prices accordingly. Empirical research has persuaded some economists to recognize that information gathering and analysis are costly in time and money, so that market imperfections arise from incomplete or inadequate information, and satisficing models are accepted as more realistic than maximizing models of behaviour.

Basic to sociological studies of labour-markets is the recognition that, although labour effort is nominally bought and sold, it lacks many of the attributes of other commodities in the capitalist economy. These differences in turn go some way to explaining why the market for labour presents such a confusing picture to the price theorist. At least four factors should be considered here.

First, like any service which is bought, there is scope for ambiguity about what precisely constitutes a satisfactory amount of work (or effort) done in fulfilment of the contract. Ambiguity about what constitutes a fair day's work for a fair day's pay is endemic, especially if there are frequent changes in work tasks. Because this effort bargaining occurs in even the most routine work situations, then values, custom and practice, administrative rules, and the relative power of employer and employees, are all equally as important as the price mechanism in shaping labour-market outcomes.

Second, inequality of wages and conditions reflects the level of organization of the workforce, as well as market competition. Though in legal theory a contract of sale assumes equality of both parties to it, this is inconsistent with the power inequality usual between any worker negotiating individually, and a potential employer. Consequently, in a wide variety of situations and nations since the onset of industrialism, workers have sought to offset this by forming trade unions. Collective bargaining, when it occurs, undermines standard notions of a market by replacing wage-fixing through the price mechanism by wage-fixing through rules. It also brings law and politics into the regulation of labour matters. The acceptability of collective labour contracts and wage-fixing agreements tends to be a potentially destabilizing political issue everywhere in the industrialized world, as is the legality of the unions and associations which represent the collective worker, to say nothing of the sanctions and stratagems used by both sides during the course of industrial conflict. Most societies have therefore sought to surround the labour-market with a body of law and politico-administrative control.

Third, both unions and employers frequently seek to create so-called internal labour-markets: that is, networks and hierarchies of jobs to which access is restricted by entry rules and internal promotion. For example, by enforcing job-entry controls, unions can restrict access to craft training and relatively favourable wages and conditions. Employers likewise can segment their demand for labour by varying benefits and promotion, seeking to reward and retain valued workers, while offering others only non-standard or flexible employment. (Some scholars also claim that internal markets based partly on discrimination and wider prejudice help employers to divide and rule the workplace.) Family and neighbourhood networks frequently reinforce exclusiveness of job access outside the actual workplace, producing extended internal labour-markets.

Fourth, there remain many industries and situations where workers are relatively powerless and unorganized, so that pay and conditions can be expected to be less favourable than if workers use their collective strength. Union organization has typically been found to be difficult among workers in small-firm industries, in the retailing and personal services sector, in part-time and subcontracted labour, and among women, ethnic minorities, and young people. Isolation and powerlessness do much to explain the common research finding of widespread low pay and insecurity of work among such groups.

For some years, so-called dual labour-market theory claimed that labour-markets can be divided into a primary sector, consisting of relatively well-paid internal labour-market jobs; and a secondary sector, comprised of more insecure low-wage employment, which does more closely resemble the competitive model. Theory of this type has encouraged collaborations between those sociologists and economists who are prepared to question the preconceptions of both disciplines. But empirical research by both economists and sociologists suggests that the anomalies and segmentation of labour-markets cannot be accommodated easily into a simple dualism, and is leading to the development of more complex, multi-disciplinary approaches (such as labour-market segmentation theory).

One major form of dualism in the labour-market, however, is well documented if not wholly understood: the persistent divisions in pay, conditions, and types of work between men's and women's employment. For example, economists predicted that equal pay legislation would increase the relative price of female labour, and thus reduce the number of women's jobs offered by employers. In fact, total female employment rose at the same time as the rise in female earnings resulting from equal pay rules. These trends can perhaps be explained by seeing the labour-market as divided into a number of separate markets—for female labour, manual labour, young untrained school-leavers, older workers, professional workers, and so forth—with limited competition between labour-markets. The most developed versions of this theoretical refinement are found in labour-market segmentation theory.

In general terms, therefore, the sociologist's most important contribution to labour-market theory is to identify the cultural, institutional, and structural factors that help determine people's allocation to one or another market, the imperfections of market processes, the reward systems operating in different markets, and the nature of power relationships in the market. Jill Rubery 's essay on ‘Employers and the Labour Market’ (in D. Gallie ( ed.) , Employment in Britain, 1988
) reviews the various theories of labour-markets, examines the evidence for flexible employment, and contains a good bibliography of British and American case-studies. For examples of empirical analyses see Jill Rubery and and Frank Wilkinson ( eds.) , Employer Strategy and the Labour Market (1994
). See also DIVISION OF LABOUR; HUMAN-CAPITAL THEORY; OCCUPATIONAL SEGREGATION.