Labour Market Theory: A Constructive Reassessment

Citation

Bellante, D. (2000), "Labour Market Theory: A Constructive Reassessment", Employee Relations, Vol. 22 No. 1, pp. 107-110. https://doi.org/10.1108/er.2000.22.1.107.1

Most of this ten‐chapter volume is a basic criticism of the state of labour economics from the prospective of one of the field’s more prolific leftist authors. The criticism is aimed in several directions: mainstream (neoclassical) labour economics, dual and segmented labor market theory, and industrial relations theory. The text does not offer a detailed scrutiny of the technical results of any study; rather it proceeds at the level of general methodology and ideology. Specifically, the author objects to any theory (or empirical evidence offered as being in support of such theory) that is based on methodological individualism.

After a brief introduction and overview in the first chapter, chapter 2 offers a critique of that part of mainstream macroeconomics concerned with the functioning of labour markets. In as much as even within the so‐called mainstream, the field of macroeconomics is in considerable disarray, the field is an easy target for criticism. The basis of the author’s criticisms may be stated concisely. The trend in macroeconomics has been toward restructuring analysis, including Keynesian analysis, in terms of establishing sound microeconomic foundations. The author’s aforementioned aversion to methodological individualism seems to rule out as necessarily invalid any search for micro‐foundations. Fine also criticizes the use of the concept of equilibrium by mainstream macroeconomists. One doesn’t have to be as removed as Fine from the mainstream to find puzzling the extreme position of some theoretical conceptions, wherein the economy is modeled as always in a state of equilibrium. But his faulting of equilibrium is more fundamental. To most economists, equilibrium is a magnet force exerting a pull on the economy, even if the economy and every market in it are never literally in equilibrium. Fine objects to the very concept of equilibrium, at least as far as labour markets are concerned. Other aspects of mainstream macro that the author finds utterly without basis are the concept of a natural rate of unemployment and the use of the so‐called representative agent.

Chapter 3 takes on human capital theory. Many of the criticisms of the mainstream considered here have been offered elsewhere and, as the author points out, many criticisms can be offered even from a mainstream framework. The criticism most specific to the author deals with what he regards as the “false realism” of human capital studies. Fine recognizes the ability of empirical human capital models to explain or account for wage differentials and market structures, but he sees the approach as “undermining the potential for a genuine theory of segmented labour markets.” It so undermines by treating the various segments of the labour market as if they all behaved in the same way. The author argues that every labour market is structured and behaves differently and thus generalization of the sort employed by the human capital mainstream is therefore wrong. This theme is referred to repeatedly in the book.

Chapter 4 critically discusses flexibility and institutions in labour markets. Among the strands of literature discussed are dual labour market theory, the new institutionalism, the new political economy [public choice economics], and the neo‐Austrian school. All are summarily dismissed; for example: “The new political economy is extraordinarily weak analytically.” What follows, presumably, is the reason for this extraordinary weakness: Its treatment of state power is based on optimizing behavior, i.e. methodological individualism. Similarly, the new institutionalism is described as (like the old institutionalism) cognizant of the interplay of market and non‐market forces. But it is described as “chaotic” because it approaches both market and non‐market forces from the same the same analytical framework (methodological individualism, of course). This same observation might lead others to describe the analysis as highly systematic, not chaotic.

Dual and segmented labour market theory is the subject matter of chapter 5. Fine describes and contrasts the two prominent early versions of dual labour market theory; the more conventional version associated with Doeringer and Piore and the more radical version associated with Reich, Edwards and Gordon. The author also describes the evolution of dual labour market theory into segmented labour market analysis. While sympathetic to the goals of segmented market theorists, including the goal of determining the factors that establish the borders of labour market segments, Fine is critical of this school’s “middle range theory” the weaknesses of which are concealed by the large volume of empirical studies. Chapter 6, titled Neoclassical Colonialism, continues the discussion of segmented labour market analysis. The author notes the ability and tendency of the neoclassical mainstream to incorporate insights originating from segmented labour market analysis. At the same time, he notes the tendency over time for segmentation analysts to abandon their foundations in radical political economy in favor of a partial acceptance of the tenets of neoclassical analysis. Acknowledging that the mainstream has made genuine progress toward incorporating considerations formerly regarded as outside the scope of economic analysis, i.e. what some refer to as economic imperialism, he is dissatisfied with the tendency of the hybrid treatment of individual characteristics, market structures and processes as if “… the various factors involved effectively neutralize one another, grinding out an equilibrium structure of labour markets and conditions within and between them.”

Chapter 7, Towards a Marxist Alternative, makes his case for analysis based on the fundamental perspective of Marxist economics, namely, that the key feature of capitalism is the class division between capital and labour, and that labour generates more value than it is paid for. In Fine’s words, “The production process itself generates surplus value, a defining characteristic of capitalism, through the extent to which labour contributes a quantity of labour‐time over and above the value that has been paid for the sale of the commodity labour‐power.” This chapter is clearly the most interesting read of the book, but it also will be a difficult read to those not familiar with the language of Marxism. Here Fine’s continued criticism of segmented labour market analysis is extended and summarized: In short, as he puts it, differentiation of the work force has to be distinguished from labor market structuring.

Chapters 8 and 9, respectively, consider comparable worth and minimum wages. These might be labeled as the most “applied” chapters as they deal with the nitty‐gritty of specific policies. While criticizing the neoclassical and neo‐Austrian analytical critiques of these policies, the author is favorably inclined toward these policies as much for their symbolism in the class struggle as for anything else.

The final chapter 10 is titled The Specificity of Labour. It is a more informative overview of the central theme of the book than that provided in the introduction. In this chapter, Fine makes his clearest argument for recognition that the labour market is unlike any other market. Mainstream labour economists may think they have done just that, but according to Fine they have not, at least not correctly. “Thus, what differentiates the labour market from other markets is that it contains a commodity that has the potential to create more value than it does itself command in exchange.”

Overall, the book is an impressive effort. Almost invariably, criticisms of opposing schools of thought involve knocking down straw men, but Fine is not guilty of this ploy, and caricaturing of mainstream analysis is fairly minimal. Most assuredly, some of his criticism of neoclassical labour and macroeconomics would be viewed as valid by economists with entirely contrary ideological perspectives. Such excesses as the extreme over‐reliance on the “representative firm” and “equilibrium always” approach of new classical economics again come to mind. Seventeen years ago, I offered my own critique of labour economics from a neo‐Austrian perspective (Bellante, 1983), an approach that Fine dismisses (p. 227) as “… totally out of touch with the realities of how labor markets function in general.” None the less, many of the same criticisms were offered. Even so, it is difficult to see how an approach based on any concept so ideologically straightjacketed as the labor theory of value can remedy any purported deficiency of the mainstream. And the author’s aversion to every advance that is associated with methodological individualism is so extreme that it is held to even when self‐contradictory. To illustrate, the author early on criticizes methodological individualism because it allegedly confines analysis to economic variables in a narrow way. But because the mainstream has, in the years since my short critique, substantially advanced by incorporating institutions and other considerations previously absent from most of neoclassical analysis, I would have to retract much of my earlier criticism. Fine, on the other hand, recognizes but dismisses these advances because they are based on methodological individualism, the supposed impediment to such advance. This kind of reasoning appears more than once, perhaps demonstrating one truism recognized in Marx’s labour theory of value, namely, that not all labour has value.