A Socio-Economic Perspective Labour Markets
1944 was the year both of the Philadelphia Declaration re-founding the International Labour Organisation , and the publication of Karl Polanyi's Great Transformation. Both in their different ways challenged the idea that labour should be treated as a commodity. Although there is no standard 'Socio-Economic Theory' of labour markets, many scholars and practitioners share these concerns. Instead, there are numerous different approaches to the social foundations of labour markets to be found within a newly reinvigorated Economic Sociology, within SASE, as well as within the broad discipline of Economics itself, such as Akerlof, Solow and Stiglitz. The latter wrote the foreword to the 2001 edition of Polanyi's Great Transformation. This paper seeks to sketch out elements of a socio-economic theory of labour markets, by drawing together major strands of work by a number of scholars working on four closely related domains: the employment relationship, industrial relations, skill formation systems and social insurance. It will be argued that all four of these domains have a major influence on the effectiveness of labour markets as social mechanisms for allocating labour between firms according to demand, and for reconciling firms' needs for an adjustable labour supply, and workers' needs for a steady supply of suitable jobs. In more detail:
(a) High levels of insecurity for workers may have contradictory effects on their readiness to adapt to economic change, and these may change over the life-course. High levels of insecurity may cause workers to accept whatever their employer asks because they fear dismissal and unemployment, but equally, they may induce stiff resistance to change. In particular, the employment relationship depends for its flexibility on a degree of goodwill.
(b) Collective representation can provide important channels for addressing the employer's need for change. Often it is hard for employees to judge whether an employer demands changes in work methods reflects the benefit of both parties, or whether it is motivated by a one-sided desire to increase profits.
(c) The nature of employee skills is important to labour market adjustment. Transferable skills mean that employees can more easily adjust to changes in the demand for their services in individual firms as they can gain similarly paid employment elsewhere, but they also often pose collective action problems. Firm specific skills generally restrict mobility, but they avoid collective action problems.
(d) Social insurance provides an important safety net to support labour market adjustments, and supports the employment relationship. When workers agree to become employees, there is often a presumption of exclusivity at least during their contracted hours, concentrating their economic risks on a single firm. Under the standard model, employees agreed to work flexibly in exchange for stable employment. The current move to increased use of short-term jobs changes the distribution of risks and the demands on social insurance, as short-term jobs are likely to increase the number of spells of unemployment. They may also encourage alternative coping strategies whereby workers pool economic risks within the household, and by taking multiple jobs.