Academic journal article The Economic and Labour Relations Review : ELRR

Labour, Commodities and the Labour Market: A Heterodox Perspective

Academic journal article The Economic and Labour Relations Review : ELRR

Labour, Commodities and the Labour Market: A Heterodox Perspective

Article excerpt

1. Introduction

The purpose of this article is to appraise critically some fundamental aspects of the analysis of the labour market in orthodox economics and to highlight aspects of a heterodox alternative view of labour in capitalist economies. It seeks to clarify the sense in which, though traded and therefore in some sense a commodity, labour (or labour-power) is fundamentally different from other commodities. Though differences between labour and other commodities are clearly recognised by conventional economics, the latter's underlying theoretical approach to explaining prices and quantities of commodities and resources in general limits the significance of these differences; to the extent of preventing orthodoxy from providing a coherent explanation of 'labour' phenomena such as unemployment and the real wage. (1)

The question arises immediately as to the meaning of 'orthodox economics'. For the purposes of this discussion it is contended that underpinning most analysis of the labour market (and also most other economic phenomena) is the proposition that in the absence of frictions and rigidities, including informational asymmetries, labour can be treated as would any primary factor of production (a resource the supply of which is not primarily determined by economic factors): its long-run equilibrium quantity employed and its long-run equilibrium rate of return reflect forces of demand and supply analogous to those for any other primary factor of production.

A myriad of institutional and non-institutional impediments to convergence on such a long-run equilibrium from both the demand and supply side have been entertained as part of the development of labour market analysis. (2) These have not, however, been interpreted as justifying a rejection of the aforementioned theoretical position. On the contrary, the significance of such impediments is invariably interpreted against a benchmark represented by that fundamental position. (3)

Thus within the economics profession there is a general acceptance of the idea that the long-run position of capitalist economies is determined from the 'supply-side'; namely, by the quantity and productivity of 'factors of production', or less formally by the effective quantity of resources, corresponding to a position of approximately zero involuntary unemployment. (4) This idea carries with it a clear implication that, with sufficient long-run flexibility in payments, any resources unemployed, including labour, cannot result from a lack of demand for those resources. In this view, unemployment, over time, cannot derive from a lack of demand for labour in the production process or therefore from an insufficient growth in production levels relative to the growth of the labour force. The long-run position of the economy, in the absence of persistent rigidities in prices, wages, or interest rates would thus correspond roughly with zero involuntary unemployment. (5)

At a deeper level, this treatment of labour generally mirrors that for commodities in general, including inputs to production, and reflects a thorough-going general theory of value along orthodox lines; viz., the dominant marginalist view of production, distribution and value (relative prices). Problems at the heart of the latter will thus engender problems with the dominant view of labour and the conceptualisation of market forces relevant to labour. It is from this angle that the present analysis approaches the difficulties with conventional accounts of labour phenomena.

The following two sections introduce the discussion by attempting to identify the theoretical underpinnings within mainstream or orthodox economics which suggest a view of labour as a commodity, subject to forces similar to those at work in markets for commodities in general. Here the focus is on the application of fundamental axioms of orthodox economic theory that seek to explain how demand and supply of labour may be brought into line; and hence how the return to labour (the real wage) is determined, analogous to the determination of prices and quantities for commodities in general. …

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