(Are welcome the guidance and indications -emails, web
addresses, name of head of area publications, etc. - about publishing houses
and institutions that could publish the book).
Do the free
and competitive labor markets exist?: the institutionalist criticism
Until
now we have assumed that exist so-called “labor markets”, ie spaces (not
necessarily physical) in which entrepreneurs and workers come together to
transact the employment levels and wages in a free and competitive context.
Well, now we will criticize this assumption. Are
there in the reality free and competitive labor markets? We think that do not,
and in this position supports us the institutionalist school. Let us consider
its arguments.
First
we have the phenomenon of collective bargaining and labor unions. Regarding it
is interesting to note the context in which it originated labor institutionalist
approach. Institutionalist theory of labor markets emerged during the 1940s in
the United States at a time when the unions were growing rapidly in the country
and centralized collective bargaining was spreading. This prompted some
economists to consider that the orthodox theory of wages had ceased to be
realistic and relevant. Why? Because the collective determination of wages in
the presence of labor unions was very different than the competition. This
difference was primarily qualitative and not merely quantitative. And is that
unions are institutions primarily political, not economic, which operating in a
context of “game of pressure” between the government, employers and workers
themselves following a logic of negotiation rather than of optimization.
As
a consequence of the foregoing, the wage becomes more a administrated wage than a market
wage. And in effect, given this context of collective bargaining, the wages
turn into the result of conscious human
decisions and no longer of impersonal
market forces. Or in any case, as the institutionalists say, rather than
the wage conforms to the supply and demand of labor, the supply and demand of
labor conform to the wage.
The
second critique from the institutionalist school to orthodox theory of distribution
is based on the famous theory of dual labor market. According to this theory,
originally raised by Doeringer and Piore (1) - there are two types of well
differentiated labor markets: “primary” and “secondary”.
Primary
labor markets are, by definition, those where the jobs are "good".
Its features are: 1) stability and security, 2) high and increasing wages, 3)
opportunities for ascents in the scale of positions, 4) utilization of advanced
and capital intensive technology, and 5) existence of effective and efficient
labor unions.
By
contrast, secondary labor markets are those where the jobs are "bad".
Its features are: 1) instability (because of the high labor rotation), 2)
relatively low and stagnant wages, 3) scales nonexistent jobs or with few opportunities
for promotion, 4) utilization of outdated technologies and labor intensive and
5) absence or weakness of labor unions.
Why
this is so problematic for orthodox economics? Simple: because it contradicts
that postulate according to which it “proves” the righteousness of capitalist
distribution, meaning that to each worker is paid according to his productivity. For if indeed there duality in the labor markets (or, at
least, in the most of them) we will find that wages are no longer unique and
primarily determined by the productivity of workers but rather by the type of
labor market to which they belong (primary or secondary).
Perhaps
an orthodox economist can object at this point that even accepting the
existence of duality in the labor markets is not necessary to deny labor
mobility because it may well be the case that a worker pertaining to a
secondary labor market increase his productivity and come to the primary
market. Obviously this case can be given, and sometimes occurs. But it is the
exception, not the rule. And even more so when the features of secondary labor
markets are interrelated and feed back each other. In effect, because of the
low level of wages paid in this type of market, entrepreneurs have no greater
incentive to introduce labor-saving technology and, consequently, the
productivity of workers, along with their wages, stagnates (and this to say
nothing of the case in which this technology is incorporated but wages do not
rise to obtain higher “profits”). And not only that. The presence of a stagnant
technology decreases the opportunities and incentives for workers to improve
their skills. Therefore, it is not so easy that a worker of these conditions
can "climb" to a primary labor market.
Finally,
the third line criticism of institutionalist is related to the existence of
so-called internal labor markets. An internal
labor market can be defined as an administrative system of the firm which
is regulated by a set of intra-institutional rules and procedures to determine
prices and allocations of labor.
Thus,
according to this approach, even if we accept the orthodox theory of wage
setting via supply and demand we would have to say that its validity ends at
the door of the company, ie, precisely
where this theory should enter. Why? Because of the door inwards the very
"universal" and "apodictic" laws of supply and demand are
immediately replaced, as we have said, by a series of rules and procedures to
fix the positions and salaries of employees.
Any
economist who has had the opportunity to meet real firms will realize that the
existence of these so called internal labor markets is not a mere “bureaucratic
anomaly” but rather it is a widespread phenomenon in the organization and
enterprise management. The main reason is the need of the companies (especially
medium and large) of reducing employee turnover. First, because the costs of
recruitment are usually pretty high (not think only the monetary costs) and,
secondly, because when entrepreneurs invest in specific qualifications of their
workers are aware that they must stabilize the employment for obtain better
performance by these investments in human capital.
Therefore,
talk of “free” and “competitive” labor markets in the sense that it does
orthodox economics is nothing more than a theoretical fiction that has nothing
to do with reality. And this is well known by university professors of
economics who, on the one hand, in the classroom, talk about sacrosanct
"free" and "competitive" labor markets and, on the other,
to leaving the classroom, are not daily at the prospect of being displaced from
their jobs for another person equally capable and willing to work for lower
wages. Thus, in the practice, neither they believe what say orthodox theory...
References:
1. Peter Doeringer y Michael Piore, Internal Labour Markets and Manpower Analysis, Ed. Lexington, 1971.
You can contact the author of this article in: “Dante Abelardo Urbina Padilla” (Facebook) and dante.urbina1@gmail.com (email)
