LABOUR ECONOMICS

study of the labour force as an element in the process of production. The labour force comprises all those who work for gain, whether as employees, employers, or as self-employed, and it includes the unemployed who are seeking work. Labour economics involves the study of the factors affecting the efficiency of these workers, their deployment between different industries and occupations, and the determination of their pay. In developing models for the study of these factors, this section deals with the labour force of contemporary industrialized economies. The economist cannot study the capabilities, jobs, and earnings of men and women without taking account of psychology, social structures, cultures, and the activities of government. Indeed, these forces often play a more conspicuous part in the field of labour than do the market forces with which economic theory is mainly concerned. The most important reason for this arises from the peculiar nature of labour as a commodity. The act of hiring of labour, unlike that of hiring a machine, is necessary but not sufficient for the completion of work. Employees have to be motivated to work to an acceptable standard; the employment contract is, in effect, open-ended. This may be no problem when employees are weak and easily replaced, but the more skilled, organized, and indispensible they are, the more the care that must be given to creating an institutional setting that will win their compliance and meet their notions of fairness. A second major reason for looking beyond straightforward labour market forces is the often highly imperfect nature of the industrialized labour market. The majority of jobs are occupied by the same employees for many years, and only a small minority of employees quits their jobs in order to move to a comparable job that is better paid. Studies in a number of countries have all revealed substantial variation in the level of pay offered for the same job by different firms in the same local labour market. This sluggishness of labour market response is particularly notable for more skilled labour and for labour employed by firms in strong product market positions. The main thrust of competition in many instances comes not through the labour market but through the product market, with an employee's pay being determined less by what the job is than by who the employer is. In discussing both market and nonmarket forces in labour economics, the following discussion poses them not as alternatives but as complementary explanations. The difference in pay between, for example, a craftsman and the labourer who works alongside him may be fixed by custom, an arbitrator, a job evaluation system, or a bargain with a trade union. In their different ways these are far from being merely passive agents through which market forces are transmitted into human behaviour. They may, for instance, shape the market by defining its categories of labour. Also, they may differ greatly in their speed and extent of response. The comparative study of wage movements in different periods and countries does show many similarities and regularities that are more marked than the variety of their settings would lead one to expect. This evidence of the influence of persistent forces working within an equilibrating system is one justification for the economist's speaking of a labour market. But there is much in labour that can be understood only with the aid of the psychologist, the sociologist, the historian, the labour lawyer, or the political scientist. Depending upon both the circumstances and the purpose for which the explanation is required, it is an empirical question how far the forces that these scientists study might interact with the market forces that are the special province of the economist. the study of how workers are allocated among jobs, how their rates of pay are determined, and how their efficiency is affected by various factors. It is, in other words, the study of one of the traditional factors of production, the others being land and capital and, sometimes, entrepreneurship. The aggregate claim of labour, among the factors, to a share of the national income is studied in distribution theory (q.v.). The labour force of a country is taken to include all who work for gain, in whatever capacity, as well as those who are unemployed but seeking work. In industrialized nations the labour force is typically about two-thirds of the portion of the population that is of working age, which is, in turn, typically two-thirds of the total population. The deployment and pay of labour depends upon a multitude of factors. The general health of the labour force, the general level of education, the distribution of special training and skills, and the degree of mobility are qualities of the labour force itself that play a large role in determining where workers are employed and how they are paid. The structural characteristics of the economy are of great significancefor example, the proportions of primary or extractive industries, heavy manufacturing, high-technology manufacturing, and service industries. Another set of factors are institutional, including the extent and power of trade unions and employers' associations and active interventions by government in such areas as hours and wages controls, minimum-wage laws, and arbitration of collective-bargaining problems. Various miscellaneous factors, such as custom and transient economic conditions, must also be considered. Wage levels tend to be higher in industries that require higher levels of education or training and in economies that have high proportions of such industries. Wage levels tend to be higher in industries that are heavily unionized, although in the long run higher wage levels may be negated by higher price levels. Industries or regions whose wage rates are higher naturally tend to attract mobile labour, which under some circumstances may have a positive long-term effect on wage levels in other industries or regions. Differences in wage rates among industries and among types of jobs within any industry may be accounted for in various ways. Classical economics held that different kinds of labour contained different quantities of a postulated homogeneous labour time and were rewarded accordingly. Other theories emphasize the status relations of different forms of labour and the relative power over the production process of different levels of skill. Additional reading Surveys of the field of labour economics include Henry Phelps Brown, The Economics of Labor (1962); Malcolm R. Fisher, The Economic Analysis of Labour (1971); John T. Addison and W. Stanley Siebert, The Market for Labor: An Analytical Treatment (1979); Ingrid H. Rima, Labor Markets, Wages, and Employment (1981); Lloyd G. Reynolds, Stanley H. Masters, and Colletta H. Moser, Labor Economics and Labor Relations, 9th ed. (1986); Daniel S. Hamermesh and Albert Rees, The Economics of Work and Pay, 4th ed. (1988); Howard M. Wachtel, Labor and the Economy, 2nd ed. (1988); and Campbell R. McConnell and Stanley L. Brue, Contemporary Labor Economics, 2nd ed. (1989).Clarence D. Long, The Labor Force Under Changing Income and Employment (1958), outlines the relation of the labour force to the population of a number of countries. Education is treated as a form of investment in Gary S. Becker, Human Capital: A Theoretical and Empirical Analysis, with Special Reference to Education, 2nd ed. (1975, reprinted 1983). Racial, sexual, and age discrimination in employment is explored in Robert C. Smith, Equal Employment Opportunity (1982); E. Robert Livernash (ed.), Comparable Worth: Issues and Alternatives, 2nd ed. (1984); and Harish C. Jain and Peter J. Sloane, Equal Employment Issues: Race and Sex Discrimination in the United States, Canada, and Britain (1981).For studies of the impact of collective bargaining, see Lloyd G. Reynolds and Cynthia H. Taft, The Evolution of Wage Structure (1956, reprinted 1970); and John T. Dunlop (ed.), The Theory of Wage Determination (1957, reprinted 1986). Theories of collective bargaining are surveyed in Alan Coddington, Theories of the Bargaining Process (1968); see also Richard E. Walton and Robert B. McKersie, A Behavioral Theory of Labor Negotiations: An Analysis of a Social Interaction System (1965); Harold M. Levinson, Determining Forces in Collective Wage Bargaining (1966); John G. Kilgour, Preventive Labor Relations (1981); Barry T. Hirsch and John T. Addison, The Economic Analysis of Unions: New Approaches and Evidence (1986); and Richard B. Freeman and James L. Medoff, What Do Unions Do? (1984).For studies of wage structures and their determinants, see E.M. Hugh-Jones (ed.), Wage-Structure in Theory and Practice (1966); Clark Kerr, Labor Markets and Wage Determination (1977); Guy Routh, Occupation and Pay in Great Britain, 190679, 2nd ed. (1980); Henry Phelps Brown, The Inequality of Pay (1977), and Egalitarianism and the Generation of Inequality (1988). Theories of differences in the rates of pay for different jobs are developed in Barbara Wootton, The Social Foundations of Wage Policy: A Study of Contemporary British Wage and Salary Structure, 2nd ed. (1962); and Harold Lydall, The Structure of Earnings (1968). The movement of the general level of pay, in money and real terms, is recorded and analyzed in Henry Phelps Brown and Margaret H. Browne, A Century of Pay: The Course of Pay and Production in France, Germany, Sweden, the United Kingdom, and the United States of America, 18601960 (1968). Work and its compensation are discussed also in Elliott Jaques, Free Enterprise, Fair Employment (1982); John W. Wright, The American Almanac of Jobs and Salaries, 3rd ed. (1987); Felicity Skidmore (ed.), Social Security Financing (1981); Simon Rottenberg (ed.), The Economics of Legal Minimum Wages (1981); and James E. Meade, Wage-Fixing (1982). Sir Ernest Henry Phelps Brown William Arthur Brown