Institutions, Policy and the Labour Market: The Contribution of the Old Institutional Economics

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This paper seeks to examine the relationship and the interaction between institutions, policy and the labour market in the light of the ideas of the first generation of institutional economists, who, in contrast to neoclassicals, conceived of economy as a nexus of institutions, underlying, therefore, the significant role of institutional and non-market factors in the functioning of an economic system. They also argued that markets are generally imperfectly competitive, and criticized those who define (economic) welfare only in terms of efficiency and satisfaction of consumer interests; institutionalists instead focus on issues related to justice, human self-development and labourers’ welfare. In addition, early institutionalists had paid considerable attention to the examination of the institutional framework of the labour market. In particular, the first generation of institutional economists highlighted the importance of institutions and other non-market parameters in determining the level of wages and employment (e.g. the role of the bargaining power of workers and employers). Furthermore, they made substantial contributions towards the field of labour policy and they were pioneers in the formulation of economic and social policy. Specifically, various modern institutions and labour market policies, such as unemployment benefits, industrial training and active employment policies, were implemented in the US, during the first decades of the 20th century, after the recommendation of the institutional labour economists. Therefore, their ideas, besides being interesting from a historical point of view, may also be useful in today’s analysis of workers’ problems and the functioning of modern labour markets.

Posted for comments on 5 Sep 2018, 8:47 am.

Comments (1)

  • Arturo Hermann says:

    I think your work is interesting and deserves publication. However, there are some aspects that, in my view, demand a more fully treatment. These are, in short, the following:

    (I) In the paper you rightly stress John R.Commons’s perspective but your account do not fully deliver the relevance of his contributions to labour economics. These can be found in blending around the concepts of transactions (bargaining, managerial and rationing) and of reasonable value the historical, cultural, economic and psychological analysis of labour markets.
    Relevant contributions in this respect can be found in, among others, History of Labour in the United States, Races and Immigrants in America, Labor and Administration, Institutional Economics.
    In such books are addressed intertwined and relevant issues (also for our time), like the role of unions and labour legislation, the role of firm’s organisation, the segmentation of labour force, the dynamics of migratory flows.
    True, you mention some of his contributions, but in a rather cursory way.
    For instance, more attention should be paid on the role played by Commons in drafting the 1932 “Wisconsin Unemployment and Compensation Law” and how he linked such experience to his notions of institutions, transactions and reasonable value (all this is addressed in the volume II of his Institutional Economics).

    (II) The same type of remarks applies also to Veblen’s “workmanship and parental bent” instincts. In this case, Veblen’s central contribution (The Instinct of Workmanship and the State of the Industrial Arts) should be taken into account. And something more should be said on the implications of these concepts for workers’ motivations and for the central Veblenian dichotomy between the objectives of pecuniary gain and serviceability. This theoretical approach would invite the analysis of how to steer ─ in our capitalistic institutions moslty driven by acquisitive propensities ─ a workmanship and parental bent oriented economy.

    As a general remark for the above points, it would add to the clarity of the text to distinguish better the various institutionalist contributions ─ for instance John R.Commons’s and Don D.Leschoier’s ─ on labour economics

    (III) In addressing A.Pigou’s theory of unemployment, you should also consider the related and important J.M.Keynes’s criticisms (in The General Theory of Employment, Interest and Money, appendix to chapter 19). This seems appropriate not only for completeness of analysis but also because there are various and complex links between original institutional economics and Keynes’s theory.

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