Max et al.,
Since I am just in the process of updating and expanding my text on
political economy I am also in the process of refining and developing my
chapters on the labour market and wage determination. This is what
prompted my previous intervention because I really fear that the
standard neoclassical/ marginal productivity explanation of wages and
wage determinations is not only wrong, but it completely distorts and
obsfuscates the real processes of wage determination in the real world.
For one thing, I disagree with Max (or was it Max?) who suggested that
segmented markets were merely coterminous markets with overlapping
wage determination. But rather than deal with it point by point, let me lay
out my understanding of labour markets with some references to
empirical/theoretical contributions by past and present economists.
Since I am about to teach this stuff in a few weeks, I would appreciate
any feedback.
1. There are a number of labour market segments where the process of
wage determination are qualitatively and institutionally different and
where there is very little spillover between them. (See Doeringer and
Piore, Piore, etc. and also the institutional labour economists of the 1940s-
50s – Kerr, Dunlop, Ross, etc.)
2. Productivity movements are largely unrelated to wages but rather
productivity and prices react to wage movements that are determined
either by capital market movements, institutional power arrangements, or
by subsistence or minimum wage movements. (Freeman, Piore et al.)
3. Wages in the capitalist class sector are related to class and
ownership, not productivity. (Wright)
4. Wages in the managerial/professional sector are determined by supply
and demand for human capital (see Freeman’s excellent studies of college
graduate wages.) That is, their wages are determined by what (and who)
they know, not by what they do!
5. In the craft/technical labour markets, institutions determine wages and
labour supplies are adjusted to “justify” the wage levels. (See Clark Kerr
on horizontal wages.)
6. In the “work skilled primary labour market” wages have traditional set
by institutional bargaining in internal, ‘vertical’ labour markets. Because
negotiation has been between organized labour and oligopoly business,
prices (and oligopoly productivity increasing reorganization) have
adjusted to justify the wage bargains. (Piore, Dunlop, Kerr etc.)
7. In the “secondary sector” wages are determined by one of three
processes: a) minimum wages, b)subsistence alternatives (eg. Piore’s
shrimp fishers, my B.C. salmon fishers, or conventional welfare), or c)
“community minimums” – levels of wages that the community considers
the minimum that a decent and respectable employer would pay. (See
Piore)
Wage pressures between segmented labour markets (transmission
mechanisms) depend on the state of unemployment and the labour
market though not universally. For example, wage pressures in
professional labour markets do not bleed into other labour markets
except with a four or greater year training period. (A cobweb wage
pattern. See Freeman). Wages in the secondary labour market are
primarily determined by minimum wages/welfare levels but, under
conditions of full employment, the primary (vertical) market recruits from
the top echelons of the secondary market and can raise top wages in this
sector, but the primary effect is to increase the participation at the lower
levels of the secondary market (minority women, undocumented
immigrants, in Canada, aboriginals and teenagers) by opening up the
labour market to the “army of reserve labour.”
My research and observation of the labour market suggests that this is
the best description of how the real labour market works. It is supported
by empirical research led by people like Piore and also by more radical
economists like Gordon, Edwards and Reich, Bluestone and Harrison; in
Canada by such excellent economists as Lars Osberg and the group of
labour economists around Dalhousie (Martha McDonald, et al.) It is
even supported by econometric work by Summers et al. and much other
orthodox work. See, for instance, the work on the impact of differences
in institutions between Canada and the US reported in Card and
Freeman, Small Differences that Matter.
Given the amount of empirical and theoretical evidence, it seems to me
unconscionable that progressive economists are still holding on to
models of neoclassical labour markets that reflect the values of neoliberal
capitalism. But this strikes a very responsive chord in my working class
soul. We have 30+ students registered for our 3rd year course in
international trade and finance. We have 4 students registered in my
course in labour economics. So much for the prevailing ideology of greed.
Paul Phillips,
Economics,
University of Manitoba
> [Temps has] three or five questions:
>
> 1. Where is the hypothetical wage spillover in the context of growing
> income inequalities during the last twenty-years?
>
> 2. What are the differences between "multiple labor markets with
> interactions" and a "single" labor market with varying elasticities of
> substitution between differing grades (i.e. skilled, unskilled) of labor?
>
> 3. If the differences are more than semantic, can this be reconciled
> with neoclassical economics? How? Why?
>
> --------
>
> 1. It's negative spill-over. One sinking boat weighs on others.
>
> 2. Purely semantic.
>
> 3. See #2.
>
> I consulted with my soon-to-be ex-colleague John
> Schmitt, who is a real labor economist, and here
> are a few more ideas.
>
> The most important is there is little empirical
> evidence for spill-over, although the logical mechanisms
> still seem straight-forward to me. I mentioned the
> literature on public service 'cost disease.' I'm
> familiar with the theory side; I would bet the
> empirical side is limited.
>
> Another tack is the development lit, wherein is
> the notion that the productivity or lack thereof
> of agricultural labor either drives labor into
> manufacturing or sucks it out, respectively.
> This abstracts from deliberate political acts
> of expulsion and disenfranchisement which also
> affect such outcomes.
>
> Another resembles the idea of a market leader in
> imperfect competition that sets a standard that
> is followed by other firms (in product pricing).
> One could imagine a similar role for manufacturing
> labor, relative to services.
>
> Then there is the institutionalist, political story
> about bargaining power of labor in one sector (or
> its lack) complementing that in other sectors.
>
> Since I need to make a practical decision about
> what to believe, the stories, for lack of hard
> data, still incline me to come down where
> I began.
>
> mbs
>
