Yerezhepova Ayman
Abdykaimovna1, Sabyr Nursymbat Sainkyzy 2.
1Ph.D., Senior Lecturer in the department of Economics
2
Master of Al-Farabi Kazakh National University, Kazakhstan, Almaty
aiman.yerezhepova@mail.ru,
Theories of the formation of the labor market.
Abstract:
The article analyzes the main theoretical and
methodological approaches to the study of the labor market in works of
representatives of different economic schools, reveals the features of the
existing concepts of the formation of the labor market, it is emphasized that,
in general, they complement each other, marked by both continuity and inconsistency.
Theoretical models with multiple sectors and segments and empirical analysis
using different kinds of data are then reviewed. A brief concluding section
addresses some priority research needs. The article discusses the various
theories of the labor market: classical, Keynesian, neoclassical. The labor
market is seen as a broad and a narrow sense.
Key words: labor market, labor force, theory of labor value, labor value,
unemployment, employment, labor demand, labor supply, theories of labor market.
This
paper analyses main theoretical and methodological approaches towards labor
market research in the works by various economic schools representatives. It
also reveals peculiarities of modern conceptions of labor market formation. It
has been stated that these peculiarities are mutually complementary and
characterized both by succession and antipathy.
The term “labor market” will be used in
this paper to refer to the place where labor services are bought and sold. In
some labor markets, people are paid employees, selling their labor services to
an employer in exchange for a wage or salary. In other labor markets, people
are self-employed (also called own-account workers), in which they sell their
labor services to themselves. As used here, “labor market” is a comprehensive
term including both paid employment and self-employment.
The theory of the labor
market and labor relations associated with the names of the founders and
creators of the labor theory of value - William Petty, A. Smith, D. Ricardo, JB
Say, Karl Marx. Scientific views of the founders of classical economics were
formed at a time when there were free competition and the market system is not
experiencing a deep economic crisis. The classical economists were convinced of
the omnipotence market regulators and defending this idea, believed that full
employment is provided because the supply and demand in the labor market is
always balanced. The equilibrium state of the demand and labor supply in the
market is ensured by its cost.
Model of the labor
market proposed by Adam Smith (1723-1790) reflects the relationship between the
demand for workers and the funds intended for the payment of wages. For
example, he said: "Demand forpeople living wage can be increased in
proportion to the funds for the payment of wages "(Smith, 1993). Smith is
the creator and developer of the labor theory of value theory of labor market
(the provisions of which, and its basic ideasrelevant to current conditions),
the theory of a living wage, employment, unemployment. Noting that the salary
varies depending on the performance of labor, Smith had anticipated some of the
provisions and the conclusions of the modern theory of equalizing wage
differentials.
Continuing to develop
the ideas of the classics, a prominent theorist Karl Marx (1818-1883) completed
labor theory of value, made a number of concepts that are relevant to the study
of the labor market. Marx`s Labor theory of value is based on the assumption
that the labor market workers do not sell the work, and his ability to work -
labor - in the commodity market the owner of the money is not opposed to the
work itself, and working.
It is his labor (Marx,
Engels, 1954-1981). The process of consumption of labor is at the same time,
the production of goods and surplus value. Marx for the first time introduced
the concept of "market
labor ","
labor ", developed the theory of surplus value, formulated the dual
character of labor, created the theory of relative surplus population,
justifying the inevitability of capitalism formation of the reserve army of
labor (unemployment).
In contrast to the
classical school, in the framework of neoclassical economics directions (A.
Marshall, J.. B. Clark, A. Pigou, L. Walras, A. Laffer, R. Hall, A. Rees, M.
Feldstein et al.) , work is not recognized as the creator of the cost of goods,
and the value of a commodity is determined by its marginal utility. If the
classical theory of the labor market is stated that all types of income
generated by labor alone, the neoclassical - the income generated by all the
factors of production. Market work at neoclassical theory treated as a single
market, only factor of production, labor is a commodity of the market traded.
The price of labor is determined by the interaction of supply and demandproposal,
and the work has a homogeneous and indivisible. Neoclassical theory emphasizes
great importance of investment in human capital, considering them as the
foundation of economic growth.
The founder of the
neoclassical school English economist Marshall (1842-1924), seeking to combine
the theory of marginal utility and the theory of production costs concluded
that neither the demand nor the offer are not a priority in determining the
price, has developed a framework of analysis of labor demand and supply, put
forward the concept derived demand revealed the dependence of trade unions on
the elasticity of demand for labor, noted the uncertainty in the labor market,
determined by a non-competitive nature of the market, has proved inadequate
labor market (Marshall, 1993). Like the classic Marshall believed that the
market system provides full use of resources, including labor, he did not see
the need for state regulation of employment. This view prevailed among
economists until the 30-ies of XX century.
However, in the 30s,
this picture of harmony in the economy has become increasingly questioned. The
volume of production in developed Western countries has fallen by half,
unemployment rose up to 25%, while real incomes have fallen by 60%. Against the
background of mass unemployment, the claim that this problem can be resolved by
itself at the expense of wages, become insolvent. All contributions are
becoming increasingly advanced J..Keynes (1883-1946) theory of the need for
state intervention in the regulation of the economy to achieve full employment.
Representatives of the
Keynesian view understand the labor market as an inert, static system in which
the price of labor is rigidly fixed. The presence of involuntary unemployment
caused by a lack of aggregate demand, which can be eliminated using a proactive
fiscal policy, including measures of budgetary and monetary regulation. J.
Keynes and his followers argue that in a market economy there is no mechanism
to guarantee full employment and reasons for unemployment is the lack of
synchrony in the adoption of major economic decisions on savings and
investments (Keynes, 1993).
An effective means of
ensuring employment in the framework of the Keynesian concept is the expansion
of the investment activities of the state. However, it should be noted that the
Keynesian methods of the middle of the XX century proved insufficient against
unemployment. For example, if in the middle of 60-ies of XX century, the
unemployment rate in developed countries ranged from 3-4% in 80-90 years it
reached 6-8% (Pavlenko, 2004). Public methods of economic regulation, proposed
by Keynes, have not worked. The search for ways out of the crisis has led to
increased interest in the monetarist concept proposed in the 50-s by M.
Friedman and his supporters.
Nobel laureates like a
Milton Friedman (1912-2006), E. Phelps (1933) argued that in a market economy
the price mechanism itself defines a rational level of employment, as it is a
self-adjusting system. Monetarists proceed from rigid price structure for labor
and unidirectional upward trend in wage rates (Friedman, Hayek, 1990).
According to the monetarists, the labor market is able to come to equilibrium
in the presence of the natural rate of unemployment, which corresponds to a
level compatible with the actual conditions of the labor market.
In order to balance the
market monetarists propose to use the tools of monetary policy to stimulate
investment and business activity and an increase in such
way employment. In the
labor market model natural rate of unemployment reflects the structural
characteristics of commodity markets and the labor market. According to
monetarists, public policy,
Ultimately, it should be
aimed at achieving the natural rate of unemployment, reflecting the structural
imbalances in the labor market and non-cyclical market conditions in the
economy.
In economics, the end of
the 40s attempts were made to adapt the Keynesian theory in the framework of
the neoclassical synthesis, which Keynesian economics is regarded as a special
case of the neoclassical theory, dedicated to a specific state of the economy
with underemployment. In general, representatives of the "neoclassical
synthesis" (J. Lampert, Paul Samuelson (1915-2009), D. Hicks (1904-1989)
believed that the economy is a system in equilibrium, except for special cases,
which describes the Keynesian theory (Samuelson, 1997; Lampert, 1994). The
essence of the neoclassical synthesis is the synthesis of macro-economic ideas
of the classics and the macroeconomic analysis of Keynesianism, combined with
fiscal and monetary policy, allowing the economy to restore the balance at the
level of high employment even in the case of reducing the demand for labor. The
main objective of neoclassical synthesis is to find the optimal combination of
market self-regulation to the stability of state influence on the economy,
which builds and improves the conditions of market mechanisms.
Starting in 1960-1970
years, the problem of the labor market actively investigated from the
standpoint of institutional economics, an economic system through the prism of
the category "Institute". According to institutionalists (Veblen
(1857-1929), George. Dunlop (1840-1921)
J. Commons (1862-1945),
George. Galbraith (1908-2006)), the labor market is an area of
negotiation between employers and employees and the rules
describe the behavior of the subjects on this site. A key place in the research
institutionalists take issues of mutual coercion of workers and employers, including
by means of collective agreements, with the participation of trade unions. This
area is characterized by a departure from the macroeconomic analysis and the
desire to explain the existing discrepancies in the labor market
characteristics of the dynamics of the individual sectors, social, occupational
and demographic groups.
Particular attention is
paid to research institutionalist analysis of the impact of social and
political institutions to the labor market, the analysis of occupational and
sectoral differences in the labor force and, consequently, in the level of
wages. The main idea of this theory is the need to strengthen
social control over the economy. It becomes particularly acute problem of
social guarantees of employment. Institutionalists believe that the employment
issues can be solved with the help of various kinds of institutional reforms,
which determine the behavior of subjects in many ways in the labor market
(Veblen 1984).
Representatives of the
institutionalist approach, questioned the existence of a competitive labor
market, rational behavior of the individual, automatic achieving an optimal
state of the economic system. They are critical of the extended
classical economic
school provision for uniformity of the labor market and opening up employment
relations. Institutionalists (Dunlop, Derenger Gordon, Payor, Leadbeater,
Granovetter, Atkinson et al.) Have introduced the concept of the economic
theory of clusters of jobs, we laid the foundation for the theory of labor
market segmentation.
The cluster concept of
the labor market is characterized by the association of homogeneous Dunlop jobs
in intra- and inter-firm levels in the clusters. Each cluster is made up their
level of pay and unique to his specific production relations. This theory
denies the existence of a single labor market with a free flow of labor and a
single payment; It shows that between professions, enterprises, industries and
regions remain stable differences in pay, and control of labor behavior is not
only wages, but also the conditions and content of the work; trade unions and
the state have a significant impact on the development of the labor market.
These provisions in the
early 70s have been further developed in the concept of P. and M. DeringerPiora
(Doeringer, Piore, 1971), according to which, together with the external labor
market, such a competitive market, large enterprises have set up their domestic
labor markets. The authors of this theory believe that internal labor markets
are largely relatively autonomous and independent of the fluctuations of the
external competitive market, since the conditions of work and pay them are
regulated sufficiently robust administrative regulations, customs, norms,
standards. The appearance of such relatively independent domestic labor markets
due to the specifics of qualifications required for the production and the need
for training in the workplace.
Development of the
theory of the segmented labor market has Deringer and Piora to the concept of
the dual labor market. The essence of this concept lies in the allocation of
"primary" and "secondary" segments separating employees
into two groups. The first group consists of workers employed on a permanent
work full-time and full-time with virtually guaranteed workplace, wages above
the equilibrium level and a high level of social protection. The second group
are employed on short-term contracts, work part-time at a lower wage, without
guarantees preservation of places in times of economic downturn, the lack of
social benefits provided by the enterprise core group of employees. These two
groups form, respectively, the primary and secondary labor markets, among which
there are strict institutional barriers that prevent the penetration of
outsiders to the primary labor market.
It should be noted in
the contract theory of institutionalism Employment M. Bailey, D. and K. Gordon
Azariadis (Bailey, 1971), became widespread in the mid-1970s. The basis of this
theory is the position that employers and employees enter into a long-term
contractual relationships of implicit contracts (implicit, not legally
formalized). Employees with specialized training, and employers interested in
the fact that their relationship was quite stable and lasting.
Therefore, employers in
the downturn of production don't reduce labor costs, but in the period of its
rise don't increase. This provides a more uniform and smooth change in the
level of wages within certain limits. Thus, the fixed salary and the long-term
work in one place is due to optimally structured and rational employers and
employees. As a result, long-term and sustainable contractual relationships
between employers and employees can not only keep the skilled workers in times
of crisis, but also greatly reduce the risks of the market.
At the end of the 70s in
developed economies started to happen fundamental structural changes related to
scientific and technical progress, the use of computer and information
technology, manufacturing, information and customized goods, the development of
productive forces and production relations. New trends in the world economy
have come into conflict with strict regulation of working conditions, job
security and social protection, hindered the freedom of choice of both workers
and employers. At this time, received extensive development and dissemination
of the concept of flexible market (R. Buae G. standings), the basis of which
made provision for the need for deregulation of the market, the transition to a
more flexible, individualized and non-standard forms of employment.
The concept of labor
market flexibility by G. standings defined as the ability to respond adequately
to changes in prices, demand and supply of labor, which manifests itself in
changing the quantity, quality and price of labor (Standing, 1986). Flexible
labor market involves the formation of various forms of relationships between
the state, employers, unions and employees, designed to provide the necessary
conditions for the free expression of market regulators and the free choice of
alternative models of development dictated by the natural economic expediency.
In modern conditions for
solving the problems of the labor market and employment in a country used
different theories, and sometimes certain provisions of several theories.
However, the negative effects of the reforms in the economy and social and
labor issues in the country with the use of monetarist prescriptions
theoretically have not been substantiated. This is confirmed by many
researchers, noting that the modern world live in conditions of constant economic
and financial war, smashing weapon which began importing economic theories and
knowledge, do not comply with the problems of transition economies or economies
burdened by external debt.
But given the global
experience and building on the achievements of modern Western economic theory
and practice, domestic science will develop new theoretical concepts of the
labor market, taking into account the specifics of Russian reality and
conditions for the formation of a civilized labor market in Kazakhstan.
We believe that the
analysis in this paper suggests the applicability of models to a wide variety
of problems in labor market.
They can contribute to
the understanding of many phenomena that are difficult to account for in other
ways. And they have very different normative implications than do other labor
market models. Taking account of the effort-elicitation problem calls into
question the general proposition that private labor market arrangements are
efficient. It also complicates the analysis of various labor market policies.
References:
1.
Bailey M. National income and the price level: A study
in macroeconomic theory. N.Y., Mc Craw
-Hill, 278
p.,1971.
2.
Standing G. Unemployment and labor market flexibility:
The United Kingdom. Geneva, 1986.
3.
K. Marx and F. Engels Capital. Coll. cit., M.,
Politizdat, t.23, p.180, 1954-1981.
4.
Marshall A. Principles of economics. In 2 v. M.,
Progress, Vol.2, p.120, 1993.
5.
Pavlenkov VA Labor market. Employment. Unemployment.
Textbook. Moscow, Moscow State
University, 368 pp., 2004.
6.
P. Samuelson Economics. In 2 v. M., Science, v.2, 343
pp., 1997.
7.
Banerjee, Abhijit and Esther Duflo (2007) “The
Economic Lives of the Poor”, Journal of Economic
Perspectives, 21(1): 141-167.
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