Labor supply: Toward the construction of an alternative conception from post Keynesian and institutional economics

ABSTRACT

Post Keynesian and institutional economics have traditionally maintained a critical stance toward the orthodox model of labor supply, questioning many of its underlying assumptions. Nevertheless, this critical view has not led to the formulation of an alternative conception of labor supply that is sufficiently coherent and structured to be generally accepted within these branches of the literature. Accordingly, the purpose of this study is to contribute to the construction of such an alternative. To do so, the article starts by analyzing the relationship between the reasons that lead to individuals offering their labor and what that activity can bring to human beings in return. Secondly, the authors present an alternative concept of what workers contribute at work. They then analyze how the decision-making process regarding the labor supply actually takes place. Finally, the article concludes by briefly presenting certain additional points, in particular how differentiation is an inherent feature of the labor supply.

KEYWORDS:

• Institutional economics
• labor market segmentation
• Labor supply
• post Keynesian economics

JEL CLASSIFICATIONS:

• J20
• B50
• J42

Notes

¹Maslow (1954) is often considered the first to propose a hierarchy of needs, although it is true that the idea of organizing needs was not entirely new and was not unrelated to the work and the reflections of many economists (Reisman, 2002). As we know, he proposed a hierarchical pyramid of needs with a strictly ordered five-tiered structure. However, this strictly hierarchical and sequential conception has also been the subject of various criticisms; in fact, the most recent theories within psychology attempt to overcome this one-dimensional characteristic (while still recognizing the presence of a certain order), instead describing the structure of needs through systems or networks of more complex interrelationships (Deci and Ryan, 2000; Doyal and Gough, 1984, 2001).

²Identifying the labor supply with satisfaction of needs—in particular, of basic needs—and not with satisfaction of desires implies recognizing that in many cases, the possibility of substitution and a real capacity for choice do not exist for individuals, as the conventional orthodox model presumes. This condition’s relationships in the labor market and, in particular, the distribution of power between the parties involved because individuals can be positioned in a disadvantaged situation that may be exploited by the other party in the employment relationship (Prasch, 1995, 2000).

³Remuneration can become an important element in how an individual perceives the external valuation of his/her work; in this context, in addition to serving as a means of covering his/her material needs, wage (specifically, its variations or comparisons with those of other individuals) can also become an instrument for satisfying the individual’s other needs.

⁴Recently, Spencer (2015) proposed the term meaningful work to refer to this conception of work, identifying it with work “that offers people the opportunity for self-development and personal fulfilment and the external recognition that accompanies it. … Meaningful work is work that not only meets our consumption wants but also meets ours needs for freedom and creativity; it is work that enables us to develop and realize our potential” (Spencer, 2015, pp. 675–676). In this sense, the author explores the existing connections between the conception of work and some key ideas about work found in several different heterodox economic schools (mainly, in institutional, feminist, and Marxist economics), in addition to the “capabilities approach” developed by A. Sen and M. Nussbaum, which emphasizes the real meanings of work for workers in terms of their capacity to be and to do things in their lives.

⁵Fleetwood (2014, 2017) has proposed encompassing all of the social elements (or social stuff) with which human agents necessarily interact under the generic term of socioeconomic phenomena (which would replace the term institution) and subsequently making a conceptual and terminological effort to differentiate the different types of existing phenomena. Within these socioeconomic phenomena are included not only institutions (proper) but also norms, values, codes, conventions, laws, procedures, and mechanisms, for example.

⁶As Spencer (2011) noted, the idea that workers are predisposed to shirking not only incorporates an ideological bias that fits with employer interests and exonerates them of any responsibility associated with the design and organization of work resulting in a possible aversion to it but also serves as a basis to justify the establishment of labor organization and governance systems that seek to limit worker power and freedom.

⁷Obviously, the perspective of labor supply presented in this work is not consistent with the orthodox conception of labor demand; instead, here, it is recognized that labor demand is not a mathematical function dependent on salary, with conventional properties (Fleetwood, 2006). In this sense, the PK/I literature has traditionally highlighted that labor demand is associated, in a manner, with the existence of a job structure (Doeringer and Piore, 1971; Appelbaum, 1971; Galbraith, 1997). Thus, for example, Galbraith (1997, p. 15) defined this job structure as “a historically, socially, and politically specific set of status and pay relationships in the economy, within and between firms, within and across industries.” A possible perspective regarding labor demand that includes this aspect and that is specifically consistent with the concept of labor supply put forward in this work can be found in Fernández-Huerga (2017).

⁸Note that this implies recognizing, explicitly, that workers do not have—at least in the majority of cases—the power to assign themselves to job positions. Once again, the rules that govern the allocation processes depend on institutions and, in general, on the existing socio-economic phenomena in each labor market and on the power of the parties involved, varying from case to case. However, in the majority of situations, allocation decisions tend to be, ultimately, on the side of the employer.

⁹Fleetwood (2014, 2017) explained the interaction between agents and socio-economic phenomena from the particular perspective of critical realism and more specifically from the morphostatic-morphogenetic approach developed by Archer (1995). However, the essential elements that characterize this agency-structure (or agency/institutions) model are compatible—especially when certain terminological ambiguities are eliminated (Fleetwood, 2008a)—with the view of many institutional and post Keynesian economists, such as Hodgson (1998a, 2003, 2006), Fernández-Huerga (2008), and even Lavoie (1992). For example, Hodgson (2003, 2006) has attempted to explain repeatedly that institutions—understood as “systems of established and embedded social rules” (Hodgson, 2006, p. 18)—causally influence (but do not determine) the actions of individuals through the process of habituation and therefore influence the generation and transformation of individual habits; simultaneously, institutions are conditioned by and dependent on the habits and actions of individuals, although they are not entirely reducible to them because, among other reasons, institutions restrict and allow human behavior and influence the aspirations, intentions and actions of individuals through a process of “reconstructive downward causation.”

¹⁰In the context of labor-supply decisions this is due to different motives, which include first, because in the majority of cases not everything is known about each attribute presented by a given job and its evolution over time; second, because despite the fact that one can achieve a certain (imperfect) degree of knowledge about these attributes, in many cases they cannot be numerically valued or quantified; and third, because these different attributes can affect different needs of the individual, so it is not possible to apply a common valuation scale or apply compensation between them.

¹¹In the context of labor-supply decisions this is due to different motives, which include first, because in the majority of cases not everything is known about each attribute presented by a given job and its evolution over time; second, because despite the fact that one can achieve a certain (imperfect) degree of knowledge about these attributes, in many cases they cannot be numerically valued or quantified; and third, because these different attributes can affect different needs of the individual, so it is not possible to apply a common valuation scale or apply compensation between them.

¹²Although it is true that the location of labor-supply decisions in a context of uncertainty is a hallmark of the post Keynesian approach, perhaps excessive emphasis is placed on uncertainty affecting a specific attribute: wage (associated with liquidity preference). To a certain degree, this retains the idea that the only relevant variable for decision-making is wage; therefore, it is convenient to explicitly break with this thinking, recognizing that uncertainty affects every aspect involved in this type of decision.

¹³As McGregor, Camfield, and Woodcock (2009) indicated, the characterization in Ryan and Deci (2001) of the concept of eudaimonic well-being is also consistent with the theory of needs developed by Doyal and Gough (1991) and with Sen’s capabilities approach.

¹⁴The interest in the existence of differences in individuals’ productive capacities generated by distinct learning environments at work and in other social environments was already present at the origins of the theory of labor market segmentation and the emergence of the theory of internal labor markets (Doeriger and Piore, 1971; Piore, 1969, 1975).

¹⁵The existence of different control or effort extraction mechanisms is an element that is typically mentioned by the theory of labor market segmentation as a cause of labor segmentation (Edwards, 1979; Gordon, Reich, and Edwards, 1982). Furthermore, the first descriptions of dual labor markets usually underscored the parallels between workers’ behavior and traits and the characteristics of their jobs, with a strong emphasis on the mutual retro-alimentation effect (Doeringer and Piore, 1971).

¹⁶This is linked with the vision of some theorists of labor market segmentation, who hold that the fundamental feature of secondary workers is that they have a series of economic and social disadvantages that can be exploited by employers (Rubery, 1987).

Additional information

Notes on contributors

Eduardo Fernández-Huerga

Eduardo Fernández-Huerga, Department of Economics and Statistics, University of León.

Jorge García-Arias

Jorge García-Arias, Department of Economics and Statistics, University of León.

Ana Salvador

Ana Salvador, Department of Economics and Statistics, University of León.