Key insights and ideas for thirteen core topics in economics, organised by selecting the most relevant theoretical approaches per topic and contrasting them with each other.
This chapter provides a map through the complex jungle of economic theories. There are many different theoretical approaches, and each aspect of the economy has been analysed by a number of different ones. However, it is neither feasible nor productive for students to engage with every possible angle for every topic. Hence, the chapters on different topics, together with Building Block 8: Economic Theories, sets out an alternative approach: pragmatic pluralism. Rather than pursuing the extreme of either only focusing on one approach, or including every possible strand of thought for every topic, we propose a pragmatic middle ground: teaching a select number of approaches for each topic. In this way, it is possible to introduce students to the variety and diversity of economic thinking, whilst still having enough time and space to properly discuss each of the insights in detail with them.
Labour forms a crucial part of our lives. Besides sleeping, we spend most of our time working. Labour is also the backbone of the economy as a whole. Understanding the role of labour in society is therefore important for any economist. A key question in the field is whether work should be understood as a process of self-realisation that has value in itself, or rather as a disutility, only necessary because it allows us to produce the consumption products we want. Another key insight in this field is that our cultural understandings of work shape how the economy functions.
Main opposing perspectives
■ Marxian political economy: Alienation and exploitation
■ Neoclassical economics: Labour as necessary disutility
Main complementary perspective
□ Cultural approach: Work can give you dignity and identity
Additional perspectives and insights
+ Feminist economics: Unpaid labour is everywhere
+ Social network analysis: It is not what you know but who you know
Main opposing perspectives: Marxian political economy and neoclassical economics
A key difference of perspective on labour is whether one sees it as a necessary evil or as the way in which people can fulfil their personal possibilities. The former is linked to neoclassical economics and causes one to focus on how much money, and thereby the ability to consume, people demand in return for working. The latter is connected to Marxian political economy and focuses on how economic structures can help or prevent people from freely expressing themselves through their work.
Marxian political economy: Classical political economy developed the labour theory of value, which argued that all wealth in economies was derived from labour. Marxian political economy builds on this idea, but puts more emphasis on the idea that workers are exploited, because they receive only a portion of all the value their work creates. The other part of the created value, sometimes called surplus, goes to the capitalists, who derive their claim based on their private property, control over the means of production, rather than their work.
Marxian political economy argues that labour is the way in which humans can realize themselves, but that in capitalist economies workers, as well as capitalists, are alienated, since they are not free. Capitalists are forced by competition to behave in certain ways if their businesses are to survive, while workers are forced to sell their labour in order to buy the necessities of life. In this economic system, people are treated more like instruments or things which are to be used for the goal of producing economic profit, than as persons with their own individuality and wellbeing.
Building on Hegel’s ideas of dialectics and self-development, Marx argued that human beings possess both their actual and potential selves. In contrast to Hegel who emphasized ideas and spiritual aspects, Marx thought this process of self-actualization happens through labour and material aspects. An economy which forces people to sell their capacity to transform the world, their labour, causes people to be estranged from their human nature.
Neoclassical economics: Whereas Marxist political economy considers labour the activity with the potential for self-realisation, neoclassical economics thinks of labour as disutility which is only engaged in because it enables consumption. In neoclassical economics, people consume as much and work as little as possible, each determining for themself what is the optimal balance between the two providing the most aggregate utility.
In contrast to classical and Marxian political economy, neoclassical economics is based on the subjective theory of value, which argues that the value of products is determined by the individual subjective desires for them. As such, labour is no longer at the core of economics. And as the focus shifts from production to exchange, the topic of labour is about the labour market, one among many markets albeit one with some special characteristics. These special characteristics, such as downward wage rigidity and monopsony, cause the labour market to function ‘imperfectly’ and thereby, for example, to give rise to unemployment.
Similar to work, education is seen through this instrumental lens of enabling more consumption at a later point in time. By studying, people invest in their ‘human capital’, similar to how businesses invest in machines, as this ‘human capital’ enhances people’s ability to produce economic value and thus will increase their future wage. Decisions about whether to study (more) are made ‘rationally’ meaning that people will sacrifice their short-term earnings and devote time to education if the higher future earnings, also referred to as the ‘return on investment in human capital’, will provide more overall utility. In Marxian political economy, the term ‘labour power’ is generally used to refer to the mental and physical capabilities of people that make them more or less productive. In contrast to neoclassical economics, the emphasis is, however, put on the differences with other forms of capital, such as machines, land and shares. In contrast to other forms of capital, people still need to actually work to earn their ‘interest’ on human capital and one cannot sell one’s ‘human capital’, except for in the case of slavery.
Main complementary perspective: Cultural approach
In contrast to most economic approaches, cultural economists have pointed out that labour has many cultural aspects besides its material ones. People do not only work in order to make a living, they also do it for a sense of dignity and identity. Perhaps the most famous early study into labour from a cultural perspective is Max Weber’s book The Protestant Ethic and the Spirit of Capitalism, in which he focussed on the impact of religion on the work ethic. Today, in many countries work is generally seen as a virtue, priding hard work and diligence while disapproving laziness and idleness. For this reason, being unemployed means more than simply losing one’s income. It also results in a loss of regular activity, time structure, social contact, a sense of purpose, identity and status (Jahoda deprivation theory of unemployment).
Additional perspectives and insights
Feminist economics: While most approaches treat labour as a synonym with paid labour, feminist economists have pointed out that this exclusive focus on formal paid work blinds us for many different forms of unpaid labour, such as self-subsistence farming, voluntary work, housekeeping, and care work. Care has a particular important role in the feminist perspective, as it is seen as crucial for the creation, development and maintenance of human capabilities as well as social bonds, on which the economic activities critically depend.
Social network analysis: In contrast to the neoclassical idea that it is people’s productivity and human capital that matters, social network analysis emphasizes the importance of personal connections. In other words, it is not what you know but who you know. Their research indicates that in particular “weak ties”, relations with acquaintances as opposed to close friends and family, matter. Having more connections leads to having a higher wage and less likely being unemployed. The reason for this seems to be that these weak ties function as bridges between clusters of people and in this way are crucial for spreading and communicating information to more people.
Chapters & Papers:
- Economics: The User’s Guide by Ha-Joon Chang, from 2014, chapter 10. This brief and accessible pluralist book contains a useful introductory chapter on work and unemployment.
- Economics After The Crisis by Irene van Staveren, from 2015, chapter 8. This well-written textbook which in one chapter sets out the neoclassical, post-Keynesian, social economic and institutional perspectives on labour markets.
- The Economy by The CORE Team, from 2017, chapters 3, 9, 14 & 16. This successful textbook introduces students to economics of work, labour markets, unemployment and technological change.
- Introducing a New Economics by Jack Reardon, Maria A. Madi, and Molly S. Cato, from 2017, chapters 6 & 7. This ground-breaking textbook introduces work and unemployment and weaves together pluralist theory and real-world knowledge.
- Principles of Economics in Context by Jonathan Harris, Julie A. Nelson and Neva Goodwin, most recent edition from 2020, chapter 10. This useful textbook, which pays particular attention to social and environmental challenges, contains a chapter on labour markets.
- Capitalism: Competition, Conflict, Crises by Anwar Shaikh, from 2016, chapters 4, 6 & 14. This impressive and extensive book compares multiple perspectives on many traditional economic topics including production, wages and unemployment.
- The Routledge Handbook of Heterodox Economics: Theorizing, Analyzing, and Transforming Capitalism by Tae-Hee Jo, Lynne Chester, and Carlo D’Ippoliti, from 2017, chapters 25 & 35. This broad and diverse book sets out a variety of theories on labour processes and full employment.
- Alternative Ideas from 10 (Almost) Forgotten Economists by Irene van Staveren, from 2021, chapter 5. This book emphasizes often ignored and neglected ideas and contains chapters on the ideas of Barbara Bergmann on gender biases.
- The Handbook of Economic Sociology by Neil J. Smelser and Richard Swedberg, from 2005, chapters 12, 14, 17 and 25. This extensive and yet accessible book for non-sociologists, provides an impressive and useful overview of the field of economic sociology, including four chapters on labour markets and trade unions, work and occupations, networks, and education.
- Job Search and Network Composition: Implications of the Strength-of-Weak-Ties Hypothesis by James Montgomery, from 1992. An influential paper in social network analysis on the importance of ‘weak ties for finding a job and the level of the wage.
- Labour: A Heterodox Approach by Jean Vercherand, from 2014. This short book introduces students to the economics of labour in a pluralist and historically grounded way, paying attention to classical, neoclassical, Keynesian, Marxian and Schumpeterian theories and ideas.
- Economics of Imperfect Labor Markets by Tito Boeri and Jan van Ours, from 2013. This advanced textbook focuses on the economics of labour market institutions, such as minimum wages, unemployment policies, employment regulation, family policies, wage negotiations, pensions, education and migration policy.
- The Sociology of Work: Introduction by Keith Grint, from 1991. This book provides a broad introduction of work by discussing its history, different classical and contemporary theories, industrial relations, gender, race/ethnicity, technology and globalization.
- The Sociology of Work: Continuity and Change in Paid and Unpaid Work by Stephen Edgell, from 2005. Another, but more recent, introduction into work, focusing on de- and upskilling, alienation, fordism, unemployment, globalization, and industrial, service, domestic, non-standard and home work.
- Paid and Unpaid Labour in the Social Economy: An International Perspective by Sergio Destefanis and Marco Musella, from 2009. This book introduces students to the different ways in which work can be organized, whether it is through nonprofit organizations, voluntary associations, households, cooperatives or social enterprises.
- Getting A Job by M. Granovetter, from 1974. A classic in social network analysis introducing readers to the importance of personal relations in understanding labour market outcomes.
- The sociology of labour markets by Ralph Fevre, from 1992. This book introduces students to the sociology of labour markets and how it relates to the economics of labour markets, paying particular attention to institutions, social relations, values, and the state.
- Sourcebook of labor markets: Evolving structures and processes by Ivar Berg and Arne L. Kalleberg, from 2001. This collection of essays explores how labour markets have evolved, focusing on changing institutional structures, employment relations, inequality and discrimination.
- The Oxford Handbook of Women and the Economy by Susan L. Averett, Laura M. Argys, and Saul D. Hoffman, from 2018. One-third of this collection of essays is devoted to the role and position of women in the labour market, including chapters on the gender wage gap, labour force participation, racial differences, taxes, and the feminist perspective.
- Handbook of Labor Economics by Orley Ashenfelter & David Card, most recent edition from 2010. A collection of essays on recent research on labour markets, focusing on racial and gender inequality, human capital development and intergenerational mobility, institutional reforms and imperfect competition, and lifecycle choices and expectations.