Labour

Labour is one of the rare markets¹ that have almost always given rise to specific, intensive and recurrent public intervention since antiquity. Evidence dating as far back as the Code of Hammurabi (17th or 18th century BCE) shows that it was then, as it still is, one of the rare markets whose prices are subject to scaling. In Rome the labour market was governed by different rules that prefigured the guilds of the European Middle Ages. These guilds officiated for seven centuries, pronouncing for each trade a set of rules which, today, can be associated with different branches of law, such as those governing competition, consumption and labour.²

The aim of this chapter is to present a number of mainly qualitative characteristics of or having to do with the labour market. These characteristics have been well established and are subject to wide consensus among the jurists, sociologists, historians and contemporary witnesses that have expressed views on the subject. However, these characteristics have been given little attention or else ignored by economists. They can be called “stylised facts”, the terminology used by Nicholas Kaldor.¹ These generally very elementary facts are related to (1) the nature of the wage relation and the interpretation made of it by jurists; (2) the conflictual nature of this relation and the upheavals historically associated with it — the famous “social question” of the 19th century; (3) the content and recurrence of the claims made by employees and the organisations that represent them; (4) the reception given to these claims by employers and economists; and (5) the public intervention that this conflictual nature triggers with the edification of laws specific to only wage labour, a point that should be emphasised. In parallel, we shall examine other economic and social facts linked to this problem of salaried employment, in particular the fluctuations of the economy through different crises.

According to the basic neoclassical model, the determination of the level of employment and the unit price of labour is dealt with as belonging to a perfectly competitive market, comparable to that of a consumer good. The only difference is that the roles of the agents are reversed. On the one hand, companies are suppliers on the market for goods and demanders on the labour market. On the other hand, households¹ are demanders on the market for goods and suppliers (of their productive services) on the labour market. The wage rate (or equivalently, the unit wage; still more concretely, the hourly wage) and the volume of labour (the number of people employed multiplied by the duration of their work done at a given intensity, or work rates) result in the free confrontation of the global supply of, and demand for, labour. This confrontation is schematised in the form of a Saint Andrew’s cross on a plane where the horizontal axis measures the volume of work in hours while the vertical axis measures the wage rate. Each segment of the cross expresses the relation established between the volume of labour demanded or supplied and the wage rate (see Figure 2.1).

The historic and legal analysis of the labour market developed in Chapter 1 provided understanding of the nature of this market. The latter only exists because, beforehand, an asymmetry in the appropriations of production factors belonging to the individuals involved exists. Some possess capital and labour and are economically independent as individual producers (independent workers) or employer-producers. Others, bereft of capital, in order to live, are obliged to sell their labour power to employers on whom they depend economically. Labour is therefore a market in which the balance of power between the parties is fundamentally asymmetric, hence its intrinsically conflictual nature. The latter has made legislators aware that the great principle of freedom of choice, underlying the legal theory of contracts, could not be applied to most workers with respect to the relation that binds them to their employers. Hence, the whole objective of labour law (Ch. 1, §1.3) has consisted in providing a legal framework for an employer’s de facto power over employees. This has resulted in the characterisation through jurisprudence of the employment contract, whose spirit, so jurists say, is one of a relation of economic and legal subordination by which an employee exchanges a freedom against a security. On the one hand, employees give up the freedom of their availability and the use of their time as they deem fit to place themselves under the authority of an employer, who will supervise them in the execution of the work to be performed.

The previous chapter was devoted to refuting the basic neoclassical representation of labour supply, according to which households are assumed to work for a duration and at an intensity such that they optimise their choices. This means that the global volume of labour taken on by companies does not correspond to the aggregation of optimal supplies from individuals. This raises the question of the determinants of this global volume.

Chapter 3 permitted validating the behaviour of the labour movement which sought, by way of offensive strikes during the growth phases of the Juglar cycle, to reduce working time in order to increase wages and thus make this cycle more regular. This chapter also allowed interpreting the observation made by historians that during the growth phases of this cycle, the profits of companies increased faster than wages, whereas the contrary occurred during recession phases. We showed that the origin of these facts lies in the asymmetry of power predominating in the labour market between employers and employees. In a context of technical progress, employers can influence the volume of work supplied by employees to such an extent that gains in productivity and the rise in added value generated during growth phases benefit the income gleaned from capital more than that earned from work. After several years, this growth results in a crisis of overinvestment and overproduction.

The great innovation of neoclassical economics in the second half of the 19th century consisted in reasoning the notions of use value and cost (i.e. utility and disutility) not only in terms of totality and average — which is what classical economics had done already — but also marginally with the introduction of marginal analysis. Thus the concept of marginal utility permitted better understanding of demand and its paradoxes: highly useful products vital for living such as water and food are generally sold at much lower prices than superfluous products like gold and diamonds. And notions of marginal utility and marginal cost, which generally form the background of the definition of curves of supply and demand for goods, have made it possible to represent market adjustment mechanisms much more accurately in the short term. The “marginalist revolution” — the name given to the introduction of this new form of economic reasoning — opened the path to all types of optimisation calculations; in other words, how to obtain maximum advantage from rare resources through an alternative use. The crowning achievement of this theoretical construction was the demonstration of the conditions for general equilibrium over all markets. Developed by Walras (in 1874) and conclusively completed by Arrow and Debreu (in the 1950s), this analysis was aimed at verifying Adam Smith’s fine intuition regarding the irreplaceable role of markets in coordinating economic activities.

Before drawing the final conclusions of this research, let us summarise the analytical approach taken.