ABSTRACT
The previous two chapters have established the importance of nonwage labour costs within the average firm’s total labour cost considerations. With perhaps a somewhat slow adjustment lag, the growth in the postwar significance of these costs has been accompanied by a growth in the economics literature devoted to analysing their role in the functioning of labour markets. Accordingly, the following six chapters attempt to present some of the major developments that have taken place. An essential starting point is to establish the reasons why firms incur NWLCs and it is on this aspect of the subject that most of the present chapter concentrates. The main explanations are ordered under the headings ‘human capital’, ‘collective bargaining’ and ‘technical’ in sections 4.1, 4.2 and 4.3, respectively. However, one category of NWLC, indeed one of the quantitatively most important, is in no sense incurred by the firm but, rather, is imposed on it. This is broadly covered by the ‘obligatory social welfare’ cost heading in Table 3.1. The study of the growth of legislatively imposed costs on firms constitutes a vast subject in its own right and we shall be content to outline, in section 4.4, some of the more important features and trends. This section is followed by discussion of a highly related topic in section 4.5. This concerns the ability of the firm to pass on obligatory social welfare taxes in the form of compensating wage differentials or price mark-ups. In order to gain a flavour of the subject matter of subsequent chapters, the discussion throughout the chapter is also intended as a vehicle for introducing some of the economic issues that are to be examined in more depth later.
