chapter  7
19 Pages

Mainstream economics and the hidden abode of production

Research in labour economics, as shown in Chapter 6, became dominated by the technical and formal apparatus of neoclassical economics after the mid1950s. Mainstream labour economics, in effect, was transformed into neoclassical labour economics. While the mainstream approach to labour economics has been challenged over more recent years, it has largely succeeded in deflecting criticism and indeed has actually widened its sphere of influence.1 A notable development in mainstream economics since the 1970s has been the generation of theories based on the assumption of imperfect and asymmetric information. Such theories have become a prominent aspect of the analysis of work and labour in the mainstream (see Alchian and Demsetz 1972; Williamson 1975, 1985; Akerlof and Yellen 1986; Lazear 2000b). It has been argued that, in the absence of perfect information and hence also perfect monitoring, employers cannot rely on the employment contract to obtain the labour they require from the workers they hire. Rather it is assumed that action must be taken by employers to get their workforce to work hard. In the past, as was outlined in Chapter 5, neoclassical economists assumed

that workers were wholly indifferent towards the content of their work. It was implied that even if employers lacked the information to monitor workers they would not face any problem achieving their goals, so long as they paid workers wages that compensated them for the opportunity cost of work time. This view has been challenged in modern mainstream economics. Now, it is assumed that workers have interests in minimising their work effort. Workers, so the theory goes, are compulsive ‘shirkers’ and must be compelled to work. Accordingly, the workplace is seen as a place of

conflict, with employers seeking to discipline workers by various rewards and sanctions. The modern ‘information-theoretic’ economics has opened the way for

mainstream economists to theorise the internal relations of the workplace. Where previously mainstream economists ignored the interactions between workers and employers, they have latterly come to consider such interactions with a new vigour and enthusiasm. The willingness of contemporary mainstream economists to deal with social relations at work, albeit as the outcome of informational imperfections, has helped to make the labour research of mainstream economics more familiar and also potentially more acceptable to other social scientists. In this respect, it has facilitated the process of ‘economic imperialism’ (see Fine 2002). Another significant recent development in mainstream economics has

been the emergence of research focused upon the analysis and measurement of human happiness (Oswald 1997; Frey and Stutzer 2002; Blanchflower and Oswald 2004; Layard 2005). The new ‘economics of happiness’, among other things, has entailed an extension in the subject matter of labour economics. It has addressed directly the qualitative aspects of work and their impact on worker well-being. Work is seen as important not just as a route to consumption but also as a potential source of intrinsic reward. In empirical research, attention has been paid to data on job satisfaction taken from nationally representative social surveys. These data have been used to measure and quantify workers’ perceptions and experiences of work itself. Such research has created some common analytical ground between mainstream economics and the other social sciences. The main aim of this chapter is to assess critically approaches that have

looked to develop and extend the analysis of work in modern mainstream economics. In order to do this, the chapter will also offer an alternative conception of the nature and quality of work to that contained within mainstream economics, an alternative conception drawn from non-mainstream economics and from the other social sciences. The chapter begins with an examination and critique of the longstanding theory of compensating wage differentials. This theory purports to augment the simple income-leisure model of labour supply by considering the non-pecuniary elements of work. However, as argued below, it rests on an inadequate conception of the influence of work on human well-being. Against the subjective approach to well-being at work proposed by the theory of compensating wage differentials, an objective notion of well-being at work is developed, stressing the importance of human needs. The following two sections consider the moves made by modern mainstream economists to uncover the internal organisation of work. Such moves are found to be based on an incorrect conception of the employment relation. The emphasis on the problem of ‘shirking’ and ‘opportunism’ in the context of imperfect information conceals rather than illuminates the politics of production. To comprehend how the employment contract is enforced, it is important to consider the complex balance of

conflict and consent in the workplace. The penultimate section appraises the contribution of the new ‘economics of happiness’ to the analysis of the quality of work. Among the chief faults with this approach is its failure to address the role and importance of human needs in the assessment of job quality. The final section offers some concluding remarks.