ABSTRACT
Economists working within the Austrian methodological tradition have only occasionally devoted their energies to the analysis of issues in labor economics. This lack of attention is at once both puzzling and promising. It is puzzling because there are strong elements of subjectivism in any meaningful analysis of human behavior in labor markets, almost regardless of the methodological school from which such analysis proceeds. The clearest example is the analysis of labor supply in mainstream economic analysis. The classic exposition of labor supply as an effort-leisure tradeoff is the only part of the neoclassical model in which final utility in consumption is employed to explain the cost schedule of a factor of production. The concept of the role of final utility in supply is of course one of the hallmarks of Austrian economics that distinguishes it from the Marshallian conception of supply-demand interaction. There are as well a number of other elements of subjectivism in neoclassical labor economics that arise simply because the supply of labor cannot be separated from the person supplying it. These subjective determinants all fit under the general heading of “equalizing differences in wages.” Given the acceptance of some elements of subjectivism in neoclassical labor economics, the methodological distance between Austrian and mainstream economists is comparatively short. But this short distance suggests that there are heretofore unexploited, low-cost opportunities for modern Austrian economists to explain real-world phenomena in a more satisfactory fashion. Also promising is the possibility of critiquing along Austrian lines the multitude of labor market policies extant in Western economies. This chapter is devoted to the following matters: (1) the characteristics of the Austrian approach that are most appropriate to the understanding of the workings of labor markets; (2) the potential for the Austrian approach to policy analysis in the area of labor market interventions; (3) the extension of Austrian conceptions of capital structure and trade cycle theory to the labor market; and (4) a critique of macroeconomic policy in light of Austrian insights into labor market processes.
