Labour Markets And Competition As An Evolutionary Process

The development in the past decade of evolutionary models of technological and organizational change has greatly enriched our understanding of the mechanisms by which innovations are absorbed into the economic system. As is by now well understood, technical progress consists not only in the innovations alone but on the process by which they are diffused, superior methods gradually displacing inferior methods. From this absorption or diffusion process follow all the social and economic consequences of innovation. Based upon the fundamental evolutionary notions of variation and selection it has been possible to develop models of creative destruction which enable one to make the link between the innovative behaviours of firms, the idea of competitive advantage and the process of structural change. Beginning with the work of Nelson and Winter (1982) a wide variety of approaches have explored and extended the evolutionary themes with, in more recent years, the development of sophisticated simulation models. ¹ A central question in all these approaches is the role of competition in raising the efficiency with which resources are used and this is the general background theme I shall explore in this brief paper. My precise purpose is to extend the familiar discussion of competitive selection in product markets by adding a process of competitive selection in factor markets, i.e. the labour market. I shall then explore how factor market selection influences the ‘progressive’ nature of the competitive process, that is to say, whether competition results in superior methods of production displacing inferior methods.