UNIT -1
Nature and scope of Labour Economics
Labour at all times, been recognised as a separate factor of production. Any work whether manual or mental, which is under- taken for a monetary consideration is called 'labour’ in economics.
Labour economics: A subfield of economics that studies markets in which labour services are exchanged for wages. It concerns itself with the interaction of various decision makers in markets which determine the price and amount of labour services exchanged.
The main decision makers include:
- Households or Individuals (labour supply)
- Firms or Employers (labour demand)
- Government
The interactions between these players in the labour market determines
I. Equilibrium price- the wage that workers receive
II. Equilibrium quantity- the amount of work that the people do in the economy
Labour economics has to deal with may be stated as manpower planning, labour organization, labour relations and public policy wage and employment theory, collective bargaining theory and practice of social security and welfare etc.
According to G.P. Sinha, the following areas of study may be listed to all under the preview of labour economics
- Institutional framework of the particular economic system
- Size and composition of the labour force and labour market
- Labour as a factor of production - productivity and efficiency condition of work industrial relation standard of living
- Labour’s risk and problems
- Trade unionism
- Labour legislation
Another different area of labour economics are
- Advance theory of labour economics
- Labour laws
- Principles of personnel management and job evaluation
- Principle and practice of labour welfare
- Theory and practice of trade union management.
1. Institutional framework of the particular economic system
Economic System
An economic system is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country. Economic systems regulate the factors of production, including land, capital, labor, and physical resources. An economic system encompasses many institutions, agencies, entities, decision-making processes, and patterns of consumption that comprise the economic structure of a given community.
Types of Economic Systems
There are many types of economies around the world. Each has its own distinguishing characteristics, although they all share some basic features. Each economy functions based on a unique set of conditions and assumptions. Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies.
a) Traditional economic system
The traditional economic system is based on goods, services, and work, all of which follow certain established trends. It relies a lot on people, and there is very little division of labor or specialization. In essence, the traditional economy is very basic and the most ancient of the four types.
Some parts of the world still function with a traditional economic system. It is commonly found in rural settings in second- and third-world nations, where economic activities are predominantly farming or other traditional income-generating activities.
There are usually very few resources to share in communities with traditional economic systems. Either few resources occur naturally in the region or access to them is restricted in some way. Thus, the traditional system, unlike the other three, lacks the potential to generate a surplus. Nevertheless, precisely because of its primitive nature, the traditional economic system is highly sustainable. In addition, due to its small output, there is very little wastage compared to the other three systems.
b) Command economic system
In a command system, there is a dominant, centralized authority – usually the government – that controls a significant portion of the economic structure. Also known as a planned system, the command economic system is common in communist societies since production decisions are the preserve of the government.
If an economy enjoys access to many resources, chances are that it may lean towards a command economic structure. In such a case, the government comes in and exercises control over the resources. Ideally, centralized control covers valuable resources such as gold or oil. The people regulate other less important sectors of the economy, such as agriculture.
In theory, the command system works very well as long as the central authority exercises control with the general population’s best interests in mind. However, that rarely seems to be the case. Command economies are rigid compared to other systems. They react slowly to change because power is centralized. That makes them vulnerable to economic crises or emergencies, as they cannot quickly adjust to changed conditions.
c) Market economic system
Market economic systems are based on the concept of free markets. In other words, there is very little government interference. The government exercises little control over resources, and it does not interfere with important segments of the economy. Instead, regulation comes from the people and the relationship between supply and demand.
The market economic system is mostly theoretical. That is to say, a pure market system doesn’t really exist. Why? Well, all economic systems are subject to some kind of interference from a central authority. For instance, most governments enact laws that regulate fair trade and monopolies.
From a theoretical point of view, a market economy facilitates substantial growth. Arguably, growth is highest under a market economic system.
A market economy’s greatest downside is that it allows private entities to amass a lot of economic power, particularly those who own resources of great value. The distribution of resources is not equitable because those who succeed economically control most of them.
d) Mixed system
Mixed systems combine the characteristics of the market and command economic systems. For this reason, mixed systems are also known as dual systems. Sometimes the term is used to describe a market system under strict regulatory control.
Many countries in the West follow a mixed system. Most industries are private, while the rest, comprised primarily of public services, are under the control of the government.
Mixed systems are the norm globally. Supposedly, a mixed system combines the best features of market and command systems. However, practically speaking, mixed economies face the challenge of finding the right balance between free markets and government control. Governments tend to exert much more control than is necessary.
2. Size and composition of the labour force and labour market
Labor Force
The labor force is the number of people who are employed plus the unemployed who are looking for work. The labor pool does not include the jobless who aren't looking for work.
For example, stay-at-home moms, retirees, and students are not part of the labor force. Discouraged workers who would like a job but have given up looking are not in the labor force either. To be considered part of the labor force, you must be available, willing to work, and have looked for a job recently. The official unemployment rate measures the jobless who are still in the labor force.
The size of the labor force depends not only on the number of adults but also how likely they feel they can get a job. So, the labor pool shrinks during and after a recession. That's true even though the number of people who would like a full-time job if they could get it may stay the same. The real unemployment rate measures all the jobless, even if they're no longer in the labor force
The labor force participation rate is the number of people who are available to work as a percentage of the total population.
Labor Market
The labor market is the place where the supply and the demand for jobs meet, with the workers or labor providing the services that employers demand. The worker may be anyone who wishes to offer his services for compensation while the employer may be a single entity or an organization that is in need of an individual to do a specific job or to complete a task. The worker is then comparable to a seller while the employer is the buyer.
Components of the Labor Market
The labor market comprises four components, namely, the labor force population, applicant population, applicant pool, and the individuals selected.
a) Labor force population
The labor force population or labor force participation refers to the number of individuals who are available to work in a labor market. It considers all workers who are offering their skills and services for employment regardless of the industry they are in.
b) Applicant population
The second component is the applicant population which refers to the people who are applying for a particular job that suits their expertise and skills. Recruiters take a look first at the labor market and then look next for individuals who meet the skills and qualifications that are set for a particular job. For example, the people who are looking for IT, graphics design, and similar jobs belong to the same applicant population which is targeted by recruiters who are looking for this type of professional.
c) Applicant pool
The third component is the applicant pool, which is the actual number of people who initially signified their interest to apply for a particular job by sending in their resume. It may very well be considered the first part of the selection process where the recruitment department of a specific organization receives applications and screens them to determine who advances to the next round of screening.
d) Individuals selected
The fourth component is the individuals selected, which simply means the individual or individuals who’ve made it through the screening process and have been hired for the job. Of course, this is judged based on a number of factors, and the person is screened against a carefully determined set of qualifications.
Labor market analysis involves the following processes:
- Identifying the various labor markets for a given type of position. It involves looking at the appropriate labor market based on a specific position.
- Checking the market for salaries for a common position. The process involves checking similar positions in the labor market in order to determine if an organization’s salary rates are at about the same level.
- Determining market trends. This step answers questions as to how other organizations are compensating their workers, including their pay practices.
- Adjusting salary packages or structure of positions. After checking the salary rates of other organizations and finding out if there is any need for adjustments, the department then makes recommendations for such adjustments and restructuring of positions in the company.
- Making consultations with management. This process involves sitting down with management to determine their workforce needs.
3. Labour as a factor of production - productivity and efficiency condition of work industrial relation standard of living
Labour actually means any type of physical or mental exertion. In economic terms, labour is the efforts exerted to produce any goods or services. It includes all types of human efforts – physical exertion, mental exercise, use of intellect, etc. done in exchange for an economic reward. Let us see the features of labour as a factor of production.
Characteristics of Labour as a Factor of Production
1] Perishable in Nature
Labour is perishable in nature. This simply means that it has to storage capacity, i.e. labour cannot be stored. If a worker does not turn up to work for one shift his labour of that shift is lost completely. It cannot be stored and utilized the next day. That labour is lost permanently. A laborer cannot store his labour to use at another time. So we say labour as a factor of production is highly perishable.
2] Labour is Inseparable from the Labourer
This means the physical presence of the laborer is compulsory. To sell his services the laborer has to be physically present at the place of production of goods or services. We cannot separate him and his labour power. So we cannot expect a welder to do his work from home, he has to present at the site of the work.
3] Human Effort
Labour is a unique factor of production in comparison with others. It is directly related to human effort, unlike the others. So there are certain special factors we must take into consideration when it comes to labour. Fair treatment of workers, rest times, suitable work environment, idle time, etc are just some such factors.
4] Labour is Heterogeneous
We cannot expect labour to be uniform. Every laborer is unique and so his labour power will also differ from the others. The quality and the efficiency of the labour will depend on the skills, work environment, incentives and other inherent qualities of the laborer.
5] Labour has Poor Bargaining Power
Labour as a factor of production has a very week bargaining power with the buyer of the services. It cannot be stored, isn’t very mobile and has no standard or reserve price. So generally laborers are forced to work for whatever wages the employer offers. In comparison to the employer, the laborers have very little bargaining power.
There is also the problem that laborers do not have any other reserves to fall back on. They are usually poor and ignorant. And this labour work is their only source of income. So they accept whatever wages the employer offers.
6] Not Easily Mobile
Labour as a factor of production is mobile, i.e. the laborers can relocate to the site of work. But there are many barriers to the movement of labour from one place to another. So we can say labour is not as mobile as some other factors of production like Capital.
7] Supply of Labour is relatively Inelastic
At any given point in time, the supply of labour in the market is inelastic. It cannot be increased instantly to keep up with the demand. So say there is a shortage of skilled labour in India, skilled laborers cannot be generated in a day, a week or even a year.
We may be able to import some labour for a short period. But generally, the supply of labour is very inelastic, since we cannot increase or decrease it instantaneously.
4. Labour’s risk and problems
Unfair labour practices on the part of employers and trade union of employers
1. To interfere with, restrain from or coerce workmen in the exercise of their rights to organize, from, join or assist a trade union, or to engage in concerted activities for the purposes of collective bargaining or other mutual aid or protection, i.e.
a. Threatening workmen with discharge or dismissal, if they join a trade union, b. Threatening a lock out or closure if a trade union is organized, c. Granting wage increase to workmen at crucial periods of the union organisation, with a view to undermining the efforts of the trade union organization
2. To dominate, interfere with or contribute, support, financially or otherwise to any trade union, that is to say
a. An employer taking an active interest in organizing a trade union of his workmen and
b. An employer showing partiality or granting favor to one of several trade unions attempting to organize his workmen or to its members where such a trade union is not a recognized trade union.
3. To establish employer sponsored trade unions of workmen.
4. To encourage or discourage membership in any trade unions by discriminating against workman, that is to say:-.
a. Discharging or punishing a workman, because he urged other workmen to join or organize a trade union.
b. Discharging or dismissing a workman for taking part in strike (not being a strike which is deemed to be an illegal strike under this act)
c. Changing seniority rating of workmen because of trade union activities d. Refusing to promote workmen to hire posts on account of their trade union activities
e. Giving unmerited promotions to certain workmen with a view to creating discord between other workmen or to undermine the strength of their trade union
f. Discharging office bearers or active members of the trade union on account of their trade union activities
5. To discharge or dismiss workmen-
a. By way of victimization
b. Not in good faith but in the colorable exercise of the employer’s right
c. By falsely implicating a workman in a criminal case on false evidence or concocted evidence
d. For patently false reasons
e. On untrue or trumped up allegations of absence without leave 145
f. In utter disregard of the principles of natural justice.
g. For misconduct of minor or technical character, without having any regard to the nature of the particular misconduct or the past record of service of the workman, thereby leading to disproportionate punishment.
6. To abolish the work of a regular nature being done by workmen and to give such work to contractors as a measure of breaking a strike.
7.To transfer a workman malafide from one place to another under the guise of following management policy.
8. To insist upon individual workman who are on a legal strike to sign a conduct bond as a precondition to allowing them to resume work
9. To show favouritism or partiality to one set of workers regardless of merit.
10. To employ workmen as ‘badlis’, casuals or temporaries and to continue them as such for the years with the object of depriving them of the status and privileges of permanent workmen.
11.To discharge or discriminate against any workmen for filing charges or testifying against employer in any enquiry or proceeding relating to any industrial dispute.
12. To recruit workmen during a strike which is not an illegal strike.
13. Failure to implement award, settlement or agreement.
14. To indulge in acts of force or violence.
15. To refuse to bargain collectively, in good faith with the recognized trade unions.
16. Proposing or continuing a lock out deemed to be illegal under this act.
If the employer of any establishment commits any of these acts then he will be liable for an offence of unfair labour practice.
Punishment for committing unfair labour practice
According to Section 25U of the Industrial Disputes Act, 1947, any person who commits any unfair labour practice will be punishable with imprisonment for a term which may extend to six months or with fine which may extend to one thousand rupees or with both.
5. Trade unionism
Section 2(h) of the Trade Unions Act, 1926 has defined a trade union as “Any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers, or between workmen and workmen, or between employers and employers, or for imposing restrictive conditions on the conduct of any trade or business,
And includes any federation of two or more trade unions.”
Then this definition talks about three relationships. They are relationship between the:
- Workmen and workmen
- Workmen and employers
- Employers and employers
6. Labour legislation
Labour law also known as employment law is the body of laws, administrative rulings, and precedents which address the legal rights of, and restrictions on, working people and their organizations. As such, it mediates many aspects of the relationship between trade unions, employers and employees. In other words, Labour law defines the rights and obligations as workers, union members and employers in the workplace. Generally, labour law covers:
Industrial relations – certification of unions, labour-management relations, collective bargaining and unfair labour practices;
Workplace health and safety;
Employment standards, including general holidays, annual leave, working hours, unfair dismissals, minimum wage, layoff procedures and severance pay.
There are two broad categories of labour law. First, collective labour law relates to the tripartite relationship between employee, employer and union. Second, individual labour law concerns employees' rights at work and through the contract for work.
The labour movement has been instrumental in the enacting of laws protecting labour rights in the 19th and 20th centuries. Labour rights have been integral to the social and economic development since the industrial revolution.
Purpose of labour legislation
Labour legislation that is adapted to the economic and social challenges of the modern world of work fulfils three crucial roles:
It establishes a legal system that facilitates productive individual and collective employment relationships, and therefore a productive economy;
by providing a framework within which employers, workers and their representatives can interact with regard to work-related issues, it serves as an important vehicle for achieving harmonious industrial relations based on workplace democracy;
It provides a clear and constant reminder and guarantee of fundamental principles and rights at work which have received broad social acceptance and establishes the processes through which these principles and rights can be implemented and enforced.
But experience shows that labour legislation can only fulfils these functions effectively if it is responsive to the conditions on the labour market and the needs of the parties involved. The most efficient way of ensuring that these conditions and needs are taken fully into account is if those concerned are closely involved in the formulation of the legislation through processes of social dialogue. The involvement of stakeholders in this way is of great importance in developing a broad basis of support for labour legislation and in facilitating its application within and beyond the formal structured sectors of the economy.
Key Takeaway
The main decision makers of labour economics include:
- Households or Individuals (labour supply)
- Firms or Employers (labour demand)
- Government
Scope of labour economics
- Institutional framework of the particular economic system
- Size and composition of the labour force and labour market
- Labour as a factor of production - productivity and efficiency condition of work industrial relation standard of living
- Labour’s risk and problems
- Trade unionism
- Labour legislation
Characteristics of Labour as a Factor of Production
1] Perishable in Nature
2] Labour is Inseparable from the Labourer
3] Human Effort
4] Labour is Heterogeneous
5] Labour has Poor Bargaining Power
6] Not Easily Mobile
7] Supply of Labour is relatively Inelastic
Reference:
1. Labour Economics by G.P. Sinha
2. Labour Economics by T.N.B Bragoliwal
