Wednesday, July 31, 2013

David Spencer — Underemployment As A Challenge To Orthodox Economics

The constraint on work hours raises important issues for economic theory in the sense that it implies that the labour market is not an idyll of free choice. Orthodox neoclassical economics assumes that workers "choose" the hours they desire based on their preferences. If workers want to work more they can do so. They will also be rewarded for the disutility of longer work hours with higher wages.
This fantasy world of free choice runs contrary to the reality of the labour market that exists in the UK and elsewhere. Workers are not “free to choose" the work they want but instead confront constraints both on their ability to secure paid work and when in work on their ability to work the hours they need and desire. Employers set work hours not workers and often employers will deny workers the work hours they need and desire. Workers can suffer not just involuntary unemployment but also involuntary underemployment.
Neoclassical economics fails to recognise and indeed denies the unequal bargaining power between capital and labour and its influence on labour market outcomes. Contrary to what neoclassical economics assumes, in the real world, workers are not able to realise their preferences at will; rather they face having to take jobs on a take-it-or-leave-it basis. In work, workers must settle for hours decided upon by employers. Employers will not accede to the demands of workers for longer work hours unless they stand to gain higher profits from doing so. They will also be liable to impose longer work hours against the will of workers if they find it profitable to do so. While some workers will be denied longer work hours, others will face being overworked.

Just as involuntary unemployment poses a challenge to neoclassical economics so too does involuntary underemployment. The latter exposes the fiction of neoclassical economics in relation to its depiction of workers as "free agents" who are able to decide their work hours at will. As a tool for understanding how the labour market operates including the creation and reproduction of involuntary underemployment, neoclassical economics is dangerously mistaken.
Mistaken or disingenuous? Is neoclassical economics designed as propaganda for vested interests allied against labor? See Michal Kalecki, Political Aspects of Full Employment.

When it comes to choosing between ignorance and complicity when vested interests and large sums of money are involved and the people involved are very smart, the rational choice is to prefer complicity unless shown otherwise. The conventional economics profession looks to be in bed with the money, and everyone knows what this is called. It's the "oldest profession in the world." Neoliberalism raising its ugly head out of the swamp of cronyism and corruption.

Underemployment As A Challenge To Orthodox Economics
David Spencer | Professor of Economics and Political Economy, Leeds University Business School, University of Leeds

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