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LABOUR MARKET ANALYSIS AND RESEARCH ----~--- ........ '--.----~..--~- .... -.. ~-
I. Concept o~~QQ~r Market
Labour Market is an important aspect of modern economy.
It represents the interaction of ~emands and supplies of
various categories of labour through which prices of these
categories of labour, i.e., wage rates are determined.
Theoretically, the concept of labour market, like that of the
markets for capital and commodities, does not necessarily
refer to any physical·placc, but represents an abstraction
of a system allocating and rewarding labour. Since labour
differs from capital and commodities due to human element
involved therein, the concept of labour market incorporates
considerations of the complex of economic and social forces
influencing the process through which employers recruit
vlorkers and workers seek employment .
. . Although labour market, like markets for commodities,
existed since almost the beginning of exchange economy, its
distinct identity came to be recognised only in recent stages
of the evolution of economic thinking. In early stages of
exchange economy, with self-sufficient household units, how
ever, the distinction between the consumer and producer roles
of an individual was very narrow and therefore labour market
1
2
did not attain a separate identity in the same sense in which
it operates in modern industrial economy. The tre~tment of
'labour market' in early classical writings reflects this
tendency, where labour market is treated analogous to the
markets for capital and commodities. In Post-Keynesian macro
economics, labour market is treated as a distinct market for
analytical purposes. Indeed, Keynesian revolution,has assigned
'labour market' a meaningful significance in economic litera
ture. The emergence of the concept of labour market reflects
growing need of human ,resource alJ oca tion for the maximisation'
of economic welfare which is consistent with optimum production
structure.
The main components o'f labour market are, the demand for
labour, the supply of labour and the wage determination. Prima
facie, they seem analogous to that of the markets for capital
and commodities, but in fact, there are marked differences in
their nature and responsiveness. For instance, the law of
supply that if price increases supply also increases holds
good only upto certain extent in the case of labour. The
phenomenon of bacln:ard bending supply curve is observed to be
valid to larger extent in case of labour than in cas es of
commodities and other inputs. In the same way, demand for
commodities is generally for direct consumption purposes,
while that for labour, except in case of some personal services,
is not for the direct consumption purpose. Demand for commo
dities influences the investment decisions and the technology
3
in production process which in turn determines demand for
labour, reflecting the derived nature of demand for.labour.
Since the main function of labour market is to match
workers and jobs and to fix remuneration in a manner that 1 ensures required quantity as well as quality of labour supply ,
its performance is judged by the efficiency v.lith vlhich labour
market processes perform this function. The functioning of
labour market thus depends upon the efficiency with which
allocation of labour among industries, regions and occupations
takes place. This is analysed through the nature of occupa
tional, industrial and regional wage differentials existing
in the market and the nature and patterns of mobility and
migrations. The information channels about the job vacancies
and availability of workers play vital role in bringing the
supply and demand for labour in equilibrium. In economic
theory, market processes have been vievled differently in
different theoretical framevJOrks. Therefore, a brief analysis
of the alternative theoretical models is attempted in the
following section.
The history of economic theory signified three theore
tical strands in the analysis of labour market behaviour.
1. T.S. Papola, "Economics of Labour Market", in V.B. Singh Edt., La~:r __ fui~~rch i.n ~IllQ.ia , Popular, Bombay, 1970, p. 1'70.
These involve more or less simplified outlines of the prin
cipal variables and relationships that characterize the
marketing proces.s and· correspond with three important theo
retical approaches which have evolved through time viz.,
classical, Neoclassical and Institutional.
The classical model give no special treatment to labour
market, because it was considered analogous to the markets
for capital and commodities. The classical thesis with res
pect to the distribution of workers among employments was only
a specific application of the general principle "Ihich the
classical economists understood to govern the distribution of 1 all resources among uses. Thus, the model merely applied
price determination analysis of demand and supply as a special
case to the wage determination.
In the short-run, supply of labour "laS assumed to be
constant. Therefore, demand for labour became decisive factor
in the analysis. It Was also assumed that the entrepreneurs
had certain amount of investible funds in a given ueriod as a
result of the past savings i.e., profits and these funds would
be invested in purchasin8 the factors of production. These
wage-funds constitute demand for labour. If the entepreneurs
had relatively lo'v wage-fund, demand for labour "[ould be less
and wage would be determined at low level.
--------------------1. Rottenberg, 8., .IOn Choice in Labour Market··, in.r. B.
McCormick and E. Owen 8mi th. Ed t . . The J;:Clbo~r __ t1a rket· , Penguin Modern Economics, 1968, p.52.
5 In the long-run however, there wOllld be factor substi
tution possibilities in response to the changes in factor
prices. Thus, if labour continued to be available in excess
to its demand even at lower v1age rate, there would be tendency
to shift to more labour intensive techniques of production.
Qut in money wagBs was therefore, considered by this model as
a solution to unemployment problem. However, the 10\'1est extent
of wages was assumed to be consistent with sUbsistent level of
workers. Thus in the long-run analysis, supply of labour was
assumed to be determined by the subsistence theory.
Since conditions of perfect competition \·rere assumed no
problems of wage differentials existed because of assumed
homogeneity of labour. Therefore occupational and industrial
wage differentials of the short-run analysis vlere removed in
the long-run analysis under the assumptions of perfect infor
mation, perfect mobility and zero cost of transfer. Therefore,
there was no unemployment and no· uncertainty in labour market
in the long-run.
However, Adam Smith made allowance for the continuation
of occupational wage differentials due to non-economic factors
like easiness or hardship, cleanliness or dirtiness, honour
ableness or dishonourableness, probability of sucqess etc.,
involved in the occupation; vlhich is called 'compensating'
wage differences as a function of differences in the nonwage
qualities of different jobs; and 'real' wage differences as .a
function of restrictions on freedom of occupational choice. 1
But, in the analysis, these Here treated as exceptions tending
to change with the changes in social outlook. In other words,
human element and other non-economic factors effecting workers'
behaviour in labour market were considered in economic thinking
of classical economists bht they were not incorporated in the
general analysis of wage determination.
Thus, the classical model has three main limitations.
First, it is based mainly on aggregative analysis 'without
incorporating unit level analysis. Secondly, it analyses the
process of labour market on the basis of unrealistic assump
tions i.e., perfect competition, perfect information and homo
geneity of labour. And, thirdly, it doe~ not consider charac
teristics of labour as a human factor of production while
analysing the labour market processes. For example, mobility
is restricted by social factors like age, sex, family size etc.,
and many times workers do not move even if there exist occupa-
tional, industrial and regional "'lage differentials. These
limitations make this approach unable to bring out meaningf~l
results from the analysis of labour market processes. 2 Perhaps
1. Adam Smith, 'An~Inglliry_5nto j~Jle_~Na..tu:r~_a)lQ_Q.au!ie~_Q.[ the Weal th of Nations', Modern Library Edition, Random House, New York, 1937, Please see, Chapter 10 of book 1, 'Of Wages and Profit in the Different Employment of Labour and Stock.'
2. There is some element of realism in Rottenberg's contention in defence of class ica'l Theory of Labour Narket that, "Some however, have charged the theory with errors it does not contain", 'Op.cit', p. 49. However, the attempt here is only to highlight some basic limitations of classical analysis of labour market processes.
because of these limitations Marshall had admitted the
~nfluence of unemployment; a permanent excess of supply to
the demand for labour in wage determination. 1 Similarly,
7
Hicks categorically stated that in reality, labour market is
scarcely ever in equilibrium. 2
B. The Basic Neo-classica~_'~.Il.I2.r.oach
Severe criticism of the unrealistic assumptions of the
competitive approach gave rise to neo-classical approach,
"wherein the focus of attention is on the labour market process,
including the action of individual employers and firms and
individual workers and their unions."3
The basic Neo-classical approach has its roots in the
economic thinking of 1870s which is known as 'marginal revolu
tion' in the history of economic thought. It V.'as a new kind
of static micro-economic analysis forwarded by Jevons, Mengers 4 and Walras., However, Marshall and Hicks are more prominant
1. Quoted by A.V. Raman Rao, in his collection of Es~avs on Indian Labour, Popular, Bombay 1965, p. 299.
2. J.R. Hicks, Theory ot_W..aR.e'§_, Macmillan, London, 1932, p.76.
3. Dale Yoder and H.G. Heneman Jr., Labour Economics and Industrial Relations, South-West Publication Co. Chicago, 1959, p. 488.
4. Please see, "The turning point in the early developr.1ent of economics, ~ .. lhi.ch marked the transition from classical to neo-classical economics, appears to be the independent discovery by, Menger, .Jevons and Ualras, that the most important concepts of classical economics could be exoressdd in terms of the theory of incremental values!!, C.A. ~ Pissarides, Labour lvT.arket Adjustment : Nicro-economic Foundations of Short-run Neo-Classical and Keynesian Dynamics, Cambridge University Press, London, 1976, p. 1.
s names in regard to wage discussions. In classical approach,
the aceent was on the capital accumulation and economic grm'lth
in the context of private enterprise economy and free compe
tition was thought to be desirabJe because it tended to expand
the area of market by bringing about an improved division of
labour. In the new approach, i.e., the marginal analysis, the
essence of the economic problem was the search for the condi
tions under which given productive services v:ere allocated
with optimal results. among competing uses. Thus, the classi
cal approach to economic development Has replaced by the
concept of general equilibrium within an essentially static
framework. 1
Retaining the principle of maximizing behaviour and
applying it to the firm level analysis, two more aspects were
incorporated in this approach, namely, factor substitutability
and marginal productivity theory of input pricing. The possi
bility of substituting one factor of production by another put
forward various combinations 'of production functions for a
firm to choose from. Firm \vould choose the combinations
keeping in view the cost constraints. The relative cost of
factors ".;ould be determined by their respeetive marginal
productivities.
1. Hark Blaug, Economic Theory in Retrospect, II Indian Edit., Vikas· .... Publ., Ne\·! Delhi, 1983, p. 312.
9
Thus the Theory of Marginal Productivity Has propounded
by the neo-classists to explain the price determination of
production inputs. The demand for labour in a firm \-Jould be
upto the point where the value of marginal product of 1abour
equals its price i.e., wage. In other v;ords, a firm would
employ an additional unit of labour if the value of its
marginal product is greater than the wage rate. Thus, the
probability that with the technological changes and shifts
in production functions productivity also may increase and •
result in a pattern of hieher wage-rates viaS explored and
incorporated in the analysis.
Retaining the principle of maximization, the theory
explains short-run fluctuations in labour market prices
resulting from the combir~tion of employers' estimates of
workers productivity and employees I offer to sell their
services. The former determine the demand for labour and the
latter' constitute the supply of labour. Under the assumption
of diminishing returns, the marginal productivity would
diminish and there would be dOvlTIvlard sloping demand curve
for labour. The supply curve of labour \-[ould be generally
upward sloping unless there is a union adopting restricted
supply policy. Thus, in the short-run, if the prevailing
wage rate is higher than the expected rate/value of margir~l
productivity of labour by the employer, demand would reduce
resulting in unemployment. However, in the long-run the
interaction betv,Teen the supply of 'labour and the supply of
capital would exert more influence on the decision of employer,
because, though ce.pital and labour are substitute, they are
complementary also and the employer must have both for the
maximisation of profits.
The theory made an easy headway in explaining the rising
vlage trend' as the new natural resources and supply of capital
had increased productivity. But this phenomenon, alon~.'rith
interfirm and, inter-industry waee differentials, revealed that
there was a case for bargaining for higher wages by the unions.
And that gave rise to the bargaining theories and so-called
'Institutionalist' theories.
The main attack of the critiques of neo-classical
approach was on the marginal productivity theory. It was
argued that in practice, it is almost impossible to determine
marginal productivity of any single factor of production
becaus e it is a ,complex process involving interactions of all
the factors of production. 1 Even in the case of agricultural
production, which is a vourite example of neo-classicists to
explain marginal productivity theory, the theory did not hold
good in reality.2 Moreover, in industrial sector, it was
1. The Hobson objection stated by Mark Blaug, Ope cit.,p. 459.
2. Loyed Fisher, "The Harvest-labour Market 01 Ca.lifornia," Quarterly Journal of Economics, Vol. LXV, November 1951, pp. 463 -491 •
11
argued that "there is a labour recruitment process and a wage
determination process; each influenced by its own set of factors 1 and usually without strong connections between the two."
Most of the criticisms seemed to be based on the fact that
early neo-classical economists used it as the condition deter-
mining the level of employment i.e., equilibrium in the labour
market. However, it Was realised much later that as a condi
tion of equilibrium, the theory followed logically from a set
of more primitive assumptions. 2 The fact that factor combi-
nation is fixed in the short-run and there exists imperfect
information about w6rkers' reservation wages and in some cases
about their efficiency imply that firms are not price takers
in the labour market implying a serious limitation of the
theory.3
It can be said therefore that, the basic neo-classical
approach had the same limitations from which the classical
approach suffered i.e., the approach based on unrealistic
assumptions of perfect competition and perfect inforrr.ation,
maximizing behaviour and lack of consideration of human element
in labour market process. The neglect of human element in
labour "market behsviour has led Gunnar Myrdal to characteristic
1. R.A. Lester, Economic of Labour! , II Edt., MacrIlillan 1964, p. 267, For his comments on Marginal Productivity Theory of Wages, Please see pp~ 278 to 280.
2. C.A. Pissarides, Labour Harket Adjustment: Micro economic Foundations of Short-run Neo-c1assical and Keynesian Dyhamics, Cambridge University Press, London, 1976, p. 26.
3. Ibid, p. 27
liberal economic theory, encompassing both classical and
neo-classical versions, by mercantalist mode of thinking
12
1 in all aspects of economic analysis inchiding labour market.
One limitation of this approach has been that the sllpply "')
function has been pushed out of the analytical system.~
Though labour mobility from low to high wage occupations,
industries and regions was assumed for long-run equilibrium;
the approach is silent as to Which factors affect supply of
labour and '.vhat is the responsiveness of labour supply to •
wage rate changes. Any scientific approach vlOuld take into
account both the sets of factors that affect demand for as
well as supply of labour. It is in this context that .J. T.
Dunlop contended that, the pivotal task of wage theory is to
formulate an acceptable theory on. the supply side. 3 It is
argued that if wage differentials are explained in terms of
productivity differences then even demand considerations.are
1. For example, While discussing the employment problem Gunnar Myrdal observed' "This liberal economic theory, which in its classica.l and neo-classical versioned remined the type of thinking that mainly rationalized and greatly influenced public policy until recent dece.des, was less purged of merce.ntalist ideas in its approach to for~ign trade and the regulation of internal production and commerce", Asian Drama, Vol. II, Part V, in 21, Pantheon, New York, 1968, p. 987.
2 • .John T. Dunlop, "The Task of Contemporary Wage Theory", in Ray Marshall and Richard Perlman Edt., An Anthologv of Labour Economics, New York, 1972, p. 219. Please see, "The fact that production is a social process, organised \-:ithin a specific institutional and social framev:ork is ignored," Peter Nolan, "The Firm and Labour Harket Behaviol.lr" in George Sayers Bain and Be.sis Blackvrell E.dt., "Ind'lstr';a1
ReJations in Britain," Oxford, England, 1983, p. 291.
3. Ibid, p. 291 .
>-'
1.3
redundant; because, changes in demand for different levels
of skills will determine the level of employment in each
skill category, b~t the wage differentials between different
skills and occupational categories should be explicable
purely in terms of the relative costs of skill acquisition. 1
In other words, the factors' governing the supply decision is
more important even in productivity differentials explanation.
Mor'eover, the classical and Neo-classical approaches experien-
ced serious difficulty in explaining the persistence of
discrimination by sex and race in the labour market. 2
These limitations gave rise to the belief that the
analysis of economic factors alone is not sufficient to exnlain
the labour market processes.
c. The Institutionalist Apnroach
The quest for factors, other than purely economic,
affecting labour market processes, gave rise to the institu
tional approach. 3 It was observed that some social, political
1. Deepak La.l, "Theories of Industrial Wage Structures: A Review," Indian ,Tournal of Industrial Relations, Vol. 15, No.2, Oct., 1979, pp. 176-177.
2. R.I1. Blackburn and Michael Mann, The \'Jorkin£; Class in the .Labour Market_; Macmillan, London, 1979, p. 21.
3. Please see, "vlillia:m Tho:npson (1'1'15-1833) "vlas the first economists to warn of dangers of trying to interpret economic phenomena, in terms of economics alone," Guv Routh.
The __ Qr i &:hn._Qf.J!;coJlQI11:hc.._IdEla)I·', Hacmillan, London, 1975, p:5.
14 and psychological factors are effectively influencing
decisions of workers regarding labour supply. Lester
observed that firms do not lay more stress on vrages as a
factor in determining the volume of employment; instead,
they consider market (demand) for their product as a more
14
1 important. factor in determining the volume of employment.
Reynold's study of U.S. labour market in the late 1940s is
considered to be the model attempt by an economist to
incorporate a sociological approach into his research. 2 He
observed that 'demand' concerns not the quality (prod~cti
vity) of workers but their (employers') preferences. 3 The
tendency for 'better' job to be filled by 'better' workers
has also been revealed in economists' researches. It is
found that employers have their OVln 'indexes 1 to decide 1+
workers' quality. Firm's practice to retain experienced
---.--.---1. R.A. Lester, "Shottcomings- of Harginal Analysis for
vJage-employment Problems" (191+6), Reprinted in B.,J .HcCormick and E. Owen Smith, Edt. The_J~.ClQ.Q.1.r::. )1~r:~et, Penguin Modern Economics, U.S.A.,1968, pp. 16-17.
2. R.M. Blackburn and Michel Mann, Th<?_Jl.Qr:ls.tDE._Q1..CLs_L:),,:n. .. j;Jl~ LabourJ1Lrk~_t., Macmillan, London, 1979, p. 4.
4. Please see, "There j.s a clear evidence of \.;a.?:e di:ferentials in favour of males over femal es, .... :hites over non'''hites and other whites over those '.dth Spanish surnames", A.,J. Rees and G.P. Shultz, Vlor)5.e_G'i_q._!ld_Jg&~s_ ilJ._a)1._LLr:.Q.c:tJl LabQ1J..LHa~r:.ket, Chicago University Press, Chicago, 1970, p. 220.
6
1.6
labour market, wage rate ...,lould have positive effect on
labour supply; while for those who are already in the
labour market, wage rate mayor may not have positive
effect. 1 This theoretical discussion is important as it
makes it clear that behaviour of workers in the labour
market is not the same for both the types of workers. Tne
workers who are already in the labour market are less likely
to respond to changes in wage rates. It has been observed
in various studies that only a small minority of employed
workers between 10 to 20% were respond~ng to changes in wage
rates in the labour markets. 2
It has also been observed that workers usually possess
very incomplete knowledge about wage offers of different
firms in the labour market and hardly they are able to compare
between different wage offers and other rewards.3' Workers
----~-
1. Guy Standing, Labour Force Participation and Development, ILO, 1978, p. 56, For more theoretical discussion, Please see, Albert Hees, The Economics of Work and ~, II Edn., Harper, New York, 1979, pp. 19-22 and also ~ohn Creedy and Barry Thomas, The Economics of Labour, ~ut~erworths, London, 1982, pp. 42-56.
2. See for example, C.A. Myers and W.R. MacLaurin, The Movements of Factory Worker~, Wiley, New York, 1943, C.A. !layers and G.P. Schultz, The Dyn::ynics of a Labour l1arket, PrenticeHall, Nevi York, 1951 , G. Palmer, Labour l10bili t.x in ~ix Cities, Social Science Research Council, NevI York, 1954, and H.S. Parner, ReserJrch on Labour 11obility, Social Science Research Council, Nevi York, 1954.
3· L.G. Reynolds, The Supply of Labour to the Firm, QUC1Yte:t.h.~ournal of Economics, May, 1946, Vol.LX, pp. 390-411.
17
do not 'shop around' betvleen many companies, making compa-
risons between them. Rather, they accept the first job
offered to them provided it is minimally acceptable to them. 1
vlorkers have their own conceptions of 'satisfactory jobs' in
relation to their socio-economic status and education and
training. Therefore, not much percentaee of voluntary movers
are found who had 'satisfactory jobs'. 2 VOluntary job
changes have been found to decline 'With advancing a[,e of the
workers. 3
Thus, the conclusions regarding the firm', s behaviour
for demand for labour and viorker' s be~1.aviour for supply of
labour are quite different in reality than those propounded
by the neo-classical,theory. The f:indings that vlages are
neither determined by the forces of labour supply and demand
alone nor there is a tendency of equalizing occupational and
region'al wages have set the backeround for researchers to
app~y the institutional approach to expla:in labour market
processe s.
1. IVIartin and :l!'ryer, quoted by H..Iv1. Blackburn and IvIic..'l-),aeol Mann, 1'11e_ Working C lass in the .Labour Ivlarke t, Nacmillan, Lond on, 1 979, p. 1 38.
2. L.G. Re'ynolds and J,. Shister, Job Horizons: A Study of Satisfaction and Labour Nobili tv, Harper ~ .Hevl York, 1949, pp. 108-109.
3. Charles A. ri;yers: "Labour Narket Theory and Empirica..L Research ll in John T. Dunlop ~edited) 'l'he T..'1eorY of ·,larr.e Determination, Hacmillan, NevI York, 1966, pp. 320-321.
8
-~-
18 The institutionalists highlighted the fact of the exis
tence of multiple labour markets as against the single labour
market of Classical and Neo-classical setting under the -
influence of competitive forces. Cairnes maintained the exis
tence of 'non-competing groups', stating that the average work-
man, from whatever rank he was taken, finds his power of compe-
tition limited, for practical purposes, to a certain range of
occupations; so that however high the rate of remuneration may
ris e in those 'occupations which lie beyond his power of compe
tition, he is excluded from joining shorting them. 1 The exis-
tence of different types of labour markets separated by occu-
pational, regional and industrial characteristics, was thus
recognised. Kerr, emphasised local labour market stating that
the natural market for labour is quite different from that
recognised so far. The average v!orker has a narrO\·;ly confined
view of-the market and is not an alert participant in it. 2
Reynolds argued that labour is not homogeneous even within
broad occupational groups.3
1 . .J.E. Cairnes, "Political ~conomy", Harper, New York, 1974, pp. 67-68.
2. Clark Kerr , "Balkanization of Labour Markets II in E. 'w'':. Bakke, Edt., - Labour Mobility and Economic. Opnortunity , Technology Press, 1954, p. 92.
3· L.G. Reynolds, "The Supply of Labour to the Firm", Quarterly.Tournal of Economics, Vol. LX, May 1946, pp. 390-411 .
19
The employers and vlorkers do not interact in accordance
vii th assumptions of a tomis tic competition, but through ins ti
tutional arrangements. The employers typically exercise a
certain degree of control over the labour market through the
tacit collusion. 1 The effects of trade unions is introduced
bargaining into the wage determination process; in which,
unions use the threat of strike to raise the earnings of their
members. "Consequently, the job market alone does not set the
upper and the lower limit~ for wage det~rmination. The single
price does usually exist but as a consequence of policy and
not the operation of market·forces.,,2
Growing evidence on the existence of segmentation in labour
market gave rise to the literature on 'dual labour markets'
which emphasizes the distinction between a primary labour market
or formal labour market, cons is ting of firms \.;i th structured
employment relationships of a promotional ladder type internal
labour markets; and a secondary or informal labour market, where
labour productivity and earning are low and employment relation
ships is close to that of a casual labour markets. 3 It is
claimed that the wage structure even in primary labour market
is not determined by efficiency (productivity) criterion but
rather by customs and habits. Therefore, the distribution of
jobs and income in the primary sector is not dictated by abi
lity and human capital but by customs and institutional practices.
1. L.G. Reynolds, liThe Supply of Labour to the Firm", ~u2rterly Journal of Economics, Vol. LX, May,1946, pp.390-411.
2. Clark Kerr, "~'iage -ReJ a tionships : The Campara ti ve Impact of Market and Power Forces", in J.T. Dunlop Edt., The Theory of Wage Determination, Macmillan, London, 1966.
3: Dee~a.k Lal, "Theories of Industrial Wage Structures: A Reviev:" Indlan Journal of Indu~tri8l Relations Vol 15 ~o 2 0 t b ' 1979, p. 179. ' -. '.'., 'c 0 er
.+
Institutionalists .thus reject abstract general theories
and advocate an inductive and inter-disciplinary approach to
labour market research, However, in absence of any general
theory, it is almost difficult to put the findings o~ this
approach in a coherent manner. In fact, findings are so
varied and contradictory that it is almost impossible to bring
out any general statement out of it. The institutionalists"
claim on the existence of dual labour market and emphasize on
structured relationships in primary labour market due to
internal promotional ladder. But it becomes weak as the
contrary evidences are found. For example IIports of entryll 1 exis ted at every sldll. level and that, internal labour rnarket
normally co-exists with the external labour market. Therefore,
the firms' behaviour is not So effectively altered as to render
neo-classical theory ineffective in providing explanation. 2
It is also found that evidence for workers' ignorance is mostly
impressionistic and worker's knowledge is not 'tested' by
researchers. 3
1. D.I. l1ackay, et.al., Labour Markets under Different Employment Conditions, Allen 1: Unwin, London, 1971 , Ch. 11.
2. M.S. Gordon and H. Thal-Larsen, Employers' Policy in a Changing Labour Market, Institute of Industrial Relations, Berkeley, 1969, pp. 347-348.
3· Wilcock .& Franke (1963) quoted by R.M. Blackburn and Hichael Mann, in,' The Working Cl ass in the Labour Market, thcmillan, London, p. 95. Please see, 1I~~e conclude that even the most thorough of the previous studies has failed to establish the degree and accuracy of vlorl{ers' knowledge of labour rr.arket" , Ibid. p. 115.
>
21 It thus became eventually clear that independently this
approach is not capable of generating testable prepositions;
and need was increasingly felt by the researchers to construct
a .theoretical frame\Olork \olhich combines the neo-classical theory
.... ;ith the findings of institutionalists. ..
III. Synthetic Anproaches
The onslaught of ins titutiona. lists on basic classical and
Neo-classical theoretical edifice led to several forms of
reactions. Some economists attempted solutions to institution-
alists' problems within the neo-classical framework, and to
some extent succeeded in demolishing their base. For example,
the argument that the supply curve is backward bending indica-
ting socio-cultural effects and therefore rendering it useless
to analyse supply function in economic frame has been success-
fully turned-down by G.S. Becker. He forv.'arded a "Theory of
Allocation of Time", explaining that, labour supply is the out
come of house-hold decision making and must be treated inte-
grally with consumption behaviour. 1 It has become possible
thereby to bring several aspects of non-economic phenomena
iricluding job preferences by 'yorkers and discrimination by
unions within the ambit of neo-classical theory. One off-shoot
has been the, "Theory of Investment in Human Capital", '\-.'hich
shows how net or observed pay levels may include elements of
current and past outlays on human capital formation during some 'I
phases of the worker's life cycle.~ The standard neo-classical
1. G.S. Becker,"Theory of Allocation of Time',' Economic Journal, 1965, pp. 493-517.
2. G.S. Backer, 'Human Capital, II Edt., Columbia University Press, New York, 1975, pp. 29-30.
-+
22
theory does not permit consideration of such investment.
The developments in Neo-classical Theory led E.S. Phe;t.ps
and his a.ssociates to develop "Hicro-Economic Foundations of
Employment and Inflation Theory", whicrl when apnlied to labour
market considers the role of the accumulation of kno\'Jledge
about the job opportunities and job offers and the, prices
attached to them in the market. Consequently, the Marshallian
equilibrium analysis is replaced by a disequilibrium ap~lysis
involving the role of. expecta tions and adj us tment proces ses in
search behaviour under conditions of incomplete knowledge and
interdependent decision making by the employees and employers
in the market. 1 These theoretical developments attempt to
incorporate the effect of the so-called non-economic influences,
highlighted by the institutionalists' contribution, on the labour
market in the modified neo-classical fra.me work. A detailed
analysis of labour market behaviour under this approach is under
taken by Pissarides, 'It/ho attempted to provide analytical solu
tion to the problem of coordination in the labour market over
time when households and firms engage in trading on the basis
of expectation formed under the conditions of incomplete
knowledge. 2
1. E.S. Phelps, 'Micro-Economic Foundations of Employment and Inflation Theory', NevI York, 1970.
2. Christopher A. Pissarides, "Labour Market Adjustment: Microeconomic Foundations of Short-run Neo-classical and Keynesian Dynamics' Ca.mbridge University Press, London,1976.
--t
23
A wide range of empirical studies followed broadly
this framework of analysis. Some studies focussed on supply
side, while others considered demand side of labour market
in this context. Reynolds and Shister, for instance, attem-
pted a study on the attitudes of workers towards different
jobs and relative importance of \'18ge and other 'economic'
attractions over the 'non-economic' attractions on the selec-
tion of jobs. They concluded that the displaced workers give
more weight to economic factors than human relation factors.
Thus, the quality of human relations in industry apparently
seems to be less i~portant than 1 "a steady job at good wages."
Lewis also studied the same aspect in the form of "Hours of
work and hours of Leisure". He found that, although, evi-
dence reveals that as a result of operation of non-economic
forces the long run supply curve seems to-be negatively
stoped, the same is not the case for the short-run. It is
the short-run curve that directly relates the response of
labour supplied to a specific wage increase, thereby reducing
the importance of non-economic factors. 2 Myers and J'.1claurin
attempted some questions on ~labour mobility,3 but Hunter
and Reid say that, actual movement between employers is only
1. Lloyd G. Reynolds and Joseph Shister, "Job Horizons", Harper, New York, 1949, pp. 6-A8.
2. H. G. Lewis, "H.Q~rs of_",,1 or~s ,and Hours of· Leusure ll , in Ray Marshall and Richard Perlman Edt., An Anthologv of Labour Economics ':, John Wiley, NE.:w York, 1972, pp. 187-201.
3. Charles A. Myers and VI. R. Mclaurin, The Movement of Fa ctory Workers, The Technology Press, London, 1943, see particularly, Chapter 5.
24
one aspect~ The ability to move, i.e., the possession of
relevant skills which are not specific to anyone form and
the willingness to move are perhaps more important. 1
Killingsworth studied the affects of automation on
the labour market. 2 He argued that, the fundamental effect
of automation on labour market is to 'twist' the pattern
of demand. It phases down the demand for workers with
little education and~training while pushing up the demand
for workers with large amount of education and training.
In general, he found inverse relation between educational
attainment and the rate of unemployment. As against this,
Mackay finds in his study that most technical Changes place
premium on speed, dexterity and adaptibility rather than on
experience and skill. 3 Walter'Oi has pointed out one
important aspect in the context of firm's demand for labour
and labour mobility. He observed that, workers are trained
by individual firms for their specific operations in various
fields and this cost can no longer be treated as firm's
variable costs; and such trained labour is a quasifixed L~
factor of production.
1. L.C. Hunter and G. Reid. !'Urban Workers' Mobility, OECD, Paris, 1968. '
2. Charles Killings \'J orth, "Automation, Jobs and Manpower", in Ray Marshall and Richard Perlman Edt., Ope cit., pp. 306-311.
3. D.I. Mackay et.al., Labour Market Under Different Employment Conditions', Allen & Unwin, London, 1971, pp. 124-125.
4. Walter Oi, 'Labour as a quasi-fixed factor", Journal of Political Economy, December, 1963.
.. ~
25 This proposition gave rise to number of studies on firm's
specific training and general training aspects and their influ
ences on labour market processes. 1
Thus the various theore.tical and empirical studies have
sho'wn' that the modified ne o-clas sical framework is capable of
analysing so called institutional factors and that , it can be
considered as the only testable version of trade union bargai-
2 ning power.
IV. Labour ~hrket and Development Process
The theoretical approaches explaining labour market beha-
viour are the abstractions of the labour market process opera-
ting in reality. It is not surprising therefore, that the
form in wh:i.ch labour market processes actually take place
differs considerably from its theoretical abstractions.
Most of the discussion of theoretical approaches attempted
in the previous section is based on the studies of labour markets
in developed countries. It has also been mentioned how the
existing labour markets in developed countries do not conform
to the theoretical paradigm.' For example, the eXistence of
non-competing groups and inteL~al labour markets does not
conform with the basic assumption of competition in the
labour I-larkets. The existence of discriminative hiring
1. See, J.T. Additionaland W.S. Siebert, The Market for Labour: An Analytical Treatment, Good Year, California, 1979, Chapter 4, 'Investment in Man', pp. 110-117.
2. Deepak Lal, "Theories of Industrial vlage Structure: A Review", Indian Journal of Industrial Relations, Vol. 15, No.2, October 1979, pp. 167-195.
26
practices by the employers on the basis of sex, race,
religion, nationality etc., do not conform with assumption
of hiring practices based on labour productivity. And, the
fact that employers rate such workers at discount restricts
the mobility of workers and shaking thereby the very base of
theoret9..cal~ ed'ifi'ce'"d..!e~:~" -equiiiiationof l'lag'e-rate Iiri-nciple.
More recently, even in developed countries therefore, the
stress is not much on highlighting such differences as that
on finding out the pecularities of labour market process in
the regional and national context with a view to find out
alternative solutions for channelizing the processes in the
desired direction. For example, in USA, ~t is found that
the composition of labour force is rapidly changing as more
women and students come forward to join labour market and
that the antomation in industries is changing the pattern
of demand for labour and the benefits of a decline in the
overall rate of unemployment appear to be quite unevenly
distributed among different educational attainment groups.
A 'Hide range of such studies have been revievled by Harshall
and Perlman1
on the basis of which some broad characteristics
of labour markets of developed countries can be described as
following:
(1) The extent of unorganised sectbr labour market is
limited, but the quantum of casual type of labour is
increasing as students are a"lways ready to be in the
1. See, Marshall and Perlman Edt., An Anthnlo~v of Labour Economies , John Wiley, New York, 1979.
27
labour market to meet with their learning expenditure.
(2) Sex composition of labour market is rapidly changing
as women come forward to join the labour market.
(3) There is increasing use of formal information sources
for employment search.
(4) The widening productivity spread and the constant
(relative) wage spread(the social-minimum wage) have
caused the creeping unemployment and labour force
replacement.
Though these characteristics are quite commonly
observed in labour markets of developed countries, there
are wide variations among countries and among geographical
regions within countries. It is because, although logic of
industrialism is same, the process of industrilization
differs from one situation to another leading to differences 1 in nature of labour marl<:et proc ess.
The labour markets in developing countries differ
from the corresponding markets in developed countries
because of the different socia-cultural setting and different
level of economic development and industrialization. 2 As a
result labour markets in these countries are likely to have I
gr.eatex:- extent of unorganised (informal) sector and limited
1. See, Clark Kerr, et.al.,Industrialism and Industrial Man, Harvard University Press, Cambridge, 1960, Ch.2 and ch.4. Also Walter Galenson, Edt., ·Labour in Developing Econ0mics , Institute of Industrial Relations, University of California Press, 1963, Vol.III.
2. r·!arket
.~
2·R
extent of the use of formal channels for the flow of
information about job availability and recruitment. The
search behaviour of employers and employees regarding
personnel and jobsift turnns governed by traditional and
informal methods. Except in service sector of some urban
centres, no significant change in sex-compositio~ in
industrial labour force is seem. The pattern of industrial
development is so uneven that the relation bet\'/een the level
of education and the rate of unemployement has not yet
clearly established as in the case of developed countries. 1
T~e problem of sectoral transfer of labour from agriculture
to industry on a permanent basis is still unresolved in
developing countries as the industrial workers are not
completely detached of their agricultural and rural links.
The importance of formal education and training in demand
for labour 'is also not clearly established and the functional
requirements from the different occupational categories are
almost unspecified.
From-the above discussion it may be stated that
labour markets in developing countries are in transit and
they are likely to imbibe developed countries labour market
characteri stics as they gradually industrial ize •. However,
hypotheses emerging from such characteristics differences
1. See, Vijay Joshi and Heather Joshi, 'Surplus Labour and the City - A Study of Bombay'~' OXford University Press, 1976, Also see, T.S.Papola, 'Urban Informal Sector in a Developing Economy, Vikash, Delhi, 1981.
.~.
29
and also from those emerging from the set of factors that
effects labour market process in developing countries have
been tested by various researchers. 1 These studies reveal
that the institutions and pra.ctices of the labour market
adopted in various countries sho\v grea t divers i ty. Wha t-
ever uniformities have been discerned, are more in the
nature of tendencies rather than exact theoretical results.
These tendencies provide a frame work which can be used to
study institutional and functional similarities and diver
sities of labour markets of different countries as well as
of the (areas with different countries as well as of the]
areas with different development stages in a country like
India.
v. Labour Market Analysis in India
Studies on Labour Barket in India V.Jere initiated in
sociological and industrial relations background. These
came to incorporate problems of manpovler planning in the
later stage and gradually tUrned to analytical issues
relating to such aspects of labour market behaviour as wage
structure, mobility, job search behaviour and investment
in human capitaJ. A brief review of Indian labour market
research is attempted here~
1. Also see, Dipak 11ajumdar, 'Para.digms in the study of urban Labour Markets in Developing Countries : A Ree.ssessment in the Light of Empirical Survey in Bombay City', World Bank Working Paper, NO.366 ,1979 and Dipak V~jumdar and ~~sood Ahmed, 'Labour t1arket Segmentation and the Determination of Earnings: A Case Study', vlorld Bank vIorking Paper, 1978, For a comparative analysis of labour market features, see, Halter Galenson Edt., Labour in Developing Economics', Vol.III, .University of California Prc·ss, 1963, I Vol.I ,~ I~ are tltled, 'Labour and Economic Development' John Wlley, 1959.
·~ ..
The study like 'Social Implications of Industria-. 1
lization attempted the problem of labour co~mitment in
the light of urbanization and social changes, 'viorkers,
Factories and social changes in India' 2, vim-red the process
of industrialization in India through a movement of the
Indian society from pre-industrialist traditional to indus
trial-modern stage. 'Jobs and workers in India',3 provided
a reviev! of Indian labour situation but its \~'ide coverage
made it too general. 'Industrial relations in India',4 is
another of this kind emphasizing the rural orir;in of the
workers and their absenteeism. Both these studies maintained
that the rural link of the workers has kept their level of
commitment 10\'!. Moreover, this I viI] age-nexus' thes is has
not been supported by other studies. 5 Some pioneering work
has also been done in this connection. James Ralp, for
example, presented for the first time the problem of casual
labour in Indian industry in his paper, 'The Casual Labour
Problem in Indian Manufacturing,.6 He also attempted a
1. Prabhu P.N., ·Soci~l Implications of Industrialization, Five Sbldies in ASia, Unesco, Calcutta, 1956.
2. Lambart Richard D., '\-Ior1-<"ers, Factories and Social Changes in India', Asia Publication, Bombay, 1963.
3· Ornati Osca.r, Jobs and \'Jorkers in India, It2cha, New York, 1 955 .
4. C.A. Myres, 'Ind11strial Relations in India, Asia Publish,ing, Bombay, 1958.
5. See, Prabhu P.N., Op. cit., and Lambert Richard D. On.cit. 6. James Ralp C., 'The Casua.l Labour Problem in Indian
Manufacturing', The Quarterly ,TournaI of EconoF.lics, February, 1960.
~ ..
31
verification of Hicksian proposition that a casual labour
market tends to accumulate labour in quantities larger than
de~and; and found it true in Indian case. Danial Thorner
attempted for the first time the question whether employers
ever try to value a stable and committed labour force and 1 if so, did they succeed. He found that, v,'hen the employers
in India 1.Janted to have a permanent labour force, and when
this desire has been more than a verbal expression, they
have not found it difficult to get one. On the contrary,
workers are Hilling to continue in one inciustry if they are
provided subsistence wages, social security and housing
facility. But as Mukerjee has said, the employers them-
selves preferred consta,nt change in vlork. force vlith a vievT
to reduCing 1\rage-bill. 2 Morris attempted to examine the
commitment problem in the context of cotton textile indus-
try and also analysed the trends in the supply of labour
to Indian industry. He brought the term 'labour market'
in currency in the Indian context. 3
1. Thorner Daniel, 'Casual Employment of' a Factory Labour Force - 1851 to 1939', The Economic Weekly, Annual, January, 1957.
2. Morris, Morris, D., 'The Emergence of an Industrial Labour Force in India: A Study of the Bombay Cotton MilJs (1854) to 1947)~, Oxford University Press, Bombay, 1965. Also, see, by the sa.me author, 'Some comments on supply of labour to the Bombay Cotton Textile Industry', Indian Economic Journal, Vol. I No.2, October, 1953.
3. Mor~is, Morris D., "Labour Market in India ", in '.-1.E. t'!oore and A.S. Feldman Edt., 'Labour Commitment and Socia.l Changes in DevelOping Areas' . Social Science Research CounCil, Nel'l York, 1 9 O.
32
The aspect of manpower planning came to be studied at
economy-wide level as well as for some specific occupations,
in, national and regional contexts. With this end in view
Research Programmes Committee of Planning Commission sponsored
some labour market studies at city level. 1 'The Future Man
power Situation in India,2 is an example of national level
study. 'Engineering Manpower - A Study of our Resources and
Requirements',,3 'Job Outlook' for Managerial Personnel in India
- A Study of Requirements for IV and V Plans' ,4 and 'Supply
of and Demand for secondary and higher educated ~funpower,
1960-61 to 1975-76 5 are Some representative instances of
occupational manpower studies. ~1ost of the studies upto
early sixties followed the Institutionalist approach and
were descriptive in nature. The studies
1. These includes: (a) Contract Labour, by Labour Bureau, Ministry of Labour and Employment, Government of India, Simla, 1961, (b) The Madras Labour lllarket - A Pilot Study, by DGET, New Delhi, 1964, (c) Poona : A Resurvey, by Gokhale Institute, Poona, 1965, (d) Labour }~rket Behaviour in Developing Economy, Indian Institute of Social Welfare and BUSiness Management, Calcutta, 1966, (e) The Bombay Labour Market, by Bombay University, Bombay, 1966.
2. V.K.R. Tilak, The Future Manpower situation in India,1961-76, International Labour ReView, May, 1963.
3. K.N. Sundaram, 'Engineering Manpower - A Study of our Resources and ReqUirements', Manpower Journal, Vol. I, No.3, Oct. : Dec., 1965.
4. B.L. Agarwal, Job outlook for Managerial Personnel in India -A Study of Requirements'~or IV & V Plans', ~illmpower Journal~ VOl. II, No.1, April-June, 1966. ' ,
5. H.N. Pandit, 'Supply of and Demand for Secondary and Higher Educated ManporTer 1960-61 to 1975-76', :r.1anpower Journal, VOl. II, No.2, July-Sept., 1966.
33
attempting to examine labour market processes in analytical
frame '-!ork are not many. Among the firs t of its kind is a
study by Laxminarayan, 1:.'ho attempted' the study of the
Indian labour market and its Impact on Regional 'rlage
Differentials. 1 He_explained the regional wage differen
tials in terms of the diffcrt:,)nces in laboar supply condi-
tions. Singh studied the v!age patterns, mobility and
2 saving of \-lorkers in K?npur Cot ton Industry, \.;i th empha.s is
on sources of labour supply, recruitment processes and their
impact upon the wage structure. Papola studied the criteria
f d t . ' . . tt t +-' ] • i . T d' 3 o wage e ermlnatlon ln co on eX~le lnaustry ln ~n la,
with reference to Ahmedabad, Bombay and Kanpur tex~ile
markets. It 'Has the first study of its kind in the for:n
of inter-regional labour market comparison of a \<Jell
established and large employment providing cotton textile
industry in India. He evaluated the role of market forces
in determinin~ v!ages and geo£;raphical vlage differentials
in this industry. Using secondary data from Ann1..l-1..l.Sl!,rvev
Indus t.r.:ies, he also studied various aspects of wage
1. Laxminarayan, "The Indian Labour Market and its Imnact on Regional Wage Diffe rcntials" , I!lcLt.a_11._E_~QDO!!1:b.Q.J1~view , February, 1956.
2. V.B. Singh, . vlag~J:~tteX!l~~JiQ.1?jJ;..t.ty.J311c.._S;:n:..im·;..~._Q..t \{ 0 :t:l5. ex§._tn Jia.,.JlJ.11l)2 __ Q,Q tt. Q.,1l.))l9-.l1s. t..r.y , (Re port 0 f EPe sponsored project) Department of Economics, Lucknow Uni vers i ty, LucknO'lJ, 1 966.
3. T.S. Papola, · Prt..y!c.i.p).:.~~_Q:C. Hcu:';.c-RG..terrrr:hl12. tion. ' Somaiya, Bombay, 1970. --- --,
strJ.cture in relation, to labour market efficiency.1 Besides,
a number of other stndies also dealt '·lith the Hagc str~J.cture
issues in the industrial labour market context. 2
The studies examining the role of labour market on
wages and wage variations have taken demand for labour as
generally indicated by actual employment implying the assump-
tion that there are no unfilled vacancies. The estimation
of labour supply 'vi th the help of the general concept of
labour force has also limi ta tions particularly v!hen the
study is specifically concerned with manpmver planning
relating to some area, industry or occupation. This prac-
tice raises some important issues in labour market analysis.
10 As illustrations see some studies by T.S. Papola: "Wage Differentials and Competition in the Labour Harket", Th~Jjtct:hC1.ILJ01!:r.TJ.Cl.:L_Qf_~a bQn.r_EcQ_IlQ,ffiiC$.., Vol. XVII, No 01 -2 (April-July, 1976) pp. 39-56; "Inter-Industry wage Structure: Te chnology Hypothes is", Any'~sak, Vol. II ~ No 0 1 (June 1972), pp. 50-73; "Regional Differentials in Industrial Wages in India; 1950-61+", Anv~$..ak, Vol. I, No.1, pp. 56-77 and "Inter-Regional Variations in
. Hanufacturing Wages in India :"Industrial Struc'J.tre and I
Region Effe cts", Inctt:t..ll ~-I.Q_urnCLl_Q,t _tTJ.dJ-!:?_t.r:i..aJ~)i~l a tion~, Vol. 7,· No.3, January 1973, ppo 355-376.
2. For example, please see, C.K . .Johri and N.C. Agarwal, "Inter-industry 'vIage Structure in India, 1950-61: An Analys is", Ind_iJ3.)1..<TQu..r.Dal._9_f_IIld_lls..tr::L[).),.JiG..la_t..i.on$.., Vol. I, No.4, April, 1966, pp. 3Tl-1+1l\-; P.K. Sa'Vihney, HInter-Industry Wage Differentials in India", Incli_a}l_J_Q'.l_r!1~~_of .E~ono~ics , Vol. XVII, No.1, July-September 1969, pp. 28J+7 and Pramod C. Verma, "Inter-ind:.lstry \(~age StructClre in India: Further Evidence", Indian_.[oJ.:~!1a] __ oX __ I1J.<l~st~t~3...l Relations, Vol. ~, No.3, January, 1971, p~. 289-296. In thls connection for an Inter-country Analysis, please see, T.S. Papola and V.P. Bhardldaj, "Dynamics of Industrial Wage Structure: An Inter-country Analvsis " The Economic Journi'Ll, Vol. LXXX, Ma.rch,1970: PP': 72-90
~-
35
For instance, how to take account of unfilled vacancies
in general and in particular skilled or semi-skill'ed occu
pation? Studies in manpower demand attempt this question
assuming that demand for labour is based on technological
changes and project demand for labour over a period on the
basis of investment and technology used in industries. Such
projected demand is examined in relation to the supply of
labour projected v~th the help of available training faci-
lities for skilled or semi-skilled occupations and ~he gap
betw'een the two is conSidered as shortage occupation.
An example of the study of demand for labour is the
study of manpower requirement in industries in GIDC
Industrial Estate, Ankleohwar by the Directorate of
1 Employment and NanpovTer Training, Gujarat State, Ahmedabad.
v1 i th a view to organise training programme s for providing
skilled and semi-skilled labour to these industries, the
directorate surveyed the industries on s~nple basis and
estimated the future requirement of workers. An example
of the study of demand for labour and supply of labour is
1. The Directorate of Employment and Manpm'Ter Training, Gujara t State, Ahmedabad, l-lanpol'Ter Requirement for Industries in GIDC, Allicleshwar, Departmental Report: 1979-80, for the use of the department only.
37 .
of information in the labour market. Hany studies have
criticised the \vorking of the Employment Exchanges on
the ground that they,do not attempt to playas catalytic
in the matching process in labour market. Agra''-'al anc
Raj agopalan have provided a revimv of Labour market
'f t' , I d' 1 ln orma lon ln n lao
Studies following the vieH that informal information
sources play important role in the matching and allocating
function of labour market examine its i~tensity and extent
in area and industry specific labour market. For example,
Papola and Subrahmanian have examined this aspect in
"Wage St~cuure and Labour Mobility in a Local Labour
Market: A Study in Ahmedabad. 112 It found the informal
information source almost the main source and that the
extent of geographical mobility in the sense of inter-
state mobility is low and getting lo\\'er over the years.
Inter-plant job changes are not as fre~lent as inter
industry ones. Vijay and Heather .Joshi3. studied migra
tion aspect in the Bombay labour market analysing the
1961 and 1971 census data of migrants and selected basis
of analysis the linguistj.e group structure of migrants in
-------------,-----,--,----1. B.L. AgraYlal and V.K. Rajagopalan, 'Labour Market
Information in India', Manpo~e~.ron~Q~l, Vol. XV, !tpril-.June, 1979, pp. 21 - 31+-; Please see Balbirs ingh . . EmDloym~_nt ~~charr&.e.lLil'l_G.hangingJilQ.QrrQITIY.~:[_Instti, Ph.D. Thesis, Meerut University, 1974-73.
2. T.S. Papola and K.K. St~brahmanian, f\'Iag~ __ Str1..l~t.lreAnd La Q.Q.4.r..J19J2.ili t y: in LQ.~.A]'-1J2J:~Q'.lX. J1a r:.ke'l._!..,_A __ $J2~1(tLi.11 Ahmedabad, . Popular, Bombay, 1975.
3· Vij ay Joshi and Heather J osh1, "Sur':.nl}d.s_ka bQilLa_QcL.the citvi-A_Sj~.\ll!Y_o_t_t?.omb~y", Oxford University P~eSS, 1976.
,
the light of market information. They also considered
informal sector aspect of t.he market. They found that
some language-groups of migrants had better access into
38
the labour market due to the informal' channel of infor-
mation resulting in pre-arranged job migration and some
job and industry specific migration. The mobility aspect
in relation to the processes of labour allocation among
nel" and old indus tries in a nel11y indus trialized region
has been. studied by .Tohri and Misra. 1 They studied this
aspect ''lith reference to the five most important industries
by employment in the Union Terri tory of Delhi, Hestern
U.P. and Haryana. The study examined the extent and
pattern of labour mobility, measured its determinants a.nd
analysed the process of inter-industry labour allocation
of workers in those industries. They found the personal
factors such as age, non-earning dependents, skill and
average montta.ly income more. important in explaining volun-
tary mobility diffel'Emtials than the institutional factors
such as, industry, size of firms, ~orkers within or out
side the region and rural/urban back grounds of the YJorkers.
The relation between the location variable and mobility
was found more complex.
However, all these studies seem to have exa~ined the
matbhing function from the demand for labour side and c::;.vcid
looking from the supply side of labour. The st~dies that
1. C.K . .Tohri and V.N. }fisra: "Regional Labour Nobility: An Inter-industry Analysis", IDSiian .TournaI of Il).dustrial Relations, Vol. 8, No.2, October 1972, pp.159-199.
9 examine the matching function from the supply of labour
side maintain that the inflm·J of labour into the rr.arket
by mobility and migration exert greater pressure on labour
market process and along with the imperfection~ ca~sed by
union activities and high extent of use of informal channel
in recruitment give rise to a sector calJed the informal
sector. It is believed that, despite high rates of in~ls
trial development and overall modernisation, the urban
economics in most developing countries continue to have an
increasingly large part of their activities in the non
organised or inforna.l .sector. The extent of employment in
this sector is considerably large in many developing
countries.1
In India, for inst.ance, this aspect has been
studied in relation to Calcutta.,2 Bombay3 and Ahmedabad. 4
It has been found that this sector reveals certain positive
features in regard to the capacity to generate employment
and equitable pattern of distribution. The grovlth pattern
based on an emphasis on this sector is, therefore, likely
to be more effective in reducing poverty in urban area. 5
1. This includes ILO studies like (8) EmD} oyment. Ir.coT::e::: and Eauality : A Str2 t.ep;y for Increas inv Prod:lctive Employment in Kenva, ILO, Geneva, 1972, (b) EmploY!T!ent Problems in t~e Rural and Informal sectors in Ghana, Report of an ILO/J"ASPA Hission, Add is Ababa,197'l. (c) Urban Deve] o~D1cnt 8 nd Employment, 11,0 Geneva, i 976, (d) StJBBIAH Kanappan Edt., Urban LRbour Market Beh8vio'lr in Develoning Countries, ILO, 1977.
2. A.N. Bose, The Informal Sector ~.p C::!..J-cuttg. HetroDolitan EcoD_Qmy, ILO, Geneva, 1 971t-. . .
3. Vijay and Heather J"oshi, ·Surnlus.JJab_Q'lr and the city: A Study in Bombay, Oxford Universit.y Presf, 1976.
4. T.S. Papola, Urban Informf:...L Scu;tCI' in a Develoning Economy, Vikas, Delhi, 1981.
5. Ib id , p. 2.
In a study of informal sector, follm:ing the
classifica tion bet\o.Teen formal and informal sector provided
by Jhon Weeks1
on the basis of exchange relationship
between the enterprise and the state, Hein Streeke~k has
considered the informal sector as represented by the s~all
scale industries, named by him as 'light industries,' and
has studied the employment, \,rorking conditions and labour
relations in small scale incnstries in rural South GUjarat. 2
His study' gives some interesting insights in the labour
market processes in this sector. He has fOlIne that the
temporary workers were not really temporary in the sense
tha t they vlere not attached to the factory; but their names
were listed in the different sections or departments of
the factory at different times to avoid strict observance
of the factory-rules. He observes that, the reason for
the 'Light-industries' remaining light for ever is the
a tti tude of the OI,mer-entrepreneurs to take maximum
advantages from the governr1ent in the form of subsidies,
tax holidays etc., and to take minimum responsibilities
tovlards labour in the form of avoidance of observance of
the factory-rules.
1. Ib i d . P . 9.
2. Hein Streefkerk, 'Too Little to Live on, Too Euch to Die on', E.P.W., Vol. XVI, No. 15, April 11, 1981.
41
VI. Need for Furthe~ Stud~r.
Thus, though the analyticp,l studies in labour r.1arket
have gained. re cently, these are s till fl.';'" in number. In
most of the studies, social background, language, rural
link and labour commitment and social barriers to mobility
have received the top most attention of researchers. The
sociological aspects of labour market have been so r.1uch
emphasised that, "\-:e have Literature on much of 'Sociology
of labour markets' but relativeJy very little on tl:.e leco
nOr:1ics of labour market., .. 1 This is not to deny the ircpor-
tance of social aspects -in labour market analys is bnt to
indicate .that it constit:,_tes only onc fourth aspect of the
labour market-studies. 2 The need is therefore tc study
labour market at sub-national or regional level \.,Thich is
more amenable to analytical treatment and can land itself
to the use of primary sources of information enabling the
analysis more realistic. The present study ther~fore atte-
mpts to uncertake an analysis of the local labour market in
the context of developing industrlal centres of a b2.ck\-:ard
area.
1. T. S. Pa pola, 'Economics of La bo'~r 1'1ar ke t ' in V. B. S in9'h Edt.,Labo:lr Research in India, PopUlar, Bombay 1970,p.182.
2. K.G. Seth, 'A Review of Research in Industrjal Relations in India', Indian Journal of Industrjal ReJations,Vol.I, No.3, .January 1966, p.276, "There are four deterr.1inants of the structure of the labour markets. (a) the nature and source of labour sup:=,ly and mobility, (b) the m:ture of demand, its ql~antity, q:lality and
concentra tion, (c) elements of competition or monopoly both in case of
labour s'-1p~ly and demand and Cd) a:nther in~~ibltio~al and soci.al factol;'s th2t influence
t e.operGtlons o~ l~bour marYet AnQ ceterm~ne tl:.e .dor.nnance or other\·."ls e of economic fa ctors . II
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