Labour markets, social justice and economic efficiency

Abstract

In conventional economic theory, a trade-off supposedly exists between social justice and economic efficiency. In reality, market and other economic institutions are dominated by power relations, so that the sponsorship of social justice is a productive factor. Neo-liberal economic policies, by lifting the constraints on the exercise of unequal power, increased injustice and triggered a downward economic and social spiral. Reversing this requires a revolution in economic theory and policy focused on full employment, the working of labour markets, the organisation of work, and household organisation, social provision and self-sufficiency. In conventional economic theory, the initial resource endowments of individuals are taken as given and, although these may be unequal, they are essentially external to the market. Labour markets are assumed to be more or less 'competitive' and within them real wages reflect the quality of workers' resource endowments (mainly human capital) and their personal efficiency and energy. That these result in a wide dispersion of labour market rewards, some of which may be insufficient to sustain a reasonable standard of life, is a demonstration, it is argued, of how widely dispersed are individual resource endowments and capabilities (Hirsch and Addison, 1986). From this perspective, any idea of social justice designed to reduce income inequalities risks damaging incentives and lowering overall economic well-being. This is the basis of Okun's (1975) thesis that there exists an inverse trade-off between social equality and economic efficiency: that greater social (income) equality can only be purchased at the cost of lowering economic efficiency. The alternative perspective explored in this Special Issue recognises the central import ance of relative power in determining outcomes. This focuses attention on the external and internal forces structuring markets and how these differentially affect the incomes and opportunities of individuals. From this perspective, social justice requires the removal of the obstacles that inhibit individuals and groups from developing their potential and from deploying their resources to full advantage. Thus, contrary to the orthodox view, increasing