Labour Markets, Firms and Institutions : Labour Economics and Industrial Relations

The study of the employment relation has always held a somewhat ambiguous position within the field of economics. The nature of labour market adjustment processes and unique aspects of the employment relation have posed problems for standard economic theories and have limited the use of formal modelling. Moreover, institutionalist approaches hove been a greater challenge to labour economists than in any other area of enquiry within the discipline (Jacoby, 1990). Traditionally, this difference has been manifest in a clear distinction between labour economics and industrial relations as separate fields of study. The artificiality of such a distinction, we argue, poses problems for understanding the phenomena of concern to both disciplines. In this paper we argue that notwithstanding the important insights gained from standard neoclassical models of the labour market, they do not provide an adequate basis for understanding the employment relationship and institutional features of labour markets. Instead, we begin with the assumption adopted by industrial relations scholars that the labour market is different from other economic exchange relationships and use this as a basis for developing a more realistic framework to understand both the social and economic dimensions of the employment relation