Revisiting labour markets: Implications for macroeconomics and social protection

Abstract

Labour represents the productive energy of human beings and labour markets and broadly defined, represents the institutions that channel this energy throughout society. Therefore, labour and labour markets are of paramount importance to the functioning of any economy. Yet, the theories that dominate the formulation of economic policies reflect an imagined world that bears little resemblance to employment dynamics on the ground. The consequences of this elaborate fiction are not trivial. The ways in which labour markets are conceptualised determines, to no small extent, the outcomes predicted by macroeconomic models, the perceived scope for social protection, and the potential for purposeful interventions to improve material wellbeing. This article explores the fundamental issues at stake in theorising labour markets and explains why a failure to rethink labour markets would compromise the development of meaningful macroeconomic and social policies. © Institute of Development Studies.