Creating Policies and the Environment:
Non-market values in labor economies
Bürgenmeier, Page 1 of 2
by Beat Bürgenmeier
At the time of the 1995 consultation, Beat Bürgenmeier was Professor, University of Geneva.
|1. Labour economics and the environment||4. The ethical dimension of work in a sustainable development|
|2. Value changes in the labour market||5. Conclusion|
|3. Value changes in the goods and services market||6. References|
Recent years have been characterised by a sharp rise of unemployment in Europe and a diminishing interest in environmental issues. These trends are observed in the background of a revival of the dominant economic analysis which puts the market in the forefront of any social regulation. These elements combine in a strategy which seeks to strengthen the market in order to create jobs now and to protect the environment only in the long run. Therefore, it is tempting to link job creation policies to environmental protection in spite of these different time horizons. Does this link hold, or are job creating policies opposed to sustainable development? This question leads to a still open discussion about growth strategies and raises another one: in which respect is economic growth, best served by competitive markets, compatible with sustainability?
This paper answers this question in recalling a fundamental opposition between means and ends of the economy and insists on the ongoing change in the value system which legitimates any action in the field of labour and environment. It is divided in four parts. The first one recalls the actual discussion in policy making and shows that short term objectives are conflicting with long term ones. The second one analyses how non-market values are becoming of growing concern on the labour market. The third one shows how the conceptual framework integrating environmental concerns into the market is based on value judgments. The forth and final section concludes on the ethical dimension of any policy recommendation in the field of labour and environmental economics.
1. Labour economics and the environment
Economic theory insists on the market mechanism geared by the flexibility of prices instead of adjustments by quantities. It subordinates the labour market to the goods and services markets which regulate demand of labour. If the goods and services markets are competitive, the wage rate reflects the real marginal productivity of labour. In this perspective, unemployment is a sign that the real wage rate is above the real marginal productivity and that wage rate flexibility is able to restore full employment There is an important strand of literature which tries to explain why the real wage is sticky and that the adjustment to lower wage rates does not take place. Many institutional arrangements, namely with trade unions, are held responsible for this observed stickiness, but value judgments also play an important part. The labour market is a particular market indeed. Nobel prize winner Robert Solow admits that the labour market cannot only be analysed in economic terms, because it is also driven by motives of fairness (Solow in Swedberg, 1990). This aspect rises some doubts that the usual market mechanism working through price flexibility can be applied to the labour market. Instead of a competitive market which treats labour as a factor of production only, it would be more accurate to insist on a social contract which would lead to a negotiation process where labour is not seen as the means for increasing productivity gains but as the end of any economic activity. This social contract approach, more often used in European countries than in the United States, has lead to quite a number of regulations reaching from minimum wage agreements to safety standards and social arrangements in general.
Therefore, in the actual analysis of the labour market, schematically there are two main and opposing explanations. The first is based on purely economic reasoning and insists on wage rate flexibility. The second is rooted in the theory of justice and leaves more room for specific institutional arrangements (Rawls, 1972). Facing higher unemployment rates, our societies seem to prefer increasingly the first one, trying to reduce the second one by deregulation. The emphasis put on labour market flexibility is not in accord with the underlying philosophy of the International Labour Office which seeks to coordinate and to harmonize labour regulations on an international scale.
These conflicting views about the functioning of the labour market can also be found on the goods and services markets. The conflict between price flexibility and quantity adjustments has dominated the negotiation process during the Uruguay Round for a new GATT agreement. The outcome of the negotiation is not so much a pure free trade agreement than an assessment of non-discrimination achieved by commercial policies which put emphasis on price flexibility instead of quotas.
As long as the environment is seen as an externality to markets and still as a free good, the prices do not cover all costs. However, it is a legitimate concern not to confuse environment protection with commercial protectionism. Therefore, we have to face a trend towards world-wide markets achieved by diminishing transaction costs such as tariffs and communication which, in turn, lead to an increasing process of specialization and to an even stronger international division of labour. This trend is backed by a GATT reform extending the existing agreement on free trade of goods to services and intellectual property rights. It has its origin in the recent technological revolution where important innovation lowered transport and information costs on a world-wide scale, putting non traded, more locally executed activities into a new dynamic and more competitive setting. We believe that the actual high unemployment rates can be linked to the undoing process of specialization, which leads to more labour mobility both from a geographical and professional point of view. As long as social costs due to pollution are not internalized into the world-wide markets, this process leads to an overspecialization which destroys jobs.
In order to fight against this job destruction, current policies recommend an even stronger increase in labour mobility. However, not only are the vectors of this increased mobility not priced according to the social costs which are involved, they are causing increased environmental damage. A new logistic management of e.g., "just in time" and "custom made specifications" increases the need for transportation and pushes the specialization process even further on a world-wide scale.
In internalizing social costs into the existing market structures, both transport costs would increase, and the process of specialization would slow down The resulting effect on lower labour mobility would smooth the structural problems of the actual unemployment. It is important not to confuse protectionism with this policy calling for a monetary expression of social costs as complete as possible. The claim for fully integrated social costs and values into the market evaluation, helps to solve the unemployment problem in different ways which are in accordance with a non-distorted allocation of resources.
The first way has an effect on the non-traded sector which will expand as a function of increased transport costs. If we assure that this sector is relatively more labour intensive than the traded sectors, job will be created by the more locally oriented economy.
The second one has an effect on relative prices and leads to structural changes both on the supply and demand side. The relative price changes due to an active policy of environment protection stimulate research in the energy and transport sectors and favor recycling, dematerialisation of production and resources management.
According to Michael Renner who has summarized the different studies of job creation, the European Union has an important potential of job creation in introducing energy saving programs (e.g. transforming individual private transport systems in collective and public ones and stimulating the industry of recycling (Rennet, 1992).
However, this structural change of the economy induced by deliberately forced relative price changes has an important consequence on the redistribution of labour. While certain sectors and regions will decline, others will emerge. Therefore, it will submitted to the power plays of special interest groups and risks to be rather conflictual. These conflicts can already be seen on a world-wide scale and may hide the fact that the labour market is already exposed to changes in its underlying value system.
2. Value changes in the labour market
According to the competitive market model, an increase of labour mobility both in geographical and in professional terms, is an efficient way to achieve adjustment at a level close to full employment Therefore, mobility is only analysed in terms of obstacles. However, lack of mobility is not only expressed in economic costs, but also in terms of social benefits which are becoming increasingly important.
This cost-benefit analysis is influenced by the importance which our society attributes to non-market values. In the following, we summarize an earlier study (Bürgenmeier, l99l, pp. 303-310), which insisted on seeing labour mobility in terms of social costs
As far as the lack of geographical mobility is concerned, the social benefit comes from the individual rooting into a community. This aspect depends on the cultural and social weight attributed to it. According to a study in Switzerland (Bassand and al., 1985), 51 per cent of the interviewed workers facing unemployment would stay and accept another job even at a lower wage and only 27 per cent would leave their community. In the past, rural depopulation and urban concentration have shown that geographical mobility was a matter of survival. The need for rooting had to be subordinated to basic needs. However, once basic needs are covered, other more social needs, including the feeling of belonging and security, become important.
As a consequence of the industrial revolution, geographical mobility has led to social costs which have been underestimated for a long time. Insufficient transportation systems and lack of urban planning are the two most visible examples of these costs. The challenge to new forms of institutional labour arrangements would be to reduce these social costs. If new forms of production allow for decentralized working conditions that do not require geographical mobility, the question to be raised is how far human communication can be replaced by communication systems which isolate individuals from one another. Geographical mobility would not be required any more, but would give rise to a new form of cost measured in terms of the aim pursued on the labour market. If work should not only provide income, but also social contact, these costs will strongly increase.
As far as professional mobility is concerned, economic theory assumes homogeneity of labour, hence avoiding the problem. However, in the ongoing process of structural adjustment, namely from industrial to service activities, mainly in the administrative sector, the qualification of labour has roughly the same significance as the need for roots. If administrative skills become the essential part of professional qualifications (which leads to monocultural characterization of the labour market), the heterogeneity of labour is not linked to economic reasons anymore, but to a cultural need for diversity. - even if the transformation process is slow, altering educational requirements from specifically technical to more general abilities, the causal link may have to be revised. Instead of calling for high professional mobility, different economic sectors may become aware of the value of professional diversity. In this view, labour will not be just a factor of production, but an instrument for self-realisation.
This conclusion is reached by A Maslow who tried to classify human needs in a hierarchy, taking not only economic but also social and psychological criteria into account (Maslow, 1970). The proposed hierarchy ranks four motives in ascending order. Whenever the need underlying one of these motives is satisfied, it loses its intensity and makes the following motive more important:
In developed countries, motive one is largely covered. Therefore motives two to four become increasingly important today in these societies.
This evolution is illustrated by case studies about the motives to work. In referring to the Swiss labour market again, we present three studies which stress sociological and psychological aspects of unemployment.
The puzzling fact about the Swiss labour market is the still low unemployment rate compared to other European countries (Fluckiger and al., 1985). In a socioeconomic perspective this characteristic is explained by the degree of political and social consensus reached in Switzerland. This consensus is based on a social contract which goes as far back as Kant and Rousseau. In a contemporary interpretation of such a contract, the labour market is regulated by an institutional agreement that includes a negotiation process between firms and trade unions, under government supervision. The resulting convention applies to all labour contracts, even those that have been signed by non-trade union members. Therefore, the observed equilibrium at a low unemployment rate is not due so much to wage rate flexibility (which would appear to be higher in Switzerland than elsewhere), as to an institutional agreement that explicitly takes into account the idea of fairness. This approach has been codified in the values and symbols attached to work which also shape the difference between self-declared and officially registered unemployment According to a economic study, self- declared unemployment appears to be clearly higher than that which is registered (Stole, 1985) in rural cantons and tends to be equal in towns.
Lalive d'Epinay's sociological study analyses the change in the cultural value system of Switzerland and stresses the need to establish a new contract between individuals and society, and to redefine the state as well as the respective responsibilities of the public: and the private spheres (Lalive d'Epinay, 1990, pp 156-157).
At the same time, a new perception of unemployment is gaining ground. instead of a failure, unemployment is seen as a new way of living which assigns a specific value to time allocation choices favoring the present. These new values are characterised by a hedonistic individualism and by critical attitudes towards the authoritarian organization of labour.
Lalive d'Epinay's survey also confirms the crucial importance of future activities which allow self-fulfillment. This motivation can be satisfied by a combination of activities including work and leisure, but it is not exclusively defined in terms of an allocation of time between both. In this perspective, unemployment will be reduced by a policy which disconnects personal income from working hours, either by guaranteeing a certain level of income, or by establishing a fundamental right to a direct cash payment. Work will not be the only way to express time in terms of income.
This sociological approach to unemployment clearly stresses the ongoing change in motivation to work that reduces the importance of economic factors in explaining the labour market. But if this evolutionary aspect of institutional change becomes so important, why are we witnessing a rise of non-official labour markets precisely when the influence of economic factors is reduced by state intervention?
Our 1989 inquiry (Bürgenmeier, 1990b) in the building, agriculture and hotel trades of Geneva has shown the importance of illegal work skirting regulations through an underground labour market. Some individuals hold several jobs. There is high acceptance of this phenomenon by firms which believe that expelling illegal foreigners would adversely affect the Genevese economy. This expected negative effect puts the local government in a conflict situation. On the one hand, it is asked not to meddle with the labour market in order to allow the price mechanisms to work unchecked. On the other hand, it should take steps in order to extend the institutional framework to the hidden labour market. This ambiguity cannot be removed solely on the basis of economic arguments. Our study points out that social aspects such as temporary, sometimes part-time jobs, as well as the work of women, are important factors in this hidden market, and they contribute to more flexible attitudes towards the labour market. Therefore, in spite of official unemployment measures and state regulations, an unofficial labour supply will expand with the rise of new motivations to work
Therefore, a broader approach to the analysis of the labour market beyond economics is needed. Such an approach covers non-market values and is clearly geared by ethical considerations.
Changes in institutions and motivations explicitly take into account this ethical dimension expressed by a change in our value systems where the allocation of time is crucial. On the supply side of the labour market, time is only expressed as a trade-off between income and leisure. On the demand side, time appears in the link made between the marginal productivity of labour and economic growth. Therefore, paying attention to time calls for an evolutionary approach. The social symbols pertaining to the labour market have changed and increasingly reflect the differences in situations between individuals, between societies, and between generations.
Bürgenmeier, Page 1 of 2