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Edited by Peter G. Klein and Michael E. Sykuta
Chapter 22: Labour Economics and Human Resource Management
Bruce A. Rayton It has become fashionable among modern labour economists to treat labour economics and industrial relations as distinct and separable subjects, allowing economists to concentrate on the operation of labour markets, while the influence of ‘institutional’ factors is delegated (or relegated) to industrial relations experts. Kaufman (2005, p. 409) Kaufman (2005) suggests that the practice of labour economics and industrial relations are largely separate enterprises, but recent developments in labour economics emphasizing the significance of contracting problems and examining employment relationships as organizational responses to contracting failures suggest that fashions are changing. Transaction cost economics (TCE) is well placed to inform these new developments in the field. In what ways can TCE inform the study of labour economics and by extension the study of personnel economics and human resource management? This chapter offers some answers to this question by first enumerating the characteristics of labour market decisions that have meant that the study of these phenomena has generated a unique field of economic inquiry. Next, the chapter delineates the basic features of the neoclassical approach to labour economics in order to make explicit the areas in which the recognition of transaction costs can improve our understanding of labour market phenomena. What makes labour markets special? Defined in the most general terms, labour economics is the study of the allocation of a scarce resource across unlimited wants, where the resource is time and the unlimited demands on this time include leisure, employment, self-employment, home production, and any other uses...
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