Labour market institutions: the building blocks of just societies

Abstract

Equitable societies with large middle classes are not the natural outcome of market forces. Equity, rather, is created by society, by the institutions – the laws, policies and practices – that govern the society, its economy and, in particular, its labour market. Building just societies means designing institutions that support the creation of quality jobs with decent wages and working conditions, as well as enacting policies to support those who cannot work or who are unable to find work. This book argues that the lack of, or erosion of certain institutions that govern the labour market has contributed to rising inequality in many countries across the world, jeopardizing individual as well as societal wellbeing. Thus, if a country wants to improve equity it will need to strengthen its labour market institutions. The book employs a broad definition of labour market institutions that includes the more familiar institutions that regulate the workplace – collective bargaining, minimum wages, the type of employment contract, and working time regulations – as well as those institutions that redistribute income, including pensions, income support for the unemployed and the poor, as well as public social services. Because work is by far the most important source of household income among nonretired households, the book also considers full employment policies in its analysis. A commitment to full employment implies not treating employment as a residual outcome of economic growth, but designing and implementing policies that make job creation an explicit goal. As the book is concerned with overall equity in a society, it considers not just wage and income inequality, but also inequality between groups. When labour markets are well regulated, when there are encompassing welfare states and when public social services are offered broadly to the population, there is greater equality between groups – as well as greater overall equality in wage and household income. Thus, achieving inclusiveness and equity requires constructing institutions that support people both

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