LABOUR MARKETS, REGULATIONS & DEVELOPMENTS
Prof. Valeria Pulignano
The course studies labour markets from a sociological and political-economic perspective. The aim is for students to understand key
concepts related to labour markets, theoretical and analytical approaches, labour market policies, and the effects of major geopolitical and
socio-economic changes on employment and working conditions. The focus is especially on how labour markets are shaped by politics,
institutions, welfare systems, inequality, globalisation and social change.
Labour markets are not ‘natural’ systems. They are socially and politically constructed.
Recent geopolitical and socio-political-economic shifts in Europe have strongly affected labour markets:
● Rise of labour market protectionism
Countries increasingly try to protect domestic workers and industries from foreign competition, i. e. by
imposing stricter migration rules; prioritising national workers or restricting foreign labour access.
● Post-Brexit labour shortages & policy shifts
After Brexit, the UK experienced labour shortages because many EU workers left or faced barriers to
entry. It’s a great example of how labour markets depend heavily on migration and labour mobility.
● ‘Activation’ policies
These are designed to push unemployed people into work. Do they genuinely help workers, or do they
mainly discipline unemployed people into accepting insecure jobs?
● Increased minimum salary requirements
Some countries increased minimum salary thresholds for migrants or skilled workers.
● Focus on local workforce participation
Governments increasingly emphasise getting local populations into employment instead of relying on
migrant labour. This may involve retraining domestic workers.
European labour markets have become ‘dualised’ or ‘two-tiered’. There are effectively two categories of workers:
protected workers, usually with permanent contracts on the one hand; and flexible workers, often with
temporary contracts. The EU labour market system right now tries to relax restrictions on temporary jobs
while retaining protection on permanent jobs.
Key theoretical themes for the course are:
● Flexibility
● Inequality
● Employment precarity
● Transitions in labour markets
The pandemic exposed and deepened inequalities between countries, workers, classes, and between secure and
insecure employment groups. Crises do not affect everyone equally. Employment does not automatically
guarantee success.
The working poor are people who are employed but still live in poverty. They are people who spend 27 weeks
or more in a year either working or looking for work but whose incomes fall below the poverty level (usually 60%
of median national income).
1
,Income inequality has increased significantly since the 1980s. In the past, the richest 10% earned about seven
times more than the poorest 10%, but today this gap has widened to around 9½ times. Economic growth has
not benefited everyone equally. Wealth is even more unevenly distributed than income. The wealthiest 10% of
households own around half of total wealth, while the poorest 40% own only a very small share. Half of
OECD-area households have debts, and 1/10 is over-indebted.
On top of that, a large amount of socially necessary labour is unpaid and therefore often ignored in traditional
analyses of labour markets; i.e. domestic labour, emotional labour, unpaid internships, … Unpaid labour often
reinforces inequality because certain groups, especially women and young workers, are more likely to perform it.
→ Inequality is central to understanding modern labour markets
Labour markets should be studied both through regulation (& governance) and developments, as labour markets
are politically managed. National and European governments regulate employment through labour law, welfare
policy, employment strategies, … European policy beyond employment strategies such as legislation on AI and
digital markets also has an influence.
L1. WHAT IS A LABOUR MARKET? CONCEPTS & THEORETICAL UNDERPINNINGS
Kalleberg & Soresen (1979) describe labour markets as “the areas in which workers exchange their labour power
in return for wages, status and other job rewards”. ‘Area’ can mean both the geographical area and the
occupational and industrial groups. Labour markets can also be divided according to groups of workers by
ethnicity/race, gender, education, income, and skills.
Labour markets are also social spaces, not just economic ones. Workers also gain or lose status through work.
In labour markets, social status can come from many sources, like occupations, income, education and
social recognition. Silly example, but for an influencer, the amount of followers affects status (and job
possibilities).
The labour market has two main sociological functions: allocation (distribution of jobs) and price-setting: i.e.
why some jobs are highly paid and others aren’t. The labour market is a coordination mechanism: it coordinates
workers and employers and does so through social and institutional rules. This system is not natural or neutral.
Labour markets are regulated, structured, and shaped by power relations.
There are various theoretical approaches to labour markets:
‘Orthodox’ classical economy assumes perfect market competition: wages are determined by supply
and demand. When supply and demand intersect, the labour market reaches equilibrium, or the
‘wage-clearing point’.
The assumption is that labour markets work like other markets, where money is the basis of exchange. It
also assumes rational behavior (like RCT) and that individuals’ strategies and choices are external to
the labour market: individuals cannot influence the price of labour (because the market determines
wages). It treats workers and employers to be competitive because they are assumed to compete
freely and equally.
In this model, if there is too much labour supply, wages fall. If there is too much demand for labour,
wages rise. Wages adjust until the market clears.
2
,Workers’ wages are determined by their marginal productivity; the extra output produced by adding one
more unit per labour. If an additional worker contributes a lot of extra output, that worker is considered
highly productive and should receive a higher wage. If the additional output from extra labour declines,
marginal productivity decreases.
→ As more labour is added to a fixed amount of land, output rises; but the extra output produced by each
additional unit of labour may eventually fall.
Adam Smith’s idea of compensating wage differentials is central to the orthodox classical economy. It
is the argument that wages differ because different jobs have different advantages and
disadvantages. The idea is that unpleasant, dangerous, … jobs must pay higher wages to persuade
workers to accept them.
The theoretical implication is that labour markets are seen as competitive and unitary. They are
competitive because workers and employers are assumed to compete freely. They are unitary
because the model treats the labour market as one coherent system governed by the same basic
rules.
Later, neoclassical / monetarist approaches revived many of the classical assumptions. Unemployment
is often explained as either frictional or voluntary. Frictional unemployment occurs when workers are
temporarily between jobs. Voluntary unemployment happens when workers choose not to work at the
wage available.
⚠ Keynes rejected this explanation. He argued that unemployment is the result of
inadequate demand in the economy and structural change. It may require government
intervention through fiscal or monetary policy.
3
, Human Capital Theory builds on the economic view of labour markets but focuses more specifically on
why individuals receive different wages and job rewards. Human capital refers to the productive
capacities of human beings as income-producing agents in the economy (Rosen, 1998).
According to this theory, people earn different wages because they have different levels or types of
human capital. Education and training are investments in skills and abilities. These investments
increase their productive capacity. It argues that differences in the kind of work they do, rather than the
amount, affect earnings. It also explains careers and job trajectories. As workers gain experience and
training, their skills increase, and this should raise their productivity and income.
→ Education, ability, experience and on the job training are the KEY explanatory factors.
This theory has a Pandora’s box: do children of immigrants who are born or educated in the
receiving country face the same difficulties as their parents?
If education and skills were the only factors that mattered, then the children should not face the
same barriers as their parents. But if they do face similar difficulties, then labour market outcomes
must also be shaped by discrimination, social networks, class background, ethnicity, …
Labour markets distribute income, but they also distribute social recognition: social class and status. This
means that labour markets reproduce social inequalities. They do not allocate jobs neutrally. They shape
people’s life chances and social positions.
Sociology of occupations focuses on occupational status as the basis for job rewards. It argues that
education plays a major role in transmitting parental (class) status to the next generation. Some
occupations provide higher income because more bargaining power leads to better employment
contracts.
Occupational sociology explains labour market outcomes through occupational (parental) status
(class). If poverty and inequality are the result of social disparities, they can be mitigated through
employment policy and state regulation.
Economic theories help explain the role of supply, demand, productivity, skills, and education. Sociological
theories show that labour markets are also shaped by class, status, institutions, occupational structures,
and regulation.
L2. THE POLITICAL ECONOMY OF LABOUR MARKETS
Political economy of labour markets asks how politics affect labour market outcomes. They are affected by the
balance of power between workers and employers, trade unions, political parties, governments, social
movements, … i.e. wages may be influenced by productivity and competition, but also by collective bargaining,
statutory intervention, …
For example, Belgian wage-setting is based on coordinated collective wage bargaining at the sector
level with automatic ‘wage indexation’ and the ‘wage norm’. Employers’ organisations and trade unions
therefore play a central role in determining wages and working conditions through collective agreements.
Automatic wage indexation means that wages are adjusted in response to inflation to maintain purchasing
power.
4
Prof. Valeria Pulignano
The course studies labour markets from a sociological and political-economic perspective. The aim is for students to understand key
concepts related to labour markets, theoretical and analytical approaches, labour market policies, and the effects of major geopolitical and
socio-economic changes on employment and working conditions. The focus is especially on how labour markets are shaped by politics,
institutions, welfare systems, inequality, globalisation and social change.
Labour markets are not ‘natural’ systems. They are socially and politically constructed.
Recent geopolitical and socio-political-economic shifts in Europe have strongly affected labour markets:
● Rise of labour market protectionism
Countries increasingly try to protect domestic workers and industries from foreign competition, i. e. by
imposing stricter migration rules; prioritising national workers or restricting foreign labour access.
● Post-Brexit labour shortages & policy shifts
After Brexit, the UK experienced labour shortages because many EU workers left or faced barriers to
entry. It’s a great example of how labour markets depend heavily on migration and labour mobility.
● ‘Activation’ policies
These are designed to push unemployed people into work. Do they genuinely help workers, or do they
mainly discipline unemployed people into accepting insecure jobs?
● Increased minimum salary requirements
Some countries increased minimum salary thresholds for migrants or skilled workers.
● Focus on local workforce participation
Governments increasingly emphasise getting local populations into employment instead of relying on
migrant labour. This may involve retraining domestic workers.
European labour markets have become ‘dualised’ or ‘two-tiered’. There are effectively two categories of workers:
protected workers, usually with permanent contracts on the one hand; and flexible workers, often with
temporary contracts. The EU labour market system right now tries to relax restrictions on temporary jobs
while retaining protection on permanent jobs.
Key theoretical themes for the course are:
● Flexibility
● Inequality
● Employment precarity
● Transitions in labour markets
The pandemic exposed and deepened inequalities between countries, workers, classes, and between secure and
insecure employment groups. Crises do not affect everyone equally. Employment does not automatically
guarantee success.
The working poor are people who are employed but still live in poverty. They are people who spend 27 weeks
or more in a year either working or looking for work but whose incomes fall below the poverty level (usually 60%
of median national income).
1
,Income inequality has increased significantly since the 1980s. In the past, the richest 10% earned about seven
times more than the poorest 10%, but today this gap has widened to around 9½ times. Economic growth has
not benefited everyone equally. Wealth is even more unevenly distributed than income. The wealthiest 10% of
households own around half of total wealth, while the poorest 40% own only a very small share. Half of
OECD-area households have debts, and 1/10 is over-indebted.
On top of that, a large amount of socially necessary labour is unpaid and therefore often ignored in traditional
analyses of labour markets; i.e. domestic labour, emotional labour, unpaid internships, … Unpaid labour often
reinforces inequality because certain groups, especially women and young workers, are more likely to perform it.
→ Inequality is central to understanding modern labour markets
Labour markets should be studied both through regulation (& governance) and developments, as labour markets
are politically managed. National and European governments regulate employment through labour law, welfare
policy, employment strategies, … European policy beyond employment strategies such as legislation on AI and
digital markets also has an influence.
L1. WHAT IS A LABOUR MARKET? CONCEPTS & THEORETICAL UNDERPINNINGS
Kalleberg & Soresen (1979) describe labour markets as “the areas in which workers exchange their labour power
in return for wages, status and other job rewards”. ‘Area’ can mean both the geographical area and the
occupational and industrial groups. Labour markets can also be divided according to groups of workers by
ethnicity/race, gender, education, income, and skills.
Labour markets are also social spaces, not just economic ones. Workers also gain or lose status through work.
In labour markets, social status can come from many sources, like occupations, income, education and
social recognition. Silly example, but for an influencer, the amount of followers affects status (and job
possibilities).
The labour market has two main sociological functions: allocation (distribution of jobs) and price-setting: i.e.
why some jobs are highly paid and others aren’t. The labour market is a coordination mechanism: it coordinates
workers and employers and does so through social and institutional rules. This system is not natural or neutral.
Labour markets are regulated, structured, and shaped by power relations.
There are various theoretical approaches to labour markets:
‘Orthodox’ classical economy assumes perfect market competition: wages are determined by supply
and demand. When supply and demand intersect, the labour market reaches equilibrium, or the
‘wage-clearing point’.
The assumption is that labour markets work like other markets, where money is the basis of exchange. It
also assumes rational behavior (like RCT) and that individuals’ strategies and choices are external to
the labour market: individuals cannot influence the price of labour (because the market determines
wages). It treats workers and employers to be competitive because they are assumed to compete
freely and equally.
In this model, if there is too much labour supply, wages fall. If there is too much demand for labour,
wages rise. Wages adjust until the market clears.
2
,Workers’ wages are determined by their marginal productivity; the extra output produced by adding one
more unit per labour. If an additional worker contributes a lot of extra output, that worker is considered
highly productive and should receive a higher wage. If the additional output from extra labour declines,
marginal productivity decreases.
→ As more labour is added to a fixed amount of land, output rises; but the extra output produced by each
additional unit of labour may eventually fall.
Adam Smith’s idea of compensating wage differentials is central to the orthodox classical economy. It
is the argument that wages differ because different jobs have different advantages and
disadvantages. The idea is that unpleasant, dangerous, … jobs must pay higher wages to persuade
workers to accept them.
The theoretical implication is that labour markets are seen as competitive and unitary. They are
competitive because workers and employers are assumed to compete freely. They are unitary
because the model treats the labour market as one coherent system governed by the same basic
rules.
Later, neoclassical / monetarist approaches revived many of the classical assumptions. Unemployment
is often explained as either frictional or voluntary. Frictional unemployment occurs when workers are
temporarily between jobs. Voluntary unemployment happens when workers choose not to work at the
wage available.
⚠ Keynes rejected this explanation. He argued that unemployment is the result of
inadequate demand in the economy and structural change. It may require government
intervention through fiscal or monetary policy.
3
, Human Capital Theory builds on the economic view of labour markets but focuses more specifically on
why individuals receive different wages and job rewards. Human capital refers to the productive
capacities of human beings as income-producing agents in the economy (Rosen, 1998).
According to this theory, people earn different wages because they have different levels or types of
human capital. Education and training are investments in skills and abilities. These investments
increase their productive capacity. It argues that differences in the kind of work they do, rather than the
amount, affect earnings. It also explains careers and job trajectories. As workers gain experience and
training, their skills increase, and this should raise their productivity and income.
→ Education, ability, experience and on the job training are the KEY explanatory factors.
This theory has a Pandora’s box: do children of immigrants who are born or educated in the
receiving country face the same difficulties as their parents?
If education and skills were the only factors that mattered, then the children should not face the
same barriers as their parents. But if they do face similar difficulties, then labour market outcomes
must also be shaped by discrimination, social networks, class background, ethnicity, …
Labour markets distribute income, but they also distribute social recognition: social class and status. This
means that labour markets reproduce social inequalities. They do not allocate jobs neutrally. They shape
people’s life chances and social positions.
Sociology of occupations focuses on occupational status as the basis for job rewards. It argues that
education plays a major role in transmitting parental (class) status to the next generation. Some
occupations provide higher income because more bargaining power leads to better employment
contracts.
Occupational sociology explains labour market outcomes through occupational (parental) status
(class). If poverty and inequality are the result of social disparities, they can be mitigated through
employment policy and state regulation.
Economic theories help explain the role of supply, demand, productivity, skills, and education. Sociological
theories show that labour markets are also shaped by class, status, institutions, occupational structures,
and regulation.
L2. THE POLITICAL ECONOMY OF LABOUR MARKETS
Political economy of labour markets asks how politics affect labour market outcomes. They are affected by the
balance of power between workers and employers, trade unions, political parties, governments, social
movements, … i.e. wages may be influenced by productivity and competition, but also by collective bargaining,
statutory intervention, …
For example, Belgian wage-setting is based on coordinated collective wage bargaining at the sector
level with automatic ‘wage indexation’ and the ‘wage norm’. Employers’ organisations and trade unions
therefore play a central role in determining wages and working conditions through collective agreements.
Automatic wage indexation means that wages are adjusted in response to inflation to maintain purchasing
power.
4
