South Asian Journal of Human Resources Management, Volume 10, Issue 2, Page 224-243, December 2023.
The textbook construct of a competitive labour market represents an ideal world in which workers and employers have equal bargaining power. Such a construct yields powerful conclusions: Wages are aligned with productivity; employers earn a normal rate of return; there is no involuntary unemployment and working poverty; regulations—such as minimum wages and the presence of unions—impedes the efficient functioning of the labour market. Yet, these conclusions—which have influenced, academic economists, policymakers and redoubtable international agencies—are impaired in the presence of unequal bargaining power of workers and employers. In such circumstances, unscrupulous employers can exploit the vulnerability of workers leading to such deleterious outcomes as working poverty, unsafe working conditions, use of child labour and so forth. This creates the rationale for appropriately designed regulations that seek to create a level playing field between workers and employers and thus facilitate the transition to an ‘inclusive’ labour market.