Labour Markets and Inequality

Misconceptions and prejudices are ubiquitous in all social sciences disciplines and refer to all subjects. However, when labour and educational issues are concerned they tend to blow up also because they seem to pertain to the specificity of every case happening to everyone. Moreover, they are often fostered by a level of information which is feed by the “conventional wisdom” criticized long time ago by John Kennet Galbraith. Contrary to his progressive expectations, conventional wisdom has not been overcome by more advanced visions in terms of job quality and tends to persist in the public debate and the press when for instance in the case of lack of labour supply in specific jobs tries to derive from the job search theory the same poor tenets which ascribe all the problems to the deficiencies of labour supply. In this way many of the determinants of economic inequality result neglected from the beginning. This chapter shows that such misconceptions and prejudices cannot find full support even in the mainstream theory. Adopting a very selective approach, after the introduction, in Sect. 2, we will examine the micro-economic foundations of the wage-competition approach, giving the floor to the standard model and the main labour market functions envisaged in it. Subsequently, its main implications for income distribution and inequality will be drawn. In Sect. 3, the micro-economic foundations of the job-competition approach will be analysed, looking at a different basic model with different labour market functions and exploring its main implications for the study of income distribution and inequality. In Sect. 4, some inferences concerning economic inequality will be drawn from macro-economic theory. Moreover, in Sect. 5, six of the main applied issues concerning the relationship between labour markets and inequality will be surveyed, giving a glance to the following issues: the phenomenon of employment polarization; the process of fragmentation of social and productive structure as it affects economic conflict; the problem of gender segregation; the changes in labour share; the role of institutions in labour markets in different models of capitalism; the notion of employability and active labour; and employment policies as tools for reducing inequalities.