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Abstract

The author identifies the core principle that forms the theoretical and policy foundation for the field of industrial relations—that labor is embodied in human beings and is not a commodity—and argues that the field’s two central dependent variables are labor problems and the employment relationship. Next, he uses this core principle, along with complementary ideas from institutional economics, to develop a theoretical framework that not only explains the nature of the employment relationship and labor problems but also reveals shortcomings in related theories from labor economics and human resource management. Finally, this framework is used to derive the “fundamental theorem” of industrial relations, demonstrate that optimal economic performance occurs in a mixed economy of imperfect labor markets and organizations, and show that a certain amount of labor protectionism promotes economic efficiency and human welfare.

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