Paper Title: Behavioural and Islamic Economics Critique on Mainstream Views on Unemployment: A Joint Perspective

Author:        Ekrem Yilmaz

Publisher:    Journal of Islamic Accounting & Business Research, Vol. 16(4), 838 – 852

This study aims to discuss the joint criticisms of behavioural economics and Islamic economics against the conceptual and economic political view of the mainstream towards unemployment.

The author argues that although there are some differences, the recommendations and values of Islamic economics and behavioural economics in the context of unemployment are almost the same. More importantly, both approaches are similar in their emphasis on the ineffectiveness and distance from human values in the mainstream economic policies.

The author states that conventional economics often relies on oversimplified assumptions, assuming rational behaviour and perfect information among individuals. However, behavioural economics demonstrates that humans often exhibit irrational decision-making influenced by cognitive biases and social norms, leading to persistent unemployment as job seekers overlook suitable opportunities. By neglecting these behavioural aspects, mainstream policies fail to account for the human dimension of economic decisions, hindering their ability to effectively address unemployment challenges.

Moreover, conventional economics tends to overlook the influence of social and cultural factors on unemployment. By contrast, Islamic economics emphasizes the significance of social justice and welfare, attributing high levels of unemployment to income disparities and social inequalities exacerbated by mainstream economic policies. This critique highlights the importance of considering the social context and addressing income distribution to achieve more inclusive and sustainable employment outcomes.

Mainstream economic policies often prioritize short-term goals, such as inflation control and GDP growth, over addressing the root causes of unemployment. This short-sighted approach can lead to unemployment persistence, even during periods of apparent economic growth. By contrast, behavioural economics urges policymakers to adopt long-term and holistic strategies that prioritize social welfare and sustainable job creation, offering a more nuanced and comprehensive perspective on addressing unemployment.

Furthermore, conventional labour market interventions predominantly focus on supply-side measures, such as education and training, while neglecting demand-side factors.

By contrast, Islamic economics emphasizes the role of the state in fostering a conducive environment for investment and entrepreneurship, creating employment opportunities and fostering economic growth. Behavioural economics also advocates for active labour market policies that tackle information asymmetry, facilitating job seekers in finding suitable employment. By overlooking these demand-side considerations, mainstream policies may miss crucial opportunities to generate employment.

Another critical oversight of conventional economics is the disregard for the informal and undocumented labour market, particularly prevalent in developing countries. In many Islamic economies, a substantial portion of the labour force operates in the informal sector, lacking job security and social protection.

Behavioural economics urges policymakers to understand the motivations for individuals participating in the informal labour market and develop policies for promoting formalization while safeguarding workers’ rights. Ignoring this aspect not only perpetuates labour market vulnerabilities, but also overlooks potential sources of employment generation.

Finally, mainstream economics often assumes labour markets to be efficient and self-correcting. However, persistent unemployment challenges this assumption, as evidenced by market failures like sticky wages and wage rigidity.

Islamic economics advocates for fair wages and ethical labour practices to ensure a more equitable distribution of income, promoting social justice in economic activities. Behavioural economics emphasizes the need for active labour market policies to reduce wage rigidity and foster job matching. These critiques of the efficiency assumption shed light on the complexities of labour markets and highlight the necessity for policies that prioritize equitable income distribution and job opportunities.

The joint perspective of Islamic economics and behavioural economics presents a compelling case against mainstream unemployment policies. The oversimplified assumptions, neglect of social and cultural factors, short-term focus, inadequate labour market interventions, ignorance of informal labour markets and the myth of efficient labour markets all contribute to the persistence of unemployment challenges.

By integrating the insights from Islamic and behavioural economics, policymakers can develop more comprehensive, inclusive and socially just policies to tackle unemployment effectively and work toward a more sustainable and equitable economic future.

However, the paper seems to compare the ideal potential of the Islamic versus the reality of the actual markets. It does not effectively separate the discussion of theoretical shortcomings with policies.

When it comes to the recent research in labour markets, the concepts of frictions, sticky wages, bargaining power of unions, efficiency wage, productivity and minimum wage have been incorporated along with the effect of structural and technological shocks.

On the policy front, there have been legislations on workplace safety rules, pensions, insurance, minimum wages, no discrimination, and fair pay, for instance. The mandate of labour economics and management science sub-discipline of human resource management is different. On policies and issues regarding workplace safety, equal opportunities, socio-psychological support system etc., the field of human resource management has handled the concerns more directly and deeply.

Mainstream labour economics looks at the economics of labour decisions (labour supply side) and firms (labour demand side) and their outcome in the labour market and their effects in other markets and the macro economy.

The reality of the Muslim world in intra-OIC labour migration does not present an equally promising picture given the minimal rights, citizenship bans, and lack of independence from local agency. Therefore, the comparison needs to add these important details.

Furthermore, the paper also somewhat undersells the Islamic ideal state by showing its convergence with the critique of behavioural economics. Islamic approach is value-driven rather than just emphasizing on acknowledging complexity in real-world analysis. Islamic approach in contrast to the behavioural school wants to transform the reality in a holistic manner under the Tawhidic epistemology.