Is Labor Really a Business Cost?
Like the arts, dance, and music departments in universities and schools, labor tends to be one of the first things scaled back when times are lean and money needs to be saved. With respect to the arts, there are good reasons to think this view is wrongheaded. However with labor, there might be a commonsensical idea that prevails: wages paid to workers eat away at the overall profit a business makes.
This episode of Thought Walk explores how true this commonsense idea is.
Cost or Wage?
In the previous episode of Thought Walk, we saw how value is created with respect to the interaction between labor and land. The value produced by labor is most readily seen in examples of making and crafting. Let us return to our cobbler from the community of Offland, who produced the much-sought stiletto clogs. A very valuable item, indeed!
In simple terms, the clogs are the value produced. But we know that the cobbler is not just making these clogs for herself. She wishes to trade them for some other form of value. Typically, what people trade for are other things of value or transferrable forms of credit. Notwithstanding interesting nuances about credit, let it suffice to say that money is a form of credit which tends to be recognized universally.
Accordingly, the value produced by the cobbler can be seen either as the clogs themselves or, upon exchange, the money she gets when a customer pays for the clogs. In the former instance, the wage is the pair of clogs; in the latter instance it is the price paid by the customer to possess the clogs.
Of course, there are costs to be subtracted from the wage, such as the operating costs relating to the use of capital to make shoes and the cost of selling shoes. This includes the tools and materials used, advertising, transportation, insurance, etc. (Let us recall from episode 1 that we have good reasons not to count the rent paid for the business site as an expense.)
So if a customer pays 50 guilders for the stiletto clogs, and it cost the cobbler 5 guilders to make, that means the wage she receives for that transaction is 45 guilders.
What can we learn from this example?
First, we can ask where in the example is labor a cost of production? It is true that labor is paid, and so this payment seems to be a cost. But in our example, labor’s payment is actually the value s/he produces—i.e. the clogs! It would seem odd to say that the cost of employing the cobbler is the shoe she makes!
But perhaps this example is true only for businesses where the owner does the majority of the labor? What about arrangements where the owner simply manages the business and pays others to work? Does anything change if our cobbler expands her business?
What we find is that the scale of production increases. Employment of several workers equals more shoes that can be sold. But note that the increase in scale does not change the fundamental relation to value. No matter how big the cobbling business gets, each worker produces (or cobbles) his or her own wage.
What the scale of production allows for is, as Marx famously points out, controlling how much the workers produce and how much they get paid for their production. A general exploitative condition is one in which the workers get paid less than what they produce. So, for example, a worker makes 5 pairs of shoes but only gets paid for 3 pairs; or they work for 9 hours in a day but only get paid the equivalent of 7 hours (via a reduced hourly wage).
But let us assume that our cobbler is a just person and pays a fair wage. This would involve taking some percentage of the sale of shoes in return for what she supplies (e.g. the use of tools, materials, marketing, etc). In other words, “fair” would entail accounting for the cost that a worker is willing to pay to the cobbler so as not to have to set up a business for him- or herself, or seek employment elsewhere.
But being fair-minded is no guarantee that the workers will get a fair wage. In times of economic downturn, the cobbler may try to maintain levels of production by either reducing the number of workers or paying each one less. Call this staff contraction while maintaining a near-normal level of output. Such conditions are exploitative, but may not be seen as such because at least those in work can still earn a wage.
While this example is simplistic, it does capture what I believe to be the fundamental nature of wages—namely, wages are the direct product of labor.
Not Just a Parker Brothers Game!
Where this example faces some difficulties is with respect to structural or organizational resistance. This can arise in terms of what Marx diagnoses as a proportionately small number of people owning most or all the capital. In this instance, the workers have no option to work for themselves and must accept whatever wage a business owner will pay. This is a form of wage slavery.
Or it can arise due to another form of control—e.g. owning the majority of land that production requires. In this instance, the fee the landlord collects will account for any differential advantage (see episode 1) as well as a good portion of the profit the business would make. The only options for our cobbler is to accept a reduced profit as business owner, and/or reduce the wage paid to her workers.
In one sense, both difficulties involve a form of monopoly or near-monopoly. They are both certainly exploitative conditions for working.
My thanks to Giacomo Savani for the stiletto clog illustration!
Dr Todd Mei is Senior Lecturer and Head of Philosophy at the University of Kent. He researches in the philosophy of work and economics and also runs the public philosophy website philosophy2U.com. He is an aspiring literary author and is a keen windsurfer and recovering rock climber.