On the Value of Labor
11 min read
Barış Onur Örs
How Valuable is Labor?
The moment we ask this question, we find ourselves in the midst of the most critical debates of economic policies. It is hard to reach a universally agreed upon theory about the value of labor. The inverse proportionality of the amounts of profit and wage, which are considered as the two main components of production income, turns the disagreements on this issue into one of our most fundamental societal problems. Today, in some industries where labor wages are quite low, it is hard to believe but the cases of worker suicides are becoming increasingly common. Farmer suicides in India, which have turned into an epidemic until recently, are known by the world public opinion, or it is known that some businesses in China have taken special security measures to prevent suicide and added related clauses in job contracts. While the use of cheaper products that are a result of spreading flexible production and global competition, increases day by day, the conditions of the labor force who produce these products are also getting worse day by day. Global economic policies, focused on economic growth, not only lead to the insecurity of labor but also encourage businesses to produce in geographies where the workforce is the cheapest and labor is the least organized. Phenomena such as war and migration also lead to workers who are trying to cling to life, to be satisfied with less each passing day.
Working for a wage (labor) has found its place in economic history relatively recently. In previous periods, heavy tasks were performed by slaves and serfs in return for their survival, while only skilled and free workers had the right to sell the goods, the product of their labor, for a price. With the modernization of economic production and the spread of capitalism, the value of labor became more prominent and in this period, working for wages became a norm. The wage, which is the share taken from production by labor, has been one of the most important topics of classical economics since Adam Smith. The classics introduced the concept of "subsistence wage," which is enough to meet the vital needs of the worker and continue his generation, taking into account the differences between cultures and periods. The unfair distribution of societal wealth brought by the industrial revolution and specialization between workers and capital owners was seriously criticized first by utopian socialists and then by Karl Marx. The systematic criticism put forward by Marx, in particular, led to the politicization of the working class. Neoclassical economists tried to prove with mathematical formulas that each production factor earned as much income as its contribution to production. Thus, they argued that capitalism is not a system based on class conflict, but a societal consensus system in which everyone gets as much share as their contribution to production.
Income distribution and inequalities, workers' rights and union organizations, social and cultural values, technological changes, and many other factors affect the value of labor. Professions requiring high education and expertise are generally rewarded with a higher labor value, while some other professions usually get lower wages. This situation increases the complexity in measuring the value of labor because the contributions of each job to society are different. In addition to these, technological developments such as automation and artificial intelligence today are transforming labor markets and making some jobs unnecessary. However, technology also creates new job definitions and these jobs usually require higher skill levels and thus higher wages.
Is Fair Wage Possible?
When we ask how fair wages should be determined; we enter complex equations that have to take into account various economic theories, legal frameworks, principles of social justice, labor organizations and solidarity models, intercultural differences, and the material conditions of countries. In this mix of variables, it wouldn't be easy to specify how much of the profit in production or service should be allocated to labor wages.
Classical economists like Adam Smith and David Ricardo have argued that the value of a product derives from the labor required to produce it. According to this, theoretically, all value produced should belong to the labor. However, this classic approach does not take into account other important business elements such as risk, management, and capital investment. Marx, in a similar vein, argued that workers should receive the full value of what they produce, stating that anything less is exploited as "surplus value" by the capitalist. Neoclassical economists, on the other hand, have developed the marginal productivity theory. According to this approach, the remuneration of labor depends on the marginal productivity of this labor, that is, the value of the additional output produced by a worker. Keynesian economists, focusing on total demand as the driving force of economic growth, have argued that fair wages are wages that provide workers with sufficient income to continue growing the economy. Apart from these, the Monetarist approach suggests that wages are primarily determined by monetary policy and inflation expectations. This theory, focusing on targeting inflation to maintain employment levels and economic growth, indicates that excessive wage increases can lead to inflationary pressures. In this context, fair wages should be inflation-compatible and sustainable. In developing countries, the role of institutional capabilities and market structure becomes important. In determining wages, situations where markets are not perfectly competitive and labor markets are not fully competitive should be taken into account. In such cases, the concept of a fair wage is typically determined by the bargaining power of labor and employers, government policies, and social norms.
Models Transforming the Value of Labor
Cooperatives: Cooperatives are businesses that are jointly owned and operated by their members. The partners are usually employees or consumers, and they generally share profits equally. This model provides more voice for the workers and generally encourages fairer wages and working conditions.
B Corp (Benefit Corporation): B Corp certified companies commit to considering not only maximizing profit but also societal and environmental impacts. This is presented as a way of transforming the classical economic cycle because it requires companies to care not only about profit but also social impact.
Socially Responsible Investment (SRI): SRI involves investments considering ethical or social impacts in addition to financial return. This model encourages investors to think not only about financial outcomes, but also about their effects on society and the environment.
Green Economy and Circular Economy: These models consider the impact of economic activity on the environment and natural resources. The circular economy encourages efficient use of resources throughout the entire cycle of products and services, from design, production and consumption, to recycling and waste management in the end.
Employee Ownership: Employee ownership is a model where a business is wholly or largely owned by its employees. This involves employees more in business decisions and generally leads to a more balanced profit sharing.
Local Currency Systems: Local currencies are alternative monetary systems used within a specific geographic region, usually designed to support the local economy. Local currencies can boost local trade and businesses, and also increase local economic development and monetary circulation within the community.
Union Organizations: Unions are associations formed by workers coming together to protect and enhance worker rights and interests. Unions can transform the value of labor by advocating for workers' rights on issues like fair pay, safe working conditions, and protection against layoffs.
Social Enterprises: Social enterprises are businesses focused on solving social or environmental problems in addition to creating economic value. Social enterprises increase economic value by converting labor into social benefit and also aim to create societal impact.
Microfinance: Microfinance involves providing financial services to low-income individuals and small businesses that are typically left out of service by traditional financial institutions. These services often include small-scale loans, savings accounts, and insurance services. Microfinance plays a significant role in transforming labor into economic value, as it allows more people to start or expand businesses by broadening access to financial services.
Who Actually Does the Work? The Entrepreneur or the Employee? Capital or Nature?
Work, essentially a vital activity, occurs through the transformation of nature, which is one of the basic production factors. In this transformation process, labor, knowledge, and individual skills come into play and become a social activity. We can think of this with the example of a crow. Consider a crow using a wood stick found in nature as a tool to reach its prey. Although work is a category that belongs to humans, the knowledge, experience, and individual abilities of the crow come into play here, but this knowledge is also associated with the learning and knowledge transfer ability of the crow community. Therefore, work and labor have fundamentally emerged as a social activity.
So, we can say that production takes place on a plane where the individual intersects with the social. Let's consider a complex task that a community can only overcome by working together. In this job, everyone's labor plays a role and each individual's unique talents gain value. If everyone can be organized in the area they are most talented with a good division of labor, maximum efficiency is achieved, and everyone's contribution to total production can be increased. But who will come up with this work idea or who will organize the community?
At least when we consider our species, humans' ability to self-organize as a community seems to have been interrupted since we transitioned to a sedentary life. If we exclude our self-organization and solidarity abilities that emerge spontaneously in small local communities and sometimes in our modern societies, especially in times of disaster or crisis; we can argue that our modern societies have transitioned from collaboration where everyone has a stake in every job, to division of labor where tasks are clearly separated from each other. The role of the entrepreneur, one of the factors of production, emerges in this division of labor. The entrepreneur brings together his knowledge, accumulation, network of relationships, capital, and production tools, designs a job with the risk he takes, and ensures that the labor force is directed to this job. From today's perspective, it is easy to understand the role of the entrepreneur. But if we could look at the issue from a pre-sedentary society period, we would have a lot of trouble understanding. Because in times when labor was not alienated from the final product, there was a direct connection between labor and work. There might not have been much need for an entrepreneur in this directness. Community leaders must have naturally carried on this role. Today, however, economic cycles have become quite indirect and complex.
Wars, looting, and economies based on booty have highlighted the capture and evaluation of readily produced goods rather than the reproduction of goods. Expansionist economic systems that dispossess and displace societies and confiscate their assets have also enslaved the labor force, which is ready-made, for centuries. In this process, knowledge, strategy, networks of relationships, alliances established, diplomacy, and organizational ability have become very important, increasing the role of the entrepreneur who does not want to miss investment opportunities. Meanwhile, the accumulation of capital necessary for large-scale organizations and productions to be realized has also increased, and capital has become one of the most important factors of production in the current economic order.
Thus, within the current economic system, labor and nature, although they are the most basic production factors, are always kept in the background and externalized in the current production cycle, because they are considered as the easiest and most accessible and the factors with the lowest costs. Capital, on the other hand, is constantly channeled to the most efficient areas, doomed to constantly grow its existence. The entrepreneur has taken on the role of constantly growing capital by keeping the costs of factors such as nature and labor at the lowest level. The two main ways to keep the costs of these production factors at a minimum have been to increase efficiency and externalize these costs. The externalization of labor costs leads to workers living below the poverty line, while nature is being irreversibly damaged.
Today, even though the search for models that combine the factors of production more fairly and more balanced is increasing, for this to happen, our civilization must also undergo an economic-political transformation at the global level and a technological transformation where the increase in efficiency can be sustained in a more circular and ecological way.
References:
Ricardo, D. (1817). On the Principles of Political Economy and Taxation.
Smith, A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations.
Marx, K. (1867). Capital, Volume I.
Keynes, J. M. (1936). The General Theory of Employment, Interest and Money.
Friedman, M. (1969). The Optimum Quantity of Money.
Doğruyol, A., Aydınlar, K. (2015). Emek Üretkenliği ve Ücret Teorisi
