Economics of Labor. Markets = Equality?

[xub3rn00dlex]

So during my lecture today [ Economics of Labor ] my professor was explaining monopsony markets vs. competitive labor markets. While the general idea of these concepts is not difficult to understand ( although if someone wishes to chime in their knowledge I will appreciate it ) there is one thing that baffles me.

While explaining the monopsony on a graph with MLV, S, and MLC slopes he explained that the difference between MLV and MLC is the amount of exploitation that occurs. This makes sense when you view it on a graph.

What I'm having an extremely hard time understanding is how he can state that this is the exploitation that Marx and communists in general argue against ( partially true I guess ) and that if you look at the competitive labor markets, there is no exploitation occurring. His reasoning is that the wage workers make is equal to the product they produce, Labor Supply = Labor Demand, and therefor since the graph is in equilibrium, the equilibrium wage cannot allow exploitation. This he states proves that communism is wrong.

Anyone care to explain how the shit he got this conclusion?:confused:

[Jimmie Higgins]

What I'm having an extremely hard time understanding is how he can state that this is the exploitation that Marx and communists in general argue against ( partially true I guess ) and that if you look at the competitive labor markets, there is no exploitation occurring. His reasoning is that the wage workers make is equal to the product they produce, Labor Supply = Labor Demand, and therefor since the graph is in equilibrium, the equilibrium wage cannot allow exploitation. This he states proves that communism is wrong.

Anyone care to explain how the shit he got this conclusion?:confused:

Ha ha. Economic theory (particularly capitalist-apologist versions of it) aren't my strongest area of knowledge so I kinda need a translation into traditional Marxist economic language. Was he saying that because the codification of labor sets a market "price" on labor-power that employers aren't simply underpaying workers (or marking up the price)? If so, he's sorta right but he's missing an important part of the picture.

[xub3rn00dlex]

Ha ha. Economic theory (particularly capitalist-apologist versions of it) aren't my strongest area of knowledge so I kinda need a translation into traditional Marxist economic language. Was he saying that because the codification of labor sets a market "price" on labor-power that employers aren't simply underpaying workers (or marking up the price)? If so, he's sorta right but he's missing an important part of the picture.

Yeah, I have to study this shit for a living now man. The things I do for communism haha ;)

I think you're pretty much spot on. He said that since in free competitive markets, the worker will get the wage the market sets as appropriate at the intersection of Supply = Demand. The thing is, I could simply quit here and accept this as true because some book says so, or question how is it they accept this as true. I guess he is sort of right, but if he wants to go by overly simplified notions, how the hell do you disprove an entire economic theory using overly simplified baby ideas that don't hold true in complex economic structures?

[Jimmie Higgins]

Ok, in that case he's missing the exploitation because the average Labor value is added to all the widgets workers make, but they are paid hourly which means the boss has flexibility in how hard he makes the worker work (how many widgets) and how long he works.

So he might come to this belief simply because of the old "it looks great on paper" thing... which would be ironic. But also because mainstream economics has tried very hard to explain away or go around the Labor Theory of Value. They all love Ricardo and Adam Smith, but not that part or their writing, no it's irrelevant now according to most economists. It's the same in a lot of academic fields... Koch Brothers make money in Oil so they fund anti-climate science to try and obfuscate things that are otherwise pretty clear. At the end of the US Civil War pretty much everyone was clear that ultimately the war came down to Slavery - why else would the Southern Democrats fear-monger around "negro domination" and why did Southern elites complain of labor shortages after the war instead of just paying the former slaves as wage-workers? But over the decades, again, powerful people with an interest in blurring some of the harsh facts of conflict in the US have funded researchers whose ideas would help accomplish that.

Over the decades, the same has happened with the "exposed seams" of the capitalist economy. Your instructor reads a similar framework in several different books by authoritative people, works with colleagues who also read these things and get information from similar institutions and they would all scoff at LTV as old fashioned and irrelevant. Educated people are no less susceptible to ruling class ideas than anyone else - they have the opportunity to research and find better information than an average worker does, but they are also inundated with a lot more authoritative misinformation than most people (and for some, they also aren't confronted as much with the daily lessons of wage-work since they have somewhat more flexibility and are more petty-bourgeois in nature).

I'm curious about his explanation for where wealth/value DOES come from though if not LTV.

[Tim Cornelis]

I think he is referring to marginal productivity.

This means that in a free market each receives his contribution to society. This theory also claims that capital is also productive and thus profits reflect the contribution of property to the market, profits are therefore not exploitative in this logic. It argues wages reflect productivity of labour, profits reflects productivity of capital.

The marginal productivity theory is factually wrong. Labour productivity has risen by 33% from 1970s till 1990s, which would mean--according to marginal productivity theory--that wages should have risen by 33%, while it has been continually stagnating/falling in the same period.

(I will look up precise numbers).

EDIT, the facts. IF the marginal productivity was correct it would mean increase in labour productivity would increase in proportion to the increase in wages, i.e. if labour productivity rose by 5% wages will correspondingly rise. Yet, "real wages have fallen in the US since the mid 1970s to where the average hourly wage adjusted to inflation was lower in 1994 than in 1968. Moreover, this decline has in real hourly wages has occurred despite continual increase in [labour] productivity. Between 1973 and 1998 labor productivity grew 33%. Collins and Yeskel calculate that if hourly wages had grown at the same rate as labor productivity the average hourly wage in 1998 would have been 18.10 dollars rather than 12.77 dollars - a difference of 5.33 dollars an hour, or more than 11,000 dollars per year of a full-time worker" (source: the ABCs of political economy by Hahnel, he cited "economic apartheid in America").

Remember the mantra: facts invalidate neoclassical theory.

EDIT #2: Steve Keen's book "Debunking [neoclassical] Economics" also deals with why this theory of marginal productivity of labour reflecting wages is wrong (and also why the same goes for capital, but not in this chapter): The chapter is called "to each according to his contribution", p. 110, http://books.google.com/books?id=KdITT4ukfhoC&printsec=frontcover&hl=nl#v=onepage&q=to%20each%20according%20to%20his%20contribution&f

[Nothing Human Is Alien]

"...the value of labour-power, and the value which that labour-power creates in the labour-process, are two entirely different magnitudes; and this difference of the two values was what the capitalist had in view, when he was purchasing the labour-power.... What really influenced him was the specific use-value which this commodity possesses of being a source not only of value, but of more value than it has itself. This is the special service that the capitalist expects from labour-power, and in this transaction he acts in accordance with the “eternal laws” of the exchange of commodities. The seller of labour-power, like the seller of any other commodity, realises its exchange-value, and parts with its use-value. He cannot take the one without giving the other. The use-value of labour-power, or in other words, labour, belongs just as little to its seller, as the use-value of oil after it has been sold belongs to the dealer who has sold it. The owner of the money has paid the value of a day’s labour-power; his, therefore, is the use of it for a day; a day’s labour belongs to him. The circumstance, that on the one hand the daily sustenance of labour-power costs only half a day’s labour, while on the other hand the very same labour-power can work during a whole day, that consequently the value which its use during one day creates, is double what he pays for that use, this circumstance is, without doubt, a piece of good luck for the buyer, but by no means an injury to the seller." - Marx

[xub3rn00dlex]

Thank you for the responses. I will definitely take a look at the book, and even bring it up with him during the lecture to see how he reacts and what his explanations are.

@Jimmie Higgins - There is more than just widgets that are missing from his explanation if you ask me. He strikes me as the kind of economist, as Goti123 put it, that is alright with things as long as it looks "good on paper." While we both agree that political agenda often transcends the academic boundaries and is used to further the bourgeoisie position, I always thought that the fact that being a scholar would open up the mind more to all the wealth of knowledge out there. Especially considering that professors often do have the power to sway the future of the students, I find it bizarre that I'm the sole person in class lobbing questions at him.

@Goti123 - Your post is very useful because of the facts and numbers you posted, which I feel my professor wouldn't care to go into because it would contradict the point he is trying to make. I thought you might find it interesting that during his lecture he stated the minimum wage actually hurts workers, as do taxes. ( even if they are on the employers ) I'm pretty sure that as long as a minimum wage exists many here will agree that it should be at minimum a living wage, but this statement again is a "good on paper" rule. Ironically right after that class I have one in Macroeconomics, and while we basically learned the exact same thing, my Macro instructor ridiculed (to some extent ) the laws my Labor instructor championed.

@Nothing Human Is Alien - Nothing like a good Marx quote to cheer up my day :D

I'm thinking of keeping this thread alive by posting summaries and questions from consecutive lessons. It will help me and maybe others understand the lectures and concepts more and offer those with more knowledge on the subject a chance to spread their wealth of knowledge where people like me could directly apply it. At the very least it would keep me awake during the lecture!

[Nothing Human Is Alien]

"In Marx’s view, political economy was the theoretical expression of the rising capitalist society, which found nothing contradictory in the specific class relations that made its own development possible. The critique of political economy focused exactly on the contradictions inherent in capital production in both theoretical and practical terms. The practical critique remained, at first, the actual struggle between labor and capital over wages and profits within the framework of capitalist production relations. But this struggle implied and expressed a definite developmental trend of capitalism, pointing in the direction of its eventual dissolution. To lay bare this trend was the function of the theoretical critique of political economy.

"Just as the proletariat opposed the bourgeoisie, so Marx confronted bourgeois economic theory: not in order to develop it, or to improve it, but to destroy its apparent validity and, finally, with the abolition of capitalism, to overcome it altogether. Whereas the actual class struggle within capitalism was still “political economy,” albeit from the standpoint of the working class, the critique of bourgeois theory anticipated the end of political economy and therewith the end of the society in which its criticism constitutes a necessary part of the proletarian fight for emancipation.

"Marx’s critique of political economy is both an immanent criticism of bourgeois economic theory, made by showing that there is no connection between that theory’s assumptions and the conclusions drawn from them, and a fundamental criticism, which maintains that by assuming its own economic relations to be natural and unchangeable the whole of bourgeois economic theory fails, and must fail, to comprehend its own society, thereby condemning itself to misapprehend its own development as well as to misconceive its state of being at any particular time. For Marx, bourgeois political economy was incapable of being the theory of its own practice and could serve only as an ideology to safeguard the social conditions of its existence." - Paul Mattick

[Demogorgon]

In reality labour markets have four different wage levels where demand and supply intersect. Unless you wish to say that all four are the "true value" of labour (which is absurd) then you have to discard what your professor said.

[Die Neue Zeit]

^^^ Care to outline these levels for the OP?

[Demogorgon]

^^^ Care to outline these levels for the OP?
The notion comes R.E. Prasch. I had hoped to find a diagram online, but couldn't so I decided not to go into detail because it would be too confusing otherwise. But seeing as you asked, I have made one myself. You will have to forgive my appalling paint skills.
http://img269.imageshack.us/img269/5000/labour.gif (http://imageshack.us/photo/my-images/269/labour.gif/)

Uploaded with ImageShack.us (http://imageshack.us)

This shows the demand and supply of labour. Demand is normal but you will notice the supply curve is very different from normal. The starting point is the point I accidentally labeled "B" (was meant to be A). That is the wage level and amount of labour that provides basic sustenance. As wage levels increase, people are willing to work more until we get to the point I did in fact label A. After this labour becomes inferior to leisure and people use their increased income to take more time off and work less. Below the wage level B however, people will also work more as wages fall. This is because they can no longer get by working the hours they worked at point B and need to work more just to make ends meet. Once you get to point C however further work because pointless. Wages fall so low that you are best taking benefits if they are available or resorting to charity or crime otherwise. Hence labour supply falls away again.

This leads to four different points of equilibrium. Points 1 and 3 are unstable because any fall in wages will lead to people working more. Points 2 and 4 are both levels labour markets can settle on however. This incidentally blows out ofn the water criticisms of Unions or minimum wages. Employers would love the equilibrium to settle at point 4, but using labour protection to force it to point 2 will increase wages while still leaving the market in equilibrium. That isn't the point of this thread however. I merely offer this to show that there is no single point where demand for labour and supply of it coalesce, so to say that that point must be the true value of labour is nonsense.

[Die Neue Zeit]

Wow, the labour supply relation isn't mathematically "functional" at all! So much for "functional" assumptions in intro econ.

[Demogorgon]

Wow, the labour supply relation isn't mathematically "functional" at all! So much for "functional" assumptions in intro econ.
Well yeah. Once you examine how labour markets actually work, you see that a lot of the assumptions are nonsense. Neoclassical economists simplify things to make them easier to understand, but in doing so they also make things unrealistic, inevitably suiting an ideological agenda. I have one too of course, but at least I admit it and hence am able to compensate for it.

[Desperado]

I merely offer this to show that there is no single point where demand for labour and supply of it coalesce, so to say that that point must be the true value of labour is nonsense.

This may be a foolish question, but how does having more than one value fit with the LTV?

[xub3rn00dlex]

This may be a foolish question, but how does having more than one value fit with the LTV?

Can you be more specific? Nothing about Bourgie economics makes sense or fits in with the LTV.

That graph you posted will NEVER make it into my econ. class lol. My teacher really overly simplified everything, simple S vs. D graphs are all that make sense apparently. You were probably right that the more complex the graphs become the less any of this makes sense. Today's lecture focused on Indifference, which makes absolutely no sense. It's a) the whole topic of indifference belongs in a logic and reasoning class instead of economics and b) I get the feeling that the whole "human nature" argument is law in regards to this.

[Demogorgon]

This may be a foolish question, but how does having more than one value fit with the LTV?
The graph I drew shows how how labour markets work and how workers will respond to different wage levels. The OP says his professor claimed that the equilibrium wage is the "true value" of labour-that would clearly refute the LTV-however I have proven that there is no single equilibrium wage and that markets cannot determine the "true value" of labour.

What I showed neither proves nor refutes the LTV, it most certainly does demonstrate however that it is complete nonsense to say that markets tell us what labour is really worth.

[Desperado]

What I showed neither proves nor refutes the LTV, it most certainly does demonstrate however that it is complete nonsense to say that markets tell us what labour is really worth.

But doesn't a competitive market in which supply and demand are met give us a value which does tell us what labour-power is "worth"? How can something have more than one value when value is determined by embodied socially necessary labour time in the commodity? It seems incompatible with LTV to my basic knowledge of it and economics (of course proof is something entirely different).

[Demogorgon]

But doesn't a competitive market in which supply and demand are met give us a value which does tell us what labour-power is "worth"? How can something have more than one value when value is determined by embodied socially necessary labour time in the commodity? It seems incompatible with LTV to my basic knowledge of it and economics (of course proof is something entirely different).
Well if one accepts the LTV and a Marxian perspective then one naturally concludes that workers are being paid less than they are worth (there are plenty of other ways to reach that conclusion as well BTW), what I have explained is how markets decide on wage levels, not how much labour is actually worth.

Just in case I wasn't clear earlier, I was explaining why markets cannot determine the value of Labour, not showing how they do. Obviously it would be silly to say that Labour has more than one value, yet labour markets can arrive at four different points of equilibrium. That demonstrates that labour markets are not telling us the actual value of Labour. There are certain possibilities we can take from this. One is that the LTV tells us the true value and the true value is presumably more than what workers are being paid. Another is that it is impossible to quantify the value of labour and the exploitation comes from the fact that the employer can use a more powerful bargaining position to get their way. That would be diverging from Marx of course, but is worth baring in mind.

You can take different positions again from this as well. One position to take is that it tells us nothing at all except that it in no way forces labour markets out of equilibrium to have minimum wages and strong unions, it simply forces them to a "better" equilibrium. That is a point for a different argument though.

[Matija]

Well if one accepts the LTV and a Marxian perspective then one naturally concludes that workers are being paid less than they are worth As Nothing muman is alien quoted
the value of labour-power, and the value which that labour-power creates in the labour-process, are two entirely different magnitudes; and this difference of the two values was what the capitalist had in view, when he was purchasing the labour-power.... What really influenced him was the specific use-value which this commodity possesses of being a source not only of value, but of more value than it has itselfAcording to Marx they are paid exacly what they are worth (under capitalist mode of production), but they create more than they are worth.

This is why we can't just play a simple game "we are underpaid, give us higher wages we deserve them", but we need to change mode of production.

[piet11111]

How can something have more than one value when value is determined by embodied socially necessary labour time in the commodity? It seems incompatible with LTV to my basic knowledge of it and economics (of course proof is something entirely different).

Use and exchange value ?

Gold has some use value in electronics and jewelry but its exchange value is through the roof due to the crisis.

I am definitely not good with economics so if this not what you meant i am sorry.

[Demogorgon]

As Nothing muman is alien quoted Acording to Marx they are paid exacly what they are worth (under capitalist mode of production), but they create more than they are worth.

This is why we can't just play a simple game "we are underpaid, give us higher wages we deserve them", but we need to change mode of production.
Not exactly, you are conflating too different definitions of "worth" I think. One definition of worth would be what workers produce, another what they are paid, essentially use value and exchange value and the difference is exploitation.

Neoclassical economics disagrees and says the two values are the same as the difference is not coming from workers but rather the owners of capital (and land, technology patents and so forth). I think that is ridiculous. You do not have to accept the LTV to see why this alternative is ridiculous. I dread trying to use Paint to draw the diagrams to explain that so hopefully nobody will ask me to, but essentially they claim that the marginal product of the final worker is the value of all workers and all else comes from the owners. I hope people can see why that is ridiculous.

[piet11111]

One definition of worth would be what workers produce, another what they are paid, essentially use value and exchange value and the difference is exploitation.

Glad i was not off the mark then. :D

[Matija]

Not exactly, you are conflating too different definitions of "worth" I think. One definition of worth would be what workers produce, another what they are paid, essentially use value and exchange value and the difference is exploitation.

This is why you can't say that they are paid less then they are worth (under capitalist mode of production).

I am familiar with the marginalist approach, and I agree it's ridicolous. Cambridge capital controversy also deals with marginal productivity of capital and debunks neoclassical economics, which even Samuelson admitted, but later tried to minimaze its importance.

[xub3rn00dlex]

So we finally managed to get into the topic of Labor Demand today and guess what? That's right! Once more my teacher managed to bring up how Marx was wrong, this time based on the notion of profit maximization.

He stated that a firm operating in the free market seeks to maximize it's profit, and under the profit maximization system "Workers are worth what they are paid." Is this the same as the reverse saying?

So I again had to deal with the argument that this was the exploitation that Marx was talking about but it is non existent. As many on here have noticed, arguing with a PhD is futile, because that little paper they hold onto makes them absolutely correct for some bizarre reason.

Now my second question, how ( if at all ) can isocost/ isoquant models be applied to Marxian economics? In a profit maximizing firm, it is my understanding that a firm will hire workers until the MP ( Marginal Product ) output peaks, and the profit maximizes where the hiring of the next worker will not only decrease MR ( Marginal Revenue ), but also produce less MP output.
Would this not in some way be similar to an efficiency graph?

What I mean is, rather than worrying about wages and costs, would we not be able to use similar applications to figure out the ideal number of workers occupying a certain workplace given an initially frozen capital input?