Marxian view on Maximum Wage Caps?

[Comrade Hill]

I am writing a paper that reviews the debates in my economics class (I took the side of Socialism of course :D )

There was a wage control debate. Maximum wage, minimum wage, labor unions, all pro and con sides.

The marginalist view of maximum wage says that the wage is set below the "market wage" and it causes a labor shortage. What causes these labor shortages, according to Marxian economists?

[Comrade Trollface]

Depending on how high the maximum wage is set and in what professions, it is quite possible that no labor shortages will result. Capping CEO compensation for example will not create a CEO shortage.

[Book O'Dead]

I don't know what you're referring to but I do know that anyone who understands their Marxist ABC's will tell you that the debate over higher, lower or "capped" wages is pointless becaus the whole objective of Marxian socialism is to put an end to the arbitrary division of labor's product.


"Whence do wages come and whence profits? What you now stand in need of, aye, more than of bread, is the knowledge of a few elemental principles of political economy and of sociology"
http://www.marxists.org/archive/deleon/works/1898/980211.htm

[Comrade Hill]

During WW2 maximum wages were set in the U.S. and there were labor shortages, which led to higher wages and companies having to provide their workers with more paid vacations and benefits.

What I'm asking for is an alternative explanation to bourgeois marginalist theory of labor shortages, which uses the circular logic of using supply and demand, in conjunction with "labor markets" to explain prices.

Sheesh, not even you guys can answer this? I've asked this question in many different places. I know that labor values of quantities tend to deviate from prices, and that wages work like prices do. I know setting minimum wage does not affect unemployment all that much because nowadays, most companies are monopolistic and make super profits. But what about maximum wages? What how does putting a cap on the price of labor create shortages?

[citizen of industry]

The marginalist view of maximum wage says that the wage is set below the "market wage" and it causes a labor shortageWhat is wrong with that analysis? According to Marxian analysis the "market wage" is determined much like the price of any other commodity - by the labour-time necessary for its production (and reproduction). This means enough means of subsistence to maintain the laborer in a normal state. Not only that, but also his substitutes (i.e., children), and also his necessary wants, based on the cultural level of society. For educated laborers, it must also replace the cost of education.

So if a "maximum" wage is set below the "market" wage, it falls below its value and functions in a crippled state. The worker either can't eat enough and gets sick, can't reproduce, can't have any enjoyments, or can't pay off his school loans. So wouldn't there be a shortage if there were other places for the worker to sell his labor power at the "market" wage? Unless there was an outside source of workers willing to function in a crippled state, e.g., immigration. (You can source this from chapter 6 from Capital vol.I "The buying and selling of labor power")


During WW2 maximum wages were set in the U.S. and there were labor shortages, which led to higher wages and companies having to provide their workers with more paid vacations and benefits.Also the war itself might have something to do with the labor shortages, as millions of people were drafted into the armed services, and those that remained were skilled laborers in war industries.

You can't completely discount supply and demand. Wages in general will be the minimum required to reproduce labor power. But if there is super-profits to be made in a particular industry, the demand for labour will be higher and wages will rise, until overproduction and devaluation, then wages will fall. If there is a pool of labor available willing to work below the value of labor, capital will work them to death. There are modern examples of this. The unions will fight to get a bigger share during the boom period, and keep the workers from getting dismissed and their wages cut in the bust period. (This is in vol.III from "Formation of a general rate of profit) The Marxian analysis of the unions is that they will mostly fail and their gains will be temporary, but the expanding union of the workers will result in class-consciousness and social revolution.(This from the manifesto).

[Comrade Hill]

Okay, that's a much better explanation. Thanks.

I don't find anything wrong with supply and demand, but many marginalist theories leave out class analysis. This is when the market seemly becomes the center of the universe for all analysis. I was trying to avoid falling prey to this.

I think I made an adequate analysis on my paper though. I didn't completely discredit supply and demand. I turned it in last night.

[Kotze]

EDIT I just read that you have already submitted, but whatever :P

---

Distinguish analytically between what happens in the short term and long term, with relations more fluid in the long term, meaning it's harder to think about the long term, so deal with the short term first.

First, pretend that the skills people have are fixed, and you, all-powerful supreme dictator, just want to assign them to a different task mix. How do you do that? You could allow anybody to apply for the jobs they are qualified for as they see fit, and where there is scarcely anybody in the queue, you increase the incentive, that is the wage.

Of course, fiddling with the wage levels is a way to get people to do this or that. People could also be directly ordered to do specific things (like with military service in some countries). If that's considered too bureaucratic and we only nudge people around via the wage-level adjustments, it doesn't follow that the more stratified the wage structure is, the better the people will follow what you want. As a rule of thumb, it seems plausible that the less time people have, the more precious each hour is. But does it follow that for any job that offers regularly the opportunity to put in more hours offering higher rewards will get workers to work longer?

There is a physiological maximum, of course. Also, the all-else-equal assumption doesn't hold: What you can do in your free time doesn't just depend on how much time is available, but also on your monetary income. So with the reward-structure of much more money for more work-time, not only does the time get more precious, people might run out of ways too throw away their money. Big monetary reward can be a very strong incentive against putting in much time. Big rewards can work when people who are offered such have the expectation that this opportunity is something that is unlikely to happen soon again.

Who are the people with the highest wages? Is the society under consideration one with expensive guild-like institutions that limit supply in specific fields? When we talk about the highest wages, do we basically means these especially protected professions? In that case, part of their income is like rent. Capping that by law won't have a bad effect if working in such a job is still more attractive than other activities. Or so it seems. Of course, what do we care in the short term, in the short term people have a given endowment of skills. But we also want that people acquire skills in tune with changes in the economy, so getting rid of any income incentive for that would be a bad idea. How big that sort of incentive has to be depends on how much of a bottleneck the educational system is and to what degree the highly skilled ones are lured away by opportunities in other countries — public funding shrinks the need for big wage differentials, but doesn't deal with the threat of emigration. If the latter turns out to be a big problem it could be dealt with by paying more, but also by temporary movement restrictions (should be done in a transparent manner, that is people getting told beforehand).

[JPSartre12]

Okay, that's a much better explanation. Thanks.

I don't find anything wrong with supply and demand, but many marginalist theories leave out class analysis. This is when the market seemly becomes the center of the universe for all analysis. I was trying to avoid falling prey to this.

I think I made an adequate analysis on my paper though. I didn't completely discredit supply and demand. I turned it in last night.

Well, supply and demand aren't really as powerful or predictable as a lot of people think. When you take the crises of overproduction, underproduction, and all that cool stuff into account, it sort of throws that out a window a bit and makes you think of things differently.

[Vladimir Innit Lenin]

What is wrong with that analysis? According to Marxian analysis the "market wage" is determined much like the price of any other commodity - by the labour-time necessary for its production (and reproduction). This means enough means of subsistence to maintain the laborer in a normal state. Not only that, but also his substitutes (i.e., children), and also his necessary wants, based on the cultural level of society. For educated laborers, it must also replace the cost of education.

So if a "maximum" wage is set below the "market" wage, it falls below its value and functions in a crippled state. The worker either can't eat enough and gets sick, can't reproduce, can't have any enjoyments, or can't pay off his school loans. So wouldn't there be a shortage if there were other places for the worker to sell his labor power at the "market" wage? Unless there was an outside source of workers willing to function in a crippled state, e.g., immigration. (You can source this from chapter 6 from Capital vol.I "The buying and selling of labor power")

Also the war itself might have something to do with the labor shortages, as millions of people were drafted into the armed services, and those that remained were skilled laborers in war industries.

You can't completely discount supply and demand. Wages in general will be the minimum required to reproduce labor power. But if there is super-profits to be made in a particular industry, the demand for labour will be higher and wages will rise, until overproduction and devaluation, then wages will fall. If there is a pool of labor available willing to work below the value of labor, capital will work them to death. There are modern examples of this. The unions will fight to get a bigger share during the boom period, and keep the workers from getting dismissed and their wages cut in the bust period. (This is in vol.III from "Formation of a general rate of profit) The Marxian analysis of the unions is that they will mostly fail and their gains will be temporary, but the expanding union of the workers will result in class-consciousness and social revolution.(This from the manifesto).

This is a good theoretical exposition of a Marxian viewpoint on the subject.

I would add that, in reality, the maximum wage - set in a Capitalist economy - is never likely to be below subsistence level or labour time inputted, or anywhere near that low.