Are you paid what your labor is worth?
I asked this question with a group of friends and got a variety of answers – “yes, but… yes, if…. not even close… depends on how you look at it… compared to my last job…”
Then I asked a harder question “how do you know how much your labor is worth?” This really gave them pause. Nobody really knew how to figure that out. We ended up with comparing to other people or to other jobs, but neither of those answers seemed satisfactory.
- If you are consistently underpaid then comparing to other jobs you’ve had doesn’t give you the real value of your labor.
- Comparing to other people was just too hard to do for the vast majority of jobs today – there are too many components to doing a job well and people don’t necessarily agree on them – so how could you ever measure those.
Then came the cut-the-b.s. moment. I brought out two different ways of viewing the value of labor.
Theory one: Your labor is worth exactly how much you get paid. Just like how a car is worth whatever it sells for, your labor is worth whatever you can get someone to pay you. This means that you are never underpaid, you are always paid the right amount.
Theory two: Your labor is worth more than you are paid for it. Your employer hires you only if the amount of value you create is more than the amount he will be paying you. Otherwise there is no incentive for him to hire you. This means that all people are underpaid (assuming their employer is smart enough to fire them if they aren’t adding enough value).
I then explained that theory one belongs to neoclassical economic theory, while the second theory belongs to Marxist economic theory. Some friends found them both to be correct, and I agree – they both make sense.
The next interesting question is “how does each theory account for the opposing theory’s seemingly also correct stance?”
Neoclassical theory basically just doesn’t. According to neoclassical economists you don’t create more value than you are paid – that’s it, there’s only one number. In other words, it just ignores the question.
Marxists have taken a much different approach – they recognize both numbers (how much you are paid AND how much value you create), and consider them two different but related things.
The first is the value of LABOR POWER. Labor power is your capacity to work – your time, muscles, and brains hold this potential, and you essentially sell this potential to your employer when you are hired to do a job.
Your employer uses the commodity he has bought (by telling you what to do, and then by making sure you do it), in order to create a new thing – labor. Labor is the actual work you do, which has greater value than labor power.
You sell labor power for it’s value (your wage), but then by the act of simply doing your job, you transform labor power into labor for your employer, and your employer pockets the difference.
Now we’ve got two distinct theoretical objects that help us distinguish between these two ideas – but how do Marxists explain the difference in value between the two?
There are two ways to approach this. The simplest quickest answer is that Capitalism enforces a difference in the values because no employer would pay it’s employees that much – and if they did they wouldn’t remain competitive in the marketplace. Capitalism discourages, disincentivizes and eventually purges any employers that might try to do this.
Another answer is that labor power is priced at its “cost of production” like other commodities. Now, the “cost of production” of labor power is more slippery than that of other commodities like a shoe. The cost of production of labor power at the very least is the cost to house, feed, and clothe a human, but also goes above and beyond that to meet a certain socially determined standard of living. The level of this standard is something constantly debated and struggled over between the classes of society.
There you have it. Your employer pays you what it takes to get you to show up (a socially determined standard of living that is the object of class struggle and other forces). You then do your job which creates a greater amount of value. The difference between these is the source of economic growth, dividends, and other payments that employers make to secure their continued privileged position of power for the future.
So what’s your labor worth? – More than the market value of your labor power.
What’s your labor power worth? A value determined by the market, class struggle, technology and a host of other factors.
Final Point: You are paid what society says you are “worth” (what it has to pay you), but when you work, you create much more (which is the reason they decided to hire you in the first place).