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To Celebrate The Bit Of Economics Karl Marx Got Right

We’re told that companies are starting to give pay rises – real income increases that is, above the rate of inflation – but also that to truly improve your lot you need to skip from one employer to the next. All of which is entirely correct and also the bit of economics which Karl Marx manged to get right. That’s what all that guff about the reserve army of the unemployed, monopoly capitalism etc is about. Well, actually, what all that correct bit among the more general guff is all about.

That is, this:

Pay is set to increase in half of companies in the next year, although those who change jobs can expect a pay rise 2.5 times bigger than those who stay, according to reports released today.

Some companies are planning larger increases, with 32pc planning an increase of been 2pc and 5pc, and 6pc planning to raise wages by 6pc, according to a survey of 1,000 businesses conducted by the British Chambers of Commerce (BCC) and Indeed.

However, 20pc are planning to give workers less than a 2pc pay rise, which would mean their salaries would fall in real terms.

Marx was quite right in that it is the market for labour which increases the workers’ wages. The point is that sure, technology, capital perhaps, will increase the productivity of labour. That amount of increased productivity which isn’t going to the labour is the exploitation. That’s the guff part – the capitalist also isn’t getting the entire product of their capital either. But what’s the limitation?

Well, if there’s a reserve army of the unemployed – and labour is homogenous, as it largely was back then, is largely in low skill labour today – then there isn’t one really. Anyone gets a bit Bolshie and starts to demand more of those profits being wrung from their aching backs and they can be told to bugger off. We’ll hire one of those starvelings outside the factory gates instead. When there isn’t the reserve army things rather change.

For anyone who wants more labour to exploit has to go and tempt it away from their current exploiter. How? Obviously enough, with a better job offer. Two whole crusts a day, possibly only a 1 in 200 chance of death by industrial accident each year instead of 1 in 100 (that latter allegedly not far off US railroad rates in the 19th century at least at some point). Maybe $2 a day not $1.

What’s the effect here then? Some people will be tempted away by better job offers. Which means that those who wish to retain their workforce will have to offer better wages as well. Sure, it costs – in time and effort if nowt else – to job hunt, so the pay rise to the remainers doesn’t have to be the same as the temptation to the leavers. But it is this process which gradually raises the workers’ wages as productivity rises. Market competition that is – capitalists fighting each other for the ability to exploit the downtrodden labour.

The only way this doesn’t happen is if we have monopoly capitalism. No, this isn’t just one firm making everything. The word hadn’t been invented back then, he means monopsony. The capitalists collude so as to fix wages, or capitalism merges into just the one employer. You know, like Stalin’s Soviet Union, which actually did this. People then have the power to deliberately hold down wages so as to increase profit margins.

By the way, despite the insistences of varied fools concerning the minimum wage no, neither the US nor UK economies have any particularly notable incidence of monopsony in the purchase of labour. Most certainly not down at the low skill end – there might be a few specialties where there’s only the one viable buyer. For example, who but academia is going to be stupid enough to hire an organiser of diversity in the diversity department? Atom bomb makers pretty much have to accept what the government is willing to pay. But among those who might flip burgers not so much.

So, Karl Marx was actually correct concerning at least one part of the economy. It is market competition which drives up the workers’ wages. If only modern day Marxists actually knew this.

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5 years ago

But it isn’t competition that encourages healthy behavior, but the mere possibility of competition, the lack of barriers to new people entering the market. It isn’t that people switching jobs get the highest raises; people merely willing to consider switching jobs (some of whom actually do) get the highest raises. In other words, the best employees get the highest raises.

Whereas employees who don’t ask for raises (backed up at least by being willing to consider leaving) tend not to get them.

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