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Labour supply in a market economy

According to basic rules of mainstream economics, workers in a market economy: 1) are labour suppliers- we sell our labour for a return, and in effect our labour is our “resource” or “product”. Each one of us is therefore basically our own little company, selling a service, or services, that others demand. 2) Mostly compete over wages. That is, workers either agree to work more for the same overall pay (i.e .take less pay per hour of work) or agree to take less pay for the same amount of work (i.e. take less pay per hour of work, also) if they are unable to get work easily (i.e. sell the “resource”/“product” that is their labour). As there are many workers in the labour market, and often lower barriers to entry than in many markets, this means that the prices for labour are expected to fall unless there is an expansion…


According to basic rules of mainstream economics, workers in a market economy:

1) are labour suppliers- we sell our labour for a return, and in effect our labour is our “resource” or “product”. Each one of us is therefore basically our own little company, selling a service, or services, that others demand.

2) Mostly compete over wages. That is, workers either agree to work more for the same overall pay (i.e .take less pay per hour of work) or agree to take less pay for the same amount of work (i.e. take less pay per hour of work, also) if they are unable to get work easily (i.e. sell the “resource”/“product” that is their labour). As there are many workers in the labour market, and often lower barriers to entry than in many markets, this means that the prices for labour are expected to fall unless there is an expansion in demand for labour. Eventually, labour is expected to only cost as much as it takes to maintain the labourer (food, housing, clothing, transport, any costs associated with the job, such as tools or training or student loan payments for jobs requiring degrees). This is because labour can’t get cheaper than this without the supply starting to fall, which then automatically increases the price again, over time, until we end up back in the same place. So workers are as poor as they can possibly be under these market conditions.

3) Could make more if we stop competing over wages. Wages are only ever going to fall or stagnate unless there is an increase in labour demand (which is a bit like saying your music career might take off if you suddenly get millions of fans- possible, but not something that you can count on happening reliably). Workers can increase wages independent of changes in demand by cooperating, however, and monopolising the labour supply. Instead of competing over wages, workers can collude to cut supply collectively, raise wages, and maximise their incomes by working together to coordinate their labour supply. This makes each worker more than they would otherwise earn under competitive conditions, and is therefor a smarter move than acting competitively for each and every worker.

While this does not address the issues of those who are angry at the very idea of the market economy itself, it does offer protection for anyone who is able to accept that, love it or hate it, the world we are in right now is a world of market economies (for most of us in the western world, anyway), at least as far as workers are concerned, because government assistance is now increasingly aimed at the rich (i.e. QE and the fact that central bankers and national governments have spent trillions over the last 15 years to support the prices of the assets of wealthier people and institutions, while often cutting assistance to workers and the poor).

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