13 June 2007

Labor And Capital

Let's say that you work for me. You dig ditches. You use a shovel, you work 10 hours per day in all sorts of weather, and you dig 10 ft of ditch per day. I pay you $10 per hour.

One day I come to you and say, "For you, I have such a deal. I'll go buy a front loader. You'll sit on a padded seat all day, you'll do nothing more strenuous than move levers, the cabin is enclosed, heated and air conditioned and you'll dig 100 ft of ditch per day. The best news of all? I'll still pay you $10 per hour."

Is that a good deal?


Oroborous said...

In the first quibble, who digs only 1' of ditch per hour ?

Secondly, how long does it take the guy in the frontloader to dig 100' of ditch ?

But assuming that the heavy equipment operator makes the same amount of money, yeah, it's a great deal for him, and for society.

It's not such a great deal for the other nine suddenly-unemployed fellows, at least not immediately.

Oroborous said...

Or, I should say it's a great deal for society, as long as there is other productive work that could be done by the displaced workers.

In Brazil, for whatever reason, they don't have the same labor utilization rate that America does, so it's quite common to see 10 people doing by hand what could be done by many fewer with mechanization, just to maximize the number of jobs available, even if they pay less.

David said...

It's a deep ditch.

Anyway, what I'm trying to get at here is the idea abroad on the left that workers are not getting their fair share of the rewards from increased productivity. My example is extreme, because the worker is not expected to invest more in his own education, etc., but can't we say that most of the productivity gains come from capital investment and that the worker does get some intangible rewards?

Brit said...

I suppose that idea would be a direct descendent of Marx.

"Equivocation" seems to be my word of the moment. Marx left a mighty legacy for the left merely by using the word 'exploitation' to describe the profit made by an employer. Officially, this term was meant to be a non-emotive, scientific description of the process by which the employer receives the excess value created by the labour of the employee.

But of course, 'exploitation' being an emotive term that already has an everyday usage with moral weight, leftists can't help but equivocate between the two senses and thereby prove an employer's profit immoral merely by describing it.

Therefore, the greater the profit for the employer, the greater the 'exploitation' of the labourer, and the more unjust it is.

David said...

Exactly. Even though we think that Marx is dead, we haven't yet buried him at the crossroads on a moonless night with stake through his heart.

Look at the very idea that the employer receives the excess value created by the labour of the employee. The laborer digs the ditch, but he's not going to get very far without the shovel or, even better, the front loader supplied by capital (which in turn is made by other laborers with tools and materials supplied by other capital.) In fact, in the real world, the worker himself is a amalgam of labor and capital, having invested in his own intangible human capital of experience, education, training and (see lawyers or pilots) certification.

What we really have is a web of contracts, within firms and between firms, with each contracting party using their negotiating skills and market power to capture as much of the total product as possible, with the added complication that it is not a zero-sum game and that each participant needs the other participants to capture at least the minimum necessary to keep them in the game. It is impossibly complicated.

And that's why command economies won't work.

Bret said...

brit wrote: "... the greater the profit for the employer... "

Is the profit greater for the employer? That wasn't made clear, since front loaders aren't cheap to finance, operate, and maintain. I guess we have to assume the profit is at least a little higher (at least over the long haul), or the employer wouldn't do it.

It's clear to me that the ditch digger is much better off since the work got a lot easier. The employer may only be very slightly better off.

Harry Eagar said...

'the worker does get some intangible rewards'

Try that on the CEO at your next shareholders meeting when executive compensation comes up.

The argument that, all things being equal, it's better to work more efficiently is not contested.

Even Harry Hopkins said that. Roosevelt wanted WPA to take the Brazil approach -- millions of workers with millions of shovels.

Hopkins persuaded him that by using the command economy to order bulldozers, he (Roosevelt) would put one bulldozer driver to work, and a bunch of assembly line workers at Caterpiller, and refinery workers at Texaco etc.

Makes the New Deal look a lot smarter than the current deal, doesn't it?

Anyhow, working for intangible benefits is, in fact, how many American workers perceive the deal the rapid free marketeers are handing them. And they're not wrong.

David said...

What? You think CEOs aren't aware that they're getting intangible rewards? For that matter, it's labor, and only labor, that gets to band together in a monopolistic bargaining unit.

Ali said...

Taking market cap and profitability into account, American CEOs are substantially underpaid compared to their counterparts in the rest of the world.

joe shropshire said...

My favorite real-world example of this is the sod truck. We are getting to the end of a long housing boom here, so you don't see as many of them on the road anymore, but in years past you would see fleets of them. The sod truck is a 25-foot flatbed loaded down with pallets of rolled-up sod. Slung from a winch on the back of the sod truck is a propane-powered forklift with big knobby all-terrain tires. It is a really cool-looking rig. The driver can load and unload what is probably a 30,000 pound load all by himself, with no more physical effort than is required to drive the truck, in a couple of hours. Fifty years ago this job would likely have required a couple of strongbacks in addition to the driver, and would certainly have taken longer. Obviously the driver does not capture all of that difference in productivity, but it seems very unlikely that he captures none of it.

Now, I have no idea what Harry Hopkins or the rest of the brain trust would have thought of the sod truck. It is possible that New Deal industrial policy, had it survived, would have evolved to allow the increasing industrialization of the building trades, landscaping and the like, but you can color me skeptical about that. I can more easily imagine lots and lots of factories cranking out bulldozers, more in fact than anybody needed, and perhaps a program to bury them in big holes in the ground at government expense. The holes would be dug by a few of the surplus bulldozers, of course, so it wouldn't be a total loss.

Oroborous said...

When I was a youth, I lusted after high pay.
But after a couple of decades of work experience, my opinion is that after a certain survival level of income is reached, intangibles often matter a lot more than more money.

Harry Eagar said...

I live in a county where the cheapest purchasable dwelling is $200,000, plus maintenance, and the average annual pay is under $30,000.

There are lots and lots of people who haven't got to the point where they want to be paid in psychic rubdowns. They want more money.

Oroborous said...

But you live in an unusual place, where the cost of housing is driven by outside demand, not organic, but the supply of jobs is limited.

Houses in Augusta, Georgia go for under $ 50K for a decent lower-middle-class abode.