Principles of Political Economy - Third Edition Part II Chapter 11 Theories of the Labor Market

CHAPTER 11 THEORIES OF THE LABOR MARKET Goals and Objectives In this chapter , we will do the following . Describe the neoclassical theory of the market for labor . Explore the neoclassical theory of monopsonistic labor markets . Consider whether neoclassical monopsony theory represents a theory of exploitation . Analyze the case of bilateral monopoly in the labor market . Investigate the theory of the market for . Explain how changes in the character of production prices in theory Up until this chapter , the focus has been almost exclusively on markets for goods and services sold to the final consumer . Factor markets ( also referred to as input markets or resource markets ) include the markets for labor , capital , and land . As the reader might expect , different schools of economic thought possess

586 DANIEL SAROS different theories of how these markets function . In this chapter , we will concentrate on the market for labor . We will take a close look at how the labor market operates from a perspective , according to neoclassical economists and economists . The Neoclassical Theory of the Demand for Labor In neoclassical economic theory , product markets determine product prices and quantities exchanged . Similarly , neoclassical economists argue that labor markets determine wage rates and employment levels . The theory is essentially a story of supply and demand , much like the one we discussed regarding product markets . A sophisticated analysis underlies this story of supply and demand . This underlying story is developed at length in this section . We begin with the assumption that the market supply of labor is upward sloping . That is , it is assumed that as the wage rate increases , the quantity supplied of labor rises as well , other factors held constant . Furthermore , it is assumed that the labor market is perfectly competitive such that each employer takes the market wage as given and so is a . In other words , no single employer has any power to influence the wage that is paid . In this case , the labor supply curve facing the perfectly competitive firm is completely horizontal . This situation is depicted in Figure

PRINCIPLES 587 Figure The Labor Supply Curve Facing a Firm in a Perfectly Competitive Labor Market Labor Market Supply Supply Facing One Finn If an employer reduces the wage paid below the market wage even by a small amount , the quantity supplied of labor will fall to zero . That is , all workers will seek jobs from other employers who are offering the market wage . Similarly , the smallest increase in the wage above the market wage will lead to a sharp ( infinite ) increase in the quantity supplied of labor . In other words , the Wage elasticity of labor supply facing a single employer is infinite in the case of a perfectly competitive labor market . To understand how much labor an employer will hire to maximize its economic profit , we need to explore the implications of this behavior for the firms production costs . One concept that is important for this purpose is total resource cost ( The is the total cost of purchasing labor or the total wage bill . It is defined more precisely as follows

583 DANIEL SAROS The relationship between the horizontal labor supply curve facing an employer and the employers curve is shown in Figure . Figure The Total Resource Cost Curve As Figure shows clearly , the grows continuously as more labor is hired due to the constant wage rate that must be paid to each worker . Furthermore , we can define average resource cost ( ARC ) as the average cost per worker hired . That is , if we were to spread out the total labor cost over the number of workers hired , then we would have the ARC . The ARC is defined precisely as follows , which it turns out can be reduced to the wage ARC This result should not be surprising . It simply means

PRINCIPLES 589 that , on average , the cost of a unit of labor is the wage . Because the wage is given , it follows that the wage must be the average cost of this resource . Additionally , we can define the marginal resource cost ( as the additional resource cost incurred with the purchase of an additional worker hired . Because the grows by a constant amount equal to the wage rate with the purchase of each additional unit of labor , the is the wage rate . It can be defined more exactly as follows The reader should notice that the is equal to the slope of the curve . The slope of the curve , of course , is equal to the wage rate . Finally , it should be noted that because the ARC and the are both equal to the wage rate , the ARC and curves will be identical to the horizontal labor supply curve facing an employer . Figure adds the ARC and curves to a graph of the horizontal labor supply curve facing one employer .

590 DANIEL SAROS Figure The Average Resource Cost Curve and the Marginal Resource Cost Curve Table provides a numerical example that includes calculations of , ARC , and . and Cost Information a ARC 10 10 10 10 20 10 10 10 an 10 10 awry As expected , the and ARC are equal to the wage rate , and the grows continuously with employment AD so so 10 10 10 due to the constant wage rate . 10 10 10

PRINCIPLES 591 The employer must consider the effect on revenue of hiring additional labor as well as the effect on cost . As a result , we need to introduce a new concept that neoclassical economists refer to as the marginal revenue product ( of labor . To understand this concept , we need to return to the total product ( and marginal product ( curves that were first introduced in chapter . Figure shows the graphs of the total product and marginal product curves . Figure The Total Product and Marginal Product Curves ' A A if , in The reader should recall that marginal product is simply the slope of the total product curve . In the short run , rises due to specialization and division of labor at low employment levels and then falls due to diminishing returns to labor at higher employment levels . The refers to the additional revenue earned from the purchase of an additional unit of labor , which can be defined as follows

592 DANIEL SAROS The can be further expanded as follows In other words , the is the mathematical product of the firms marginal revenue and marginal product of labor . Finally , we learned in Chapter that a perfectly competitive firm marginal revenue is equal to the given market price . If we assume that this firm is a perfectly competitive producer , then the can be written as follows This result is very intuitive . The is the additional revenue that a firm earns from hiring another unit of labor . When the additional unit of labor is purchased , it will produce some additional output . This additional output is the marginal product ( The additional output is then sold at the given market price ( in a perfectly competitive market . The additional revenue generated is the . A closely related concept is the average revenue product ( of labor . It is simply the total revenue per worker hired , which may be defined as follows Figure shows the calculation of the and the for a perfectly competitive firm that faces a constant market price of per unit .

PRINCIPLES 593 Figure The Marginal Revenue Product ( for a Perfectly Competitive Firm 12 12 12 13 26 14 13 18 36 10 12 22 44 11 25 50 10 27 54 28 56 As Figure shows , the rises and then falls as employment rises . Because the equals the product price times the marginal product of labor and the product price is constant , the will rise due to the specialization of labor , but then it must fall because of the fall in marginal product . That is , the falls clue to diminishing returns to labor . A similar argument explains the shape of the curve . Figure provides a graph of the and curves .

594 DANIEL SAROS Figure The Marginal Revenue Product Curve and the Average Revenue Product Curve for a Perfectly Competitive Firm As with marginal product , both the and the rise initially due to labor specialization and both fall eventually due to diminishing returns to labor . It is now possible to determine the quantity of labor employed . Figure places the and the on a single graph and in a single table .

PRINCIPLES 595 Figure A New Rule , If a unit of labor generates more additional revenue for a firm than it adds to cost , the firm will increase its economic profits by purchasing that unit of labor . For example , the first unit of labor adds 12 to revenue and only 10 to cost . The purchase of that unit of labor will increase the firms economic profits . As the firm continues to purchase more labor , the eventually falls due to diminishing returns to labor and the remains constant due to the given market wage . When units of labor are purchased , the and the are equal at 10 . In other words , the third unit of labor adds as much to revenue as it adds to cost . The firm is technically indifferent between purchasing and not purchasing this unit of labor . By convention , neoclassical economists argue that this unit will be purchased . Any units of labor beyond this point , however , will add more to cost than revenue and their purchase will reduce the firms economic profits . The employer , therefore , will maximize economic profits where equals .

596 DANIEL SAROS Furthermore , the perfectly competitive employer achieves maximum economic profits where equals the wage rate . This rule for the labor market can be used to derive the labor market demand curve . It is only necessary to consider what happens to the quantity of labor employed at different wage rates , holding all other factors constant . As the wage rate decreases , the employer maximizes economic profits by choosing the quantity of labor such that equals the as shown in Figure . Figure The Curve as the Labor Demand Curve It is easy to see that as the wage rate falls , the quantity of labor demanded increases . In other words , the labor demand curve is downward sloping . Furthermore , because the quantity of labor demanded is determined at points of intersection between the wage rate and the

PRINCIPLES 597 , the curve is the perfectly competitive employer labor demand curve . A second condition is necessary to ensure that economic profits are maximized in the short run . Specifically , it must be proven that the employer can not earn a larger economic profit by shutting down in the short run . To prove this point , we return to the rule that we learned when we first discussed how a perfectly competitive firm maximizes economic profits in Chapter . In Chapter , it was shown that a perfectly competitive firm should only operate when price is at least as great as average variable cost ( We may derive a similar shut down rule for a perfectly competitive employer as follows i In other words , the wage paid must be less than or equal to the . Otherwise , the employer should shut down in the short run . Therefore , when we trace out the labor demand curve , the only relevant portion of the curve is that part that is below the curve , as shown in Figure . Because the curve intersects the curve at the maximum point on the curve , the highest wage rate at which a positive amount of labor is demanded is the maximum . If the wage rate rises above this point , then the employer will shut down and demand no labor .

593 DANIEL SAROS Neoclassical economists assert that the demand for labor ( or any input ) is a derived demand . That is , labor demand is derived from the demand for the product that the labor produces . For example , the demand for engineers depends on the demand for new construction . If firms invest in the construction of more bridges , dams , and skyscrapers , then they will need to hire more engineers . As we learned in Chapter , if the demand for a product rises , then the market price will increase , other factors held constant . The rise in the market price will cause the marginal revenue product of labor to increase because the output that workers produce can now be sold at a higher price . This change causes an outward shift of the curve . Because the curve is the employers labor demand curve , the labor demand curve shifts outward . Therefore , a rise in the demand for a product causes a rise in the demand for the labor that produces it . More generally , we can identify two changes that can shift the curve and thus the labor demand curve . Recalling that the is equal to the product price times the of labor , we can identify these two changes as follows . Any factor that raises the price of the product will increase the of labor and thus the demand for labor . A change in production technology , or any other change that increases the marginal product of labor , will increase the of labor and thus the demand for labor . Now that we have derived the labor demand curve for a perfectly competitive employer , it is a short step to

PRINCIPLES 599 obtain the demand curve for the entire labor market . We simply use horizontal summation to aggregate the individual labor demand ( or ) curves of many different employers . The downward sloping labor market demand curve that results from this aggregation process is shown in Figure . Figure The Market Demand for Labor The Neoclassical Theory of the Supply of Labor Neoclassical theorists have also developed a theory of labor supply . According to this theory , individual workers allocate their available time between working time and leisure time to maximize utility . In this theory , work is regarded as undesirable for its own sake , but it provides wage income that can be used to purchase commodities . Leisure time , on the other hand , is generally regarded as desirable . Because wage income is desired to acquire consumer goods , the wage rate represents the opportunity cost of one hour of leisure

600 DANIEL SAROS time . That is , by choosing to enjoy an hour of leisure time , a worker sacrifices the wage that could be earned . We can use the modern theory of utility maximization to represent the problem facing the individual To begin , we consider the time constraint that the worker faces and represent this constraint in much the same way that we represented the budget constraint facing a consumer in Chapter . In this theory , the worker has a total amount of time ( available each day for either work or leisure . will generally be less than 24 hours because the worker is unavailable for either work or leisure during sleeping hours . The hours spent working ( and the hours of leisure time ( add up to the total time available in the day as shown below Furthermore , the daily income ( is equal to the wage rate ( times the number of hours spent working ( as shown below . If we rearrange the above equation such that , then we can rewrite the total amount of time available in the day in the following way Solving this equation for , we obtain the following result It should be noted that and are unknown constants in this equation and and are the only variables . If we graph this result as shown in Figure , then we

PRINCIPLES 601 obtain a clearer picture of the leisure tradeoff facing the individual worker . Figure The Time Constraint ( The Tradeoff ) In Figure , it should be clear that ifl is equal to zero , then . This point represents the vertical intercept of the time constraint . In economic terms , if the worker chooses no leisure time and only chooses to work , then the maximum income that can be obtained is the wage rate times the total time available . It should also be clear that if is equal to zero , This point represents the horizontal intercept of the time constraint . In economic terms , if the worker chooses to not work at all and thus earns no income , then the maximum leisure time is the total time available in the day . Three other comments need to be made about the time constraint represented in Figure . If the worker chooses amount of leisure and earns amount of income , then the hours of Work ( can be represented

602 DANIEL SAROS as the difference between the horizontal intercept ( and the amount of leisure chosen . Additionally , the slope of the line has a special significance . The slope ( is equal to the negative of the wage rate ( That is , a one hour increase in leisure time will lower the workers income by an amount As stated previously , the opportunity cost of an hour of leisure time is the wage rate . Finally , a change in the amount of time available will shift the line , and a change in the wage rate will change the vertical intercept and the slope but leave the horizontal intercept unchanged . just as the individual consumers preferences for goods may be represented using indifference curves , the individual worker preferences for income and leisure may be represented using indifference curves as shown in Figure . Figure 1111 A Worker Indifference Curve In Chapter , we learned that the downward slope of an

PRINCIPLES 603 indifference curve indicates that the consumer is willing to trade off one good for another . Similarly , the downward slope of the indifference curve represented in Figure indicates that the worker is willing to trade off income for leisure and vice versa . We also learned in Chapter that the slope of the indifference curve is called the marginal rate of substitution ( and that this slope becomes as the individual moves along the indifference curve . The reason for the change in the slope is that as the worker obtains more leisure , her willingness to trade off additional income for an additional hour of leisure decreases . This diminishing marginal rate of substitution is somewhat like diminishing marginal utility . As explained in Chapter , however , diminishing depends entirely on an ordinal notion of utility . We can also rewrite the as the negative ratio of the marginal utilities of leisure and income . Because the workers utility remains the same all along the indifference curve , we can write the following equation This equation states that the change in total utility as the worker moves along an indifference curve is equal to the product of the marginal utility of income ( MUY ) and the change in income ( plus the product of the marginal utility of leisure ( and the change in leisure ( The entire sum is equal to zero because total utility remains constant along the indifference curve . Solving for the generates the following result MU Al As the worker moves to the right along the indifference

604 DANIEL SAROS curve , the amount of that is chosen rises and the amount of that is chosen declines . As a result , the marginal utility of leisure declines relative to the marginal utility of income , implying diminishing We can now represent the utility maximizing choice of the worker . In Figure , the worker maximizes utility at point A by choosing the amount of leisure ( and hours of work ( that yields an amount of income , Figure 1112 Worker Equilibrium Utility Maximization At point A , the indifference curve passing through point A is tangent to the time line representing the workers time constraint . Because the slopes of these curves must be the same , the following condition must hold , Ig It is now possible to derive the individual worker labor supply curve using the utility maximizing framework

PRINCIPLES 605 that we have developed . Figure shows what happens when the wage rate increases . Figure The Derivation of the Individual Worker Labor Supply Curve In Figure , the vertical intercept increases because the maximum possible income is now higher . Similarly , the slope increases ( in absolute value ) because the opportunity cost of leisure has increased with the higher wage rate . Because leisure has become more expensive to consume , the worker chooses to reduce the amount chosen from 11 to 12 . The amount of work chosen correspondingly increases from to . The quantity supplied of labor thus rises with the wage rate , which implies the upward sloping labor supply curve shown in the graph on the right in Figure . On the other hand , it is possible that the worker will stop responding in this manner to the rise in the wage once the wage reaches a very high level . Suppose that the increase in the wage leads the worker to feel richer

606 DANIEL SAROS overall . As a result , the worker purchases more consumer goods but also decides to purchase more leisure time by working less . This situation is represented in Figure . Figure The Backward Bending Labor Supply Curve . 113 11 , 113 113 In Figure , the wage rises from to , and the worker cuts back on leisure time ( from 11 to 12 ) as leisure becomes . Similarly , the hours worked increase from to as before . Once the wage rises to , however , the worker increases leisure time from 12 to 13 . A corresponding reduction in hours worked from to occurs . This drop in the number of hours worked as the wage increases is represented in the graph on the right in Figure as a backward bending labor supply curve . Our final step is to aggregate the individual labor supply curves of every worker in the labor market . As before , we can use horizontal summation to obtain the labor market

PRINCIPLES 607 supply curve . Figure shows two possible examples of the labor market supply curve . Figure The Labor Market Supply Curve , Au upward sloping A backward bending labor supply curve labor supply curve In the graph on the left in Figure , the labor market supply curve has the usual upward slope that we expect of a supply curve . As the wage rises , workers reduce their leisure time ( which is more expensive ) and work more to take advantage of the higher wage . The tendency to consume less leisure as the wage rises ( other factors held constant ) is referred to as the substitution effect in this context in the sense that the worker substitutes away from something that has become relatively more expensive to consume . In the graph on the right , however , workers respond to higher wages by eventually working less and consuming more of all goods , including leisure . The tendency to purchase more of all goods as one income rises ( other factors held constant ) is referred to as the income effect . That is , the worker experiences a rise in real income and so decides to purchase more of

603 DANIEL SAROS everything . Although both effects are typically at work , whether an upward sloping or backward bending supply curve emerges depends on which effect is the stronger of the two . If the substitution effect dominates , then the labor supply curve will be upward sloping . If the income effect dominates , then the labor supply curve will be backward bending . The Neoclassical Theory of Labor Market Equilibrium Now that we have developed both the supply and demand sides of the labor market , we can bring them together to show how neoclassical economists explain the movement to equilibrium in these markets . Figure shows two possible labor markets . Figure Labor Market Equilibrium , A Equilibrium In the graph on the left , a single equilibrium outcome occurs . The labor market is cleared of shortages as wages increase , and it is cleared of surpluses as wages decrease .

PRINCIPLES 609 Eventually , the market reaches an equilibrium wage rate and employment level . The market will remain at this point unless it is disturbed by a change in an external variable . In the graph on the right , two different equilibrium outcomes are possible due to the backward bending supply curve , which causes a second intersection with the labor market demand curve . The lower equilibrium at and is the same as the one represented in the graph on the left . It is a stable equilibrium in the sense that a slightly higher or lower wage will lead to a surplus or shortage that will push the wage back in the direction of the equilibrium outcome . The upper equilibrium at and , on the other hand , is rather different . If the wage falls below by a small amount , then it will continue to fall due to the surplus that exists . Similarly , if the wage rises above by a small amount , then it will continue to rise due to the shortage that exists . Because the wage tends to move further away from the equilibrium when pushed in either direction by a small amount , the equilibrium is an unstable equilibrium . The presence of an unstable equilibrium creates a risk of considerable market instability . We have yet to mention the ideological significance of the neoclassical theory of the labor market . The neoclassical model of a perfectly competitive labor market reaches the conclusion that each worker is paid according to that workers contribution to production . Earlier in this chapter , it was shown that a perfectly competitive employer achieves maximum economic profits when the is equal to the wage rate ( the ) This conclusion means that when the labor

610 . SAROS market reaches equilibrium each worker will receive a wage that is equal to the workers contribution to the firms revenue . From a purely ideological perspective , this result is a very powerful one . It means that workers are not exploited as economists assert . They draw from the social product an amount that is exactly equal to what they contribute . The marginal productivity theory of income distribution is implicitly a theory of distributive justice . That is , people receive what they deserve to receive . What they deserve to receive stems from their productive contributions . The theory has been criticized for a variety of reasons . One objection is that inequality may have its own undesirable social and economic consequences and that payment according to marginal revenue product might lead to extreme levels of inequality . A second objection is that the relationship between social classes ( workers and capitalists ) plays no role in the analysis as it does in economics . Due to the assumption of perfect competition , no employer or worker has any market power . The fact that some own the means of production whiles others lack means of production is given no significance in the model . Finally , the assumption of perfect competition in the labor market is one that opponents of the theory have sharply criticized . As we will see in the next section , when the assumption of perfect competition is dropped , the door to a neoclassical theory of exploitation is suddenly thrown open . A Neoclassical Theory of Exploitation ?

If we drop the assumption of perfect competition in the labor market , then how will the neoclassical analysis of PRINCIPLES 611 the labor market change ?

In this section , we consider the case of imperfectly competitive labor markets . We will consider the case of a single employer , also referred to as a monopsony employer . A monopsony exists in a market when only a single buyer exists . In the labor market , the employers are on the buyers side of the market . Therefore , a monopsonistic labor market is a market with only a single buyer of labor . Pure , just like pure monopolies , are not very common , but sometimes firms approach monopsony status in certain markets . For example , Mart has been accused of acting as a in certain markets in which it buys goods from suppliers . In those cases , is by far the largest , or may be the only , buyer of a product from its suppliers . In the defense industry , the government may be the only purchaser of advanced weaponry from firms that produce such products . Monopsony employers , on the other hand , have existed in company towns like General Motors in Flint , Michigan or Carnegie Steel in Homestead , Pennsylvania . In company towns , the people may have limited mobility and so they either work for the dominant employer , or they do not work at all . As with any neoclassical model , we will start by identifying the models main assumptions . We will assume that a single firm exists that is the sole buyer of labor . Furthermore , it is assumed that workers can not easily move to a new location . Because of these conditions , the has the power to set the market wage . That is , the has market power , much like the monopolist possessed market power ( the power to set the market price of its product )

612 . SAROS Unlike the perfectly competitive employer who faces a horizontal labor supply curve , the faces an upward sloping labor supply curve , as shown in Figure . Figure 1117 The and Supply The reason for the upward slope of the labor supply curve facing the is that the faces the entire labor market supply curve , which is upward sloping . In general , as wages rise , more workers enter the labor market . just like the perfectly competitive employer , the possesses an average resource cost ( ARC ) curve , as shown in Figure .

PRINCIPLES 613 Figure The Average Resource Cost Curve ofthe It is assumed that the establishes the same wage for each worker hired . Therefore , the ARC for the is equal to the wage . The derivation of this result is the same as that which was used in the perfectly competitive case earlier in this chapter . Also , because the ARC is equal to the wage at each employment level , the ARC curve and the supply curve facing the are one and the same . The more interesting distinction between this labor market structure and the perfectly competitive one relates to the nature of the marginal resource cost ( curve . Figure shows an example of how to calculate the for a monopsony employer .

614 . SAROS Figure Marginal Resource Cost for a wage increase for the three 12 for kel lured . 15 , 12 , As the wage rises from 11 per unit to 12 per unit , the quantity of labor supplied increases from to units . The may be calculated by dividing the change in by the change in as follows 11 ' 15 per unit of labor It is possible to obtain this result in another way that is more intuitive . When the wage rate is increased from to 12 per unit , an additional worker enters the market . How much does this increase in the wage add to cost ?

The additional worker is paid 12 , but the reader should notice that the three workers , who were receiving each , now receive raises . Therefore , the total resource cost rises by 12 plus or 15 . This manner of proceeding is helpful in terms of understanding why the addition to total resource cost exceeds the wage paid . As the reader can observe , in Figure the of 15 is above the wage of 12 . In general , the will exceed the wage because when the wage rises to

PRINCIPLES 615 encourage another worker to enter the market , the rises both because of the wage paid to the new worker hired but also because each of the existing workers must receive a wage increase . The reader might notice the similarity between this analysis and the analysis of pure monopoly . In the case of pure monopoly , falls faster than price because when the price is cut to sell another unit , the price must also be cut on all the other units previously sold at the higher price . Because the exceeds the wage , the curve will rise more quickly than the labor market supply curve facing the firm . Therefore , we obtain the result shown in Figure . Figure The Marginal Resource Cost Curve for a Table provides an example to demonstrate how to calculate , ARC , and when only given information about the labor market supply curve facing the monopsony employer .

616 . SAROS and toss Fuel Employer ARC a 20 11 10 11 33 19 11 12 45 is 12 13 55 17 14 an 19 14 We have now fully developed the cost structure of the and can proceed to the choice of the firm . Figure shows how the monopsony employer will set the wage to maximize its economic profit . Figure Equilibrium in a Monopsonistic Labor Market ( To maximize its economic profit , the will

PRINCIPLES 617 hire labor up to the point where equals . This rule in the factor market applies to the monopsony employer just as it applies to the perfectly competitive employer . Following this rule , the will hire units of labor . To encourage exactly this amount of labor to be supplied , however , the must set the wage at . Only at is the wage at the level that is necessary to call forth units of labor into the labor market . The crucial point to notice is that is significantly below the , which means that the last ( marginal ) worker hired is paid a wage that is below the revenue that the worker generates for the employer . That is , the forces wages down to make a greater economic profit . This result ( suggests that the worker is being exploited in an economic sense . For this outcome to be obtained within a neoclassical economic model is rather unusual . Such findings open the door to criticisms of unregulated market activity , which neoclassical economists generally favor . Neoclassical economists frequently respond to this finding by arguing that this case is an extreme one in which a single employer dominates the labor market . Typically , competition from other employers will drive wages up . Furthermore , even if this situation exists , neoclassical economists argue that the degree of exploitation as represented by the difference between the and the wage ( the dashed vertical line in Figure ) is likely to be small or at least small enough that government efforts to correct this situation will lead to even worse economic consequences ?

It is also possible to compare the monopsonistic equilibrium outcome and the perfectly competitive outcome using the graph in Figure . Earlier in this 613 . SAROS chapter , it was explained that the perfectly competitive equilibrium outcome in the labor market occurs where supply and demand intersect . If we assume that the curve of the monopsony employer would be the same as the sum of the curves of many perfectly competitive employers ( if this market was perfectly competitive ) then we can find the perfectly competitive equilibrium at the intersection of the labor market supply curve and the curve . That is , the curve represents the labor market demand curve and so its intersection with the labor market supply curve represents the competitive equilibrium . In the perfectly competitive equilibrium , represents the equilibrium wage rate and represents the quantity of labor that the firm will hire at that wage . Because is less than , it is easy to see that the monopsony firm reduces the wage to a level that is below what would be paid in a perfectly competitive labor market . Furthermore , because is less than , it is also easy to see that the monopsony firm reduces overall employment below what would exist in a perfectly competitive labor market . The reduction of employment below the perfectly competitive level represents a loss of efficiency brought on by the pursuit of maximum economic profits . The Economic Consequences of Labor Union Activity In Chapter , the concept of a price was introduced . A price establishes a legal minimum price in a market . The price is permitted to rise above a price , but the price can not fall below the price floor . Industrial unions are organizations that attempt to organize all the workers in an industry and then

PRINCIPLES 619 negotiate wage for their members . Working hours and working conditions are other key points for negotiation . Craft unions have similar aims , but they only organize the workers who share a common skill or trade , such as carpentry , ironworking , or masonry . Unions possess market power on the sellers side of the labor market . That is , a union is ( sometimes ) the sole seller of labor in a market , just as the is the sole buyer on the buyers side of the market . A price that a labor union might negotiate is just a minimum wage . If the labor market is perfectly competitive , then this situation can be represented as in Figure . Figure An Industrial Union in a Market with Many Employers In Figure , the perfectly competitive equilibrium occurs at and , but if the labor union negotiates a wage of Wu , then the wage will not be permitted

620 DANIEL SAROS to fall below this level . The quantity supplied of will exceed the quantity demanded of , and a surplus will exist . That is , unemployment will exist , and it will persist while the wage is in effect and no external changes occur . It is worth noting , however , that the unemployed may be divided into two different categories in this case . First , some workers lose their jobs due to the wage being pushed up above the competitive equilibrium wage . The number of workers that loses jobs is equal to . Additionally , other workers enter the labor market precisely because the wage has been pushed up above the competitive equilibrium wage . The number of workers who enter the labor market only to become unemployed is . Overall , neoclassical economists condemn union activity because it reduces the overall amount of employment and causes inefficiency . On the other hand , if each side of the market is dominated by a single participant , then the results are quite different . Suppose , for example , that an industrial union faces a monopsonistic employer in the labor market . That is , a single seller of labor confronts a single buyer of labor . This market structure is referred to as bilateral monopoly and is depicted in Figure .

PRINCIPLES 621 Figure The Bilateral Monopoly Model Figure shows the monopsony outcome where the wage is and employment is . It also shows the perfectly competitive labor market outcome where the wage is we and employment is . Let assume , however , that a union negotiates a wage of with this monopsony employer . In this case , the labor market supply curve becomes perfectly horizontal for every employment level up to the original supply curve . The reason is that the workers who would have entered the labor market at lower wage rates previously are now paid the union wage . Once we reach the original supply curve , however , the wage must rise to encourage more workers to enter the market . The supply curve thus has a kink in it at . To obtain the curve , it is necessary to use the information given on the supply curve . When the labor supply curve facing the firm is horizontal , as it is in the case of a perfectly competitive market , then the curve is horizontal as well and identical to the supply

622 DANIEL SAROS curve . Therefore , the will be the same as the labor market supply curve up to the kink . For employment levels beyond the kink , however , the corresponding to the upward sloping supply curve applies . As a result , the curve is horizontal up until the kink in the supply curve , then a vertical gap exists until we reach the upward sloping curve , after which point the curve becomes upward sloping as before . To find the outcome in the bilateral monopoly model , we only need to equate and . In Figure , the curve intersects somewhere in the gap in the curve . This intersection gives us the employment level of . It also gives us the wage . To call forth amount of labor , the wage rate that must be set is , which is directly above at the kink in the supply curve . What we observe in this case is that the wage rate is higher than what the would set in the absence of a union . The employment level is higher as well . Furthermore , the gap between the and is smaller and so the degree of exploitation is lower . On the other hand , it is also the case that the wage rate is lower than the perfectly competitive wage , and the employment level is lower than the perfectly competitive employment level . Still , if the labor union could negotiate an even higher minimum wage , then it would approach or even match the perfectly competitive outcome . If the union negotiates a wage that is higher than , however , then unemployment will result as in the perfectly competitive model . The reader might try to verify this result graphically . In general , however ,

PRINCIPLES 623 whether the wage that is negotiated is closer to the pure monopsony wage or closer to the perfectly competitive wage will depend on the relative bargaining strength of the and the labor union . A relatively strong labor union will negotiate wages that are closer to the perfectly competitive result . A relatively weaker labor union will negotiate wages that are closer to the pure monopsony result . A situation of bilateral monopoly like the one we have been discussing occurred in 1892 in Homestead , Pennsylvania . In a very famous strike , the Amalgamated Association of Iron and Steel Workers struck against the Carnegie Steel Company . The craft union had a large degree of monopoly power at the time , and Carnegie Steel was the only major employer in the entire town . The unions goals were to negotiate a minimum wage and to establish a une expiration date ( rather than a January expiration date ) for the new contract . The union wanted a summer rather than a winter expiration date because if a strike became necessary during contract negotiations , the workers could hold out much better in the summer than in the winter . In this case , the company and the union were not able to arrive at an easy solution . A bitter strike ensued involving a battle between striking steelworkers and guards . Eventually , the Pennsylvania Governor ordered the state guard to force an end to the strike . Abstract models can teach us a great deal , but they often can not capture the intensity of real life The Theory of the Market for Now that we have studied the neoclassical theory of the labor market in considerable detail , we can more easily

624 DANIEL SAROS contrast it with the theory of the market for . The reader should recall that the commodity that workers sell to capitalists is as opposed to labor . In theory , labor refers to the act of working itself , whereas refers to the ability of a worker to perform labor for a given amount of time , which is sold as a commodity . In Chapter , it was shown how the value of is determined in theory . Marx provided a formula for calculating the value of a days . As the reader will recall , that calculation requires adding up all the values of all the means of subsistence that a worker requires in the year to produce and reproduce her ( according to a culturally determined norm ) and then dividing that value by the number of days in the year . If the social estimation of what a worker requires for the production and reproduction of power changes , then the value of will change as well . Additionally , if the values of the required means of subsistence change , then the value of power may change as well . The price of , which is what is paid for , may diverge from the value of at times . In the second part of this book , it is explained why the price of never very much from the value of . Our primary interest in this chapter , however , is to understand how changes in the capitalist production process can be analyzed from a perspective . This discussion draws heavily upon Marx treatment of the subject in chapter 17 of volume of Capital . In the remainder of this chapter , we will consider how productivity changes are treated in theory . We will also consider two aspects of capitalist production

PRINCIPLES 625 that are not given much attention in neoclassical theory , namely changes in the length of the working day and changes in the intensity of the labor process . As will be shown , the value of has an important role to play in the analysis . Changes in the Productivity of Labor In neoclassical theory , an increase in the price of a firm product raises the marginal revenue product of labor and thus labor demand . The causal claim is that price increases lead to increases in marginal revenue productivity . In economic theory , on the other hand , the causal chain runs in the reverse direction . That is , a rise in labor productivity typically leads to a reduction in prices . To see why , we need to return to our working day diagrams from Chapter . Figure shows the three ways that we may express the value produced in one day in a specific industry . Figure Three Expressions of the Value Produced in a Day ( in a specific industry ) 300 90 10 I I 20 hours hours hams lo . 45 . 3011 ) MELT 15 per hour of

626 DANIEL SAROS In this example , the capitalist advances constant capital ( of 300 for means of production and variable capital ( of 90 for . The worker works a day . Given a monetary expression of labor time ( MELT ) of 15 per hour , the 90 of variable capital may be converted into hours of necessary labor ( The remainder of the workday then consists of hours of surplus labor ( which may be converted into 60 of surplus value ( using the MELT . The constant capital of 300 may also be converted into its dead labor ( equivalent of 20 hours using the MELT . If we assume that the worker produces a total product ( 225 . of sugar during the workday , then we can also calculate the individual value of a pound of sugar . All we need to do is divide the total value of the days product by the total product . That is , the price ( value ) can be calculated as follows 450 . 2251125 . By dividing , and by the price of a pound of sugar , we can calculate the dead product ( of 150 , the necessary product ( of 45 , and the surplus product ( of 30 , respectively . Now that We have reviewed these basic aspects of economics , we can consider the effects of a change in labor productivity . Unlike in the neoclassical theory we considered earlier in this chapter , it matters a great deal whether the productivity change occurs in an industry that produces means of subsistence for workers ( wage goods industries ) or in other industries that produce goods that workers do not typically consume . Let first assume that a productivity increase occurs in an industry that is not a wage goods industry . This situation is depicted in Figure .

PRINCIPLES 627 Figure A 30 Productivity Increase ( in this industry but not in the wage goods industry ) 90 60 20 hours hours bonus 300 , 45 7511 51 MELT 15 per hour of In Figure , a 30 productivity increase is assumed . What this change means is that a worker can transform 30 more means of production ( as in a 30 rise in constant capital ) into 30 more finished product in the same workday as previously . That is , it is assumed that the worker produces more in the same 10 hours while working at the same level of intensity as previously . Indeed , this change represents a pure productivity increase . In this example , the additional 90 of constant capital ( Ac ) is used to purchase means of production representing hours of additional dead labor ( Similarly , the additional sugar produced may be considered an addition to the total product ( of , which is a 30 increase . The new value of power and the newly created value are not affected at all in this case . The price of sugar , however , is affected as can be observed in the following calculation 540 ' I 225 . per unit

623 DANIEL SAROS By dividing each monetary magnitude in Figure , we can calculate the new values for the surplus product , the necessary product , the dead product , and the change in dead product , as shown in Figure . To carry out these calculations , the exact figure for the price was used . As a result , when we add together each product figure , we obtain the new total product for the day of , which represents a 30 increase in production . The price of sugar , therefore , falls when labor productivity rises . By contrast , we would expect a productivity decline to increase the price of sugar . The other possibility we should consider is a productivity change that occurs in a wage goods industry but not in the industry that we are considering . If productivity rises in a wage goods industry , then this change will have a direct impact on the value of power . By reducing the value of the means of subsistence that the worker requires , the commodity becomes less valuable . If the price of falls in line with the drop in the value of , then this change will lead to a of the workday in the industry that we are considering . This situation is depicted in Figure .

PRINCIPLES 629 Figure A Productivity Increase ( in the wage goods industry but not in this industry ) 75 a 5300 75 20 10 20 Liam hams hours 75 I 100 75 20 10 ) A 150 . MELT 15 per hour of Figure represents a situation in which the labor embodied in the required means of subsistence for the day falls to hours of . With the necessary labor at hours , the variable capital declines to 75 ( given the MELT of ) In a similar fashion , the surplus labor rises from hours to hours ( given the workday ) and the surplus value produced rises from 60 to 75 . The constant capital advanced remains unaffected by this change in labor productivity in the wage goods sector . Because the total value of the days product remains at the same level of 450 and the total amount of sugar produced remains unchanged at 225 . of sugar , the price of sugar is not affected at all . In Figure , the fall in the value of simply leads to a change in the distribution of the new value created . Aside from that change , production levels in this industry remain the same . Notice that workers receive a smaller money wage , but they can purchase the

630 DANIEL SAROS same quantity of means of subsistence as previously . Their absolute standard of living remains the same . Capitalists are the sole beneficiaries of the productivity increase in this case . It is possible that a struggle may develop between capitalists and workers over the division of the new value created . If labor unions are relatively strong , then the price of might rise above its new value ( but perhaps not as high as the previous value of ) In that case , the workers enjoy a higher standard of living , as they can purchase more means of subsistence than previously . At the same time , the capitalists extract more surplus value from the workers , and workers become poorer relative to capitalists . This possibility is interesting because it reveals that Marx theory is consistent with rising real standards of living for workers even as inequality worsens . Of course , the one situation we have not considered is a productivity increase in a wage goods industry and the consequences of that change for the wage goods industry itself . This case would combine the two examples we have considered . That is , prices would fall in the wage goods industry and a part of the new value created would be redistributed from workers to capitalists as the value of declines . Although it is possible , it is not necessary to create a diagram for this case since it would simply reproduce the results we have already obtained in the previous two cases . Changes in the Length of the Working Day The next change we need to consider is a change in the length of the working day . Unlike in neoclassical theory where the worker decides how to allocate her time

PRINCIPLES 631 between work and leisure to maximize utility , in theory , capitalists tell workers what the length of the working day is . In the absence of a union , they either accept those terms or they seek work elsewhere . Figure represents a situation in which the working day has been extended . Figure A 30 Extension of the Working Day ( in this industry ) As 00 545 10 13 A A A ( 20 hours . hams hours hours 90 60 Iu 10 13 AD 150 . 45 . ASP 4515 so 22 MELT 15 per hour of In Figure , the working day is extended by 30 or hours . Because workers must have means of production with which to work , this extension necessitates a 30 increase of 90 in the amount of constant capital advanced . The total product produced in the day subsequently rises by 30 or . The consequence of this increase in the length of the workday is an increase in the surplus value produced , but it has no effect on the price of sugar . The new ( unchanged ) price of sugar may be calculated as follows , 45 585 TI . 211

632 DANIEL SAROS The new dead product of 45 . may be calculated simply by dividing the new constant capital advanced of 90 by this price . The main consequence of an extension of the working day is an increase in the degree of exploitation . The value of is typically unaffected by such a change . Marx , however , did argue that the additional wear and tear that experiences due to this extension may increase the value of . That is , the means of subsistence necessary to make the production and reproduction of each day may rise due to , for example , an increased need for medical care . Beyond a certain point , however , no increase in the means of subsistence can compensate for the deterioration of the workers health due to endless drudgery . Additionally , if the value of remains unchanged even with a lengthening of the workday , it is possible that its price may increase above its value . That is , a struggle between workers and capitalists over the new value created might occur . Depending on the relative strength of the one versus the other , workers or capitalists may end up appropriating a larger portion of the newly created value as wages or surplus value , respectively . Changes in the Intensity of Labor The final change that we will consider is a change in the intensity of labor that occurs in a single industry but not across all industries simultaneously . For example , suppose that the intensity of the labor process increases above the social norm that exists in other industries . In

PRINCIPLES 633 this case , even with the same number of hours in the workday , the worker will create an even larger amount of new value than previously . The reason is that one hour of is not necessarily the same as one hour of clock time . If the intensity of labor rises above what is considered the social norm in a specific society , then one hour of clock time might be consistent with more than one hour of . This situation is depicted in Figure . Figure A 30 increase in the Intensity of Labor ( in this industry but not across all industries ) 90 . 26 20 10 , A A A A 20 hours . hams Nuts now . now . AC As 590 300 ' 90 60 SH 20 10 13 , AD 150 . 45 . er ASP 4515 so 22 MELT 15 per hour of Figure is almost identical to Figure , which depicted an increase in the length of the working day . The only difference is that the hours of additional surplus labor do not occur because of an increase in the length of the workday . Instead , it is the result of 30 more work being performed within the span of the workday . For this reason , the portion of the timeline that shows an extension of hours is a dashed line rather than a whole line , as was the case in Figure . That is , the

634 DANIEL SAROS increase in labor intensity leads to the incorporation of more in the final product and a greater value of the final product , but these additions are like the 30 increase in dead labor and constant capital advanced in that they are not part of the working day proper . On the other hand , these changes do represent new value created , and in that sense , they are very different from the contribution that the additional constant capital makes to the final product . In this case , because the value of the final product and the physical product both rise by 30 , the price of sugar remains unchanged . This result is to be expected because the numerical changes are identical to those obtained from an extension of the workday . As in the case of an extension of the working day , the value of may rise due to its more rapid deterioration . Workers are not working longer hours , but they are working harder , which may impact their health . The same limits to compensating workers with a higher wage that apply in the case of the extension of the working day should also be expected to apply in this case . As before , even if the value of does not rise , workers might push for an increase in the price of as they struggle to win a portion of the newly produced value that their more intense labor has made possible . The amount of new value created due to the intensification of the labor process is directly related to the extent of the divergence between the intensity of labor in this industry and the social norm . A general change in the intensity of labor across all industries , however , that alters the social norm will have no effect on the new value produced during a workday . Such a change would instead act more like an increase in

PRINCIPLES 635 labor productivity in that more means of production will be transformed into final products and prices can be expected to fall . Simple Labor versus Complex Labor Throughout this entire discussion , it has been assumed that the labor that is being performed is of a very simple variety . That is , no special skill or training is required to perform this specific type of labor , which we will call simple labor . Of course , most types of labor require at least some basic training and many types of labor require years of prior education and training if they are to be performed well . These more skilled types of labor we will refer to as complex labor . The existence of complex labor appears to create a difficulty for economics . If one hour of simple labor ( sweeping ) creates the same amount of value as one hour of complex labor ( surgical labor ) then this theory appears to be flawed . Recall , however , that is not the same as clock time , and so it is possible that one hour of surgical labor might create 100 times as much value as one hour of unskilled labor . To understand how value theory can address these issues , let consider a numerical example . Suppose that a person goes to a technical school for four years and learns to produce a specialized commodity . The number of hours spent in school during these four years might be hours , which may be calculated as follows total hours of ( 320 yam week day Suppose the worker then works for 40 years producing

636 DANIEL SAROS the specialized commodity . During this period , the number of hours worked may be calculated in a similar way total hours of work ( 40 ) i yS ) 831200 year week day The total value created during the working life of this person may be expressed in as the sum of the hours spent in training plus the hours spent working . This calculation is as follows Total value created , 320 hours 83 , 200 hours 91 , 520 hours Further suppose that the worker produces use values during her entire working life . To keep the example simple , let ignore the value of the means of production by assuming that the constant capital advanced is equal to zero . We can use this information to calculate the value ( or price ) per unit of the commodity produced in terms of as follows Price ( in ) 10 hours per unit If we assume a MELT of per hour , then the price of the commodity will be 60 per unit ( times 10 use Value ) and the total value of the worker lifetime product will be ( times use values ) If we next consider an unskilled worker who works for 40 years performing simple labor and producing a similar , albeit unspecialized commodity , then we can see what contribution the first worker training makes to the production of value . Let assume that the unskilled worker also produces units of the unspecialized commodity . Since the worker works for 40 years , she has performed hours of work , just like the skilled worker . The value of each unit of the unspecialized

PRINCIPLES 637 commodity may be calculated in terms of as follows Price ( in ) hours per unit Using the same MELT of per hour , the price of the unspecialized commodity will be about ( hour times hours per use value ) and the total value of the workers lifetime product will be about ( times use values ) ignoring some rounding error here . This example shows rather clearly that the skilled worker produces a more valuable product than the unskilled worker . The difference in the value created occurs because the skilled worker creates more value in the same period . This enhanced potential is not the result of a more intense labor process or a longer working day . The superior ability of the skilled worker to create value exists because the hours the worker has spent acquiring specialized knowledge are labor hours that were necessary for the worker to produce and reproduce her . ust as work is required to produce the means of subsistence the worker needs to perform labor each day , work is also required to produce the knowledge that the worker uses to produce commodities each day . In summary , the potential of complex labor increases with the educational requirements of the specialized labor process that requires that special type of Following the Economic The Asia News Monitor recently reported on a publication of the European Union Agency for Fundamental Rights ( FRA ) that relates to the subject of severe labor

633 DANIEL SAROS exploitation of migrant workers . The FRA report urges European governments to do more to tackle severe labour exploitation in firms , factories and farms across the According to the report , migrant workers have experienced exploitation in numerous industries that include agriculture , construction , domestic work , hospitality , manufacturing and As We learned in Chapter , migrant workers are often subjected to harsher forms of exploitation because they lack recourse to the legal system . The lack of access to legal solutions stems from lack of language skills , political rights , and financial resources . In the case of migrant workers in the EU , many find themselves in concentration camp The report explains that migrant workers in the EU are paid very little , must repay debts to traffickers before they receive earnings , work long , weeks , sleep in shipping containers , are beaten and verbally abused , are given no protective gear when working with dangerous chemicals , are coerced into drug trafficking , and are threatened with deportation . The tremendous power that employers have over migrant workers allows employers to greatly increase the intensity of the labor process . The low pay and long hours raise the rate of exploitation of migrant workers , but the intensification of the labor process also leads to the creation of more value within the same working time . The result is an expansion of the surplus value produced , which raises the rate of exploitation as well . Fortunately , the FRA report ends with some positive steps that EU institutions and EU nations may take to address the problem of exploitation of migrant workers . Although the most extreme forms of labor exploitation might be halted , absent a revolutionary transformation

639 PRINCIPLES of the economic system , the capitalist exploitation of wage workers can not be entirely abolished . Summary of Key Points . For a perfectly competitive employer , the total resource cost ( curve grows continuously with employment , but the average resource cost ( ARC ) and the marginal resource cost ( curves are identical to the labor supply curve facing the firm due to the constant wage rate . The marginal revenue product ( curve of a perfectly competitive employer may be calculated by multiplying the product price by the marginal product of labor . The rules ( and only operate when ) leads to the conclusion that the curve below the maximum is the perfectly competitive employer labor demand curve . A shift of the labor demand curve may result from either a change in the product price or a change in the marginal product of labor . The individual worker labor supply curve is determined by utility maximization as the worker considers the tradeoff between income and leisure while faced with a time constraint . When a backward bending labor market supply curve exists , both a stable equilibrium and an unstable equilibrium may exist . In a monopsony labor market , the rises more quickly than the ARC because the must pay all workers a higher wage when an additional worker is hired . In a monopsony labor market , economic

640 10 . 11 . 12 . DANIEL SAROS exploitation exists because the exceeds the wage paid , but in a bilateral monopoly labor market , the degree of exploitation depends on the relative strength of the employer and the union . In theory , an increase in productivity in industries that produce workers means of subsistence lowers the prices of those commodities and increases the production of relative surplus value , but when the productivity increase occurs in other industries , it only causes a reduction in commodity prices . In theory , an increase in the length of the working day increases the amount of absolute surplus value produced , but it leaves commodity prices unchanged . In theory , an increase in the intensity of labor increases the amount of surplus value produced during a working day of a given length , but leaves commodity prices unchanged . In theory , complex labor creates a larger amount of value in a specific period than simple labor in the same amount of time . List of Key Terms Factor markets ( input markets or resource markets ) Wage elasticity of labor supply Total resource cost ( Average resource cost ( ARC )

PRINCIPLES 641 Marginal resource cost ( Marginal revenue product ( Average revenue product ( Labor market demand curve Derived demand Time constraint leisure tradeoff Substitution effect Income effect Stable equilibrium Unstable equilibrium Marginal productivity theory of income distribution Monopsony Industrial union Craft union Bilateral monopoly Simple labor Complex labor Problems for Review the missing information for the perfectly

642 DANIEL SAROS competitive employer represented in the table below . Assume the product price is per unit . Then determine the employment level . Review Problem Ta Mac ARC ?

15 13 17 . Suppose 20 and per unit of labor . Derive the equation of the time constraint beginning with the fact that and . When utility is maximized , what will the slope of the indifference curve be that is just tangent to the time line ?

Complete the missing information for the monopsony employer represented in the table below . Assume the product price is per unit . Then determine the maximizing employment level and wage rate .

PRINCIPLES 643 Problems ARC 29 12 11 14 IE 16 18 . Suppose the working day is 11 hours , the variable capital is 32 , the constant capital is 124 , and the MELT is per hour of . Also , assume that 50 pounds of the product are produced in one day , and this sector does not produce wage commodities . What is the current price per pound of the product ?

Suppose labor productivity rises in the wage commodities sector causing the variable capital to fall to 24 . What will happen to the surplus value , the necessary labor , and the product price as a result ?

Returning to the original conditions , suppose that a 20 increase in labor productivity occurs in this industry alone . What will happen to the product price , the surplus value , and the necessary labor in this case ?

Be sure to account for the change in the amount of use values produced and the change in the constant capital advanced .

644 DANIEL SAROS Returning to the original conditions , suppose that the Working day is extended from hours to 12 hours . What percentage increase in the length of the workday is this change ?

What will happen to the surplus value , the constant capital , and the product price as a result ?

Returning to the original conditions , suppose that the intensity of labor increases by 10 . This change is equivalent to how much of a change in the length of the workday ?

What is the new surplus value , the new constant capital , and the price of the commodity ?

Suppose a worker spends years in technical school . The training involves a workday for days each week during the 52 weeks in the year . The worker then works hours per day and days per Week for 30 years . If the constant capital advanced during those 30 years equals and the MELT is per hour , then what is the total value produced ?

Also , if use values are produced during the 30 years , then what is the value ( price ) of the product ?

Notes . David presentation of the neoclassical theory of labor supply in his introductory economics class at the University of Notre Dame in the early inspired the presentation in this section . I served as teaching assistant at the time . Chiang and Stone ( 2014 ) represent an exception to the usual rule . They refer to the monopsonistic exploitation of

PRINCIPLES 645 labor and even include a box devoted to Marx critique of capitalism . They do not emphasize , however , that condemnation of capitalism applies equally to intensely competitive market conditions . They refer to the term exploitation as loaded , which seems to imply that it should be used with caution . The caveat is not surprising . The authors are one step away from entering a competing discourse that neoclassical economists generally refuse to acknowledge . For an excellent account of the Homestead strike , see , Leon ( 1965 ) In this example , we have ignored the labor embodied in school supplies and equipment . The intensity of schooling is another difficult aspect of the problem , but it would need to be considered as well . European Union Severe labour exploitation of migrant workers FRA report calls for zero tolerance of severe labour exploitation . Asia News . Bangkok . 01 July 2019 .