Cooking the Books: By Whose Labour Alone

When the economic statistics for the April-June quarter were announced in August, commentators noticed an apparent anomaly. While unemployment had fallen so had wages:

‘Figures from the Office for National Statistics show that the jobless total for the last quarter have fallen by 132,000 to 2.08 million. However wage growth suffered a collapse between April and June with average weekly earnings dropping by 0.2 per cent, the first fall in five years’ (Daily Telegraph, 13 August).

Normally the fewer the number of unemployed the stronger (or, rather, the less weak) is the workers’ bargaining position over the price of the ability to work they sell to an employer for a wage or a salary. So, you wouldn’t expect wages to fall if unemployment is falling; maybe to remain stagnant but not to actually fall. Various explanations for this were put forward. Some, including the Office for National Statistics itself, said it was a one-off due to special circumstances in this particular quarter. Others offered a different explanation, as did the Independent (5 August) commenting on an earlier report by the think-tank the National Institute for Economic and Social Research:

‘NIESR also stresses that the labour productivity performance, which measures output per hour worked, has been ‘abysmal’. It does not expect Britain’s pre-crisis productivity levels to be re-attained until 2017, reinforcing fears of a lost economic decade. Productivity is even more significant than GDP per capita because without growth employers can’t increase wages.’

It is not true that ‘without growth employers can’t increase wages’. They can, but it would mean a reduction in their current level of profits, which workers can sometimes impose in specially favourable circumstances. What is true is that growth brought about by an increase in productivity means that employers can (not the same as will) increase wages without this meaning reducing their current level of profits. They may not make as much as they would without the wage increase but they will still make more than they were.

There is a revealing hidden assumption behind the argument that without growth ‘employers can’t increase wages.’  It’s that profits as well as wages come out of what workers produce. Productivity, as output (measured by the price at which it is sold) per hour of work, is a measure of how much an average worker produces in an hour.

No matter how much the economic textbooks try to get away from it, and in spite of the ridiculous claim by self-styled ‘entrepreneurs’ to be ‘wealth creators’, it remains a fact that the only way that wealth can be created is by human beings applying their mental and physical energies to materials that originally came from nature. Labour productivity determines the size of the cake that profits are going to take a share of. Which is why it is such a key economic indicator for capitalism.

Adam Smith recognised long before Marx that profits come out of what those who work produce:

‘As soon as stock has accumulated in the hands of particular persons, some of them will naturally employ it in setting to work industrious people, whom they will supply with materials and subsistence, in order to make a profit by the sale of their work, or by what their labour adds to the value of their materials’ (The Wealth of Nations, chapter VI).

Adam Smith clearly had a better understanding of how capitalism works than the so-called Adam Smith Institute.