0
$\begingroup$

A section in my (mostly conventional) transport economics (Blauwens, De Baere, Van de Voorde, 2002) handbook discusses the use of transport policy to generate employment (as a second-best solution: https://en.wikipedia.org/wiki/Theory_of_the_second_best). In that sense it refers to benefit of an additional job, which is partly determined something called "the marginal cost of the work performed", also "MC of (labour) effort", on which it's unclear about what exactly it constitutes. Let me first show you the adjoining slides, so you have a sense where it fits in:

enter image description here enter image description here

As you can see E doesn't seem to simply stand for wages, because that's what L already stands for. It also doesn't seem to be the case that L-E stands for employment taxes and contributions, as "benefit for society" suggests something broader. What baffles me is how the book describes L. It refers to it as the total wages, so wages + fiscal/social contributions, as in the slides, but it also says that L "expresses the value of the products created through labour". L-E is referred to as "the difference between the value of the goods produced and the cost of the worker's effort.". It think this is very curious, as if it's saying that the value of goods is that of its incorporated labor (ie the labor theory of value). That'd imply L-E stands for Marx' surplus value and E is the cost of the workers' subsistence. Or is my understanding mistaken and is "MC of the work performed" actually a legitimate concept, perhaps from labor economics?

$\endgroup$

1 Answer 1

1
$\begingroup$

Marginal cost is the cost added by producing one additional unit, in case of marginal cost of labor it is the cost of additional unit of labor supplied.

When it comes to labor the cost of supplying labor is the value of compensation for the subjective 'pain' incurred by worker. For example, if the function of worker cost of supplying labor is given as $C= 2L$ marginal cost of each additional unit of labor supplied would be MC=2.

L-E is referred to as "the difference between the value of the goods produced and the cost of the worker's effort.". It think this is very curious, as if it's saying that the value of goods is that of its incorporated labor (ie the labor theory of value).

No this has nothing to do with labor theory of value. The model above implicitly assumes competitive markets, and in competitive markets wages will be bid up until workers are paid exactly the value they produce. For example, if you produce \$100 of subjective value, on a margin, in competitive markets you should be able to command wage of \$100 for your additional contribution.

Labor theory of value postulates that labor can be used as an objective yardstick for value. That is not what the model says at all. You could extend the model to situation where markets are not competitive, where employees are paid less or more than they produce (depending on exact assumption you make), the resulting equation would be much more complicated though.

That'd imply L-E stands for Marx' surplus value and E is the cost of the workers' subsistence.

No, it clearly does not. According to Marx the surplus value is surplus value is the difference between the amount raised through a sale of a product and the amount it cost to the owner of that product to manufacture it (see Marx, The Capital Ch 8). So surplus value is the difference between total revenue and total cost. The equation has total wage for a worker (which perhaps you could think of as worker revenue) but it subtracts marginal costs not total costs. Moreover, even if it would be total cost instead of marginal cost, the Marxian notion of surplus value is applied to the difference between revenues and costs of a business not worker. Also, the Marxian notion of surplus value relies on the Smithian/Ricardian notion of objective value measured by labor.

$\endgroup$
4
  • $\begingroup$ I'm still confused. Are you saying E is the compensation for the disutility of labor, basically the wage? Or is E the disutility itself, If it's the former, then why the distincition with L? (which would imply L-E is taxes/contributions paid) $\endgroup$
    – Nasan
    Jul 26, 2022 at 11:08
  • 1
    $\begingroup$ @Nasan I don’t want to call it disutility as it could include some factors like cost of travel but MC is the marginal cost that worker incurs by working that is mostly the disutility, or rather the opportunity cost of utility gained by leisure, but also some other factors as well. Any marginal cost to the worker would be included. $\endgroup$
    – 1muflon1
    Jul 26, 2022 at 11:11
  • $\begingroup$ "Labor theory of value postulates that labor can be used as an objective yardstick for value." Not to disagree with the wider point you're making, but I've been taught there's a difference between Smith's conceptions of LTV and Ricardo/Marx's conception. Smith believed that labour is an objective yardstick (the "commanded" LTV). Ricardo believed that value of good derives from the amount of labour incorporated in making of that good ("incorporated" LTV). $\endgroup$
    – Nasan
    Jul 26, 2022 at 11:18
  • $\begingroup$ @Nasan No Ricardo also believed it is objective measure, he refined the Smithian understanding of LTV but the objective yardstick for value is inherent proposition baked into the LTV, only way to get rid of that is to get rid of the LTV itself $\endgroup$
    – 1muflon1
    Jul 26, 2022 at 11:21

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.