Pure Neoclassical Exploitation and the Level of Wages

Abstract

Abstract. The neoclassical theory of labor exploitation is extended by identifying a pure exploitation which occurs when the wage rate is less than both labor's marginal factor cost (=marginal revenue product) and its average revenue product. Pure exploitation is attributable to a labor market phenomenon alone and is unambiguously unfair from a Pigouvian perspective. It is argued that, contrary to a common belief, pure exploitation does not imply low wages. For example, pure exploitation and high wages are to be expected at least transitorily in the case of the economically profitable innovative firm.

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“…Nevertheless, it is expected that a rising supply price for labor, which is the crucial determinant of general neoclassical monopsonistic exploitation, is a temporary supply condition in labor markets and therefore not sufficient for monopsony profit. Thus, the occurrence of rising supply prices for labor, which is prevalent in the short run, does not imply that employers enjoy an economic profit (unearned income) made by employing labor (Daniel, 1990). To evaluate the accurate exploitation of labor, general monopsonistic exploitation, which occurs when the wage rate is less than a worker's contribution to the revenue of a firm, and monopsony profit, which is a consequence of the employment of labor, should be considered simultaneously.…”

“…To evaluate the accurate exploitation of labor, general monopsonistic exploitation, which occurs when the wage rate is less than a worker's contribution to the revenue of a firm, and monopsony profit, which is a consequence of the employment of labor, should be considered simultaneously. Hence Daniel (1990) propounded pure exploitation that occurs when monopsonistic exploitation is concurrent with monopsony profit in a firm. Assuming profit-maximizing behavior on the part of firms (so that…”

“…The upper limit of the range is a wage that is equal to the value of the marginal product. In contrast, the lower limit is a wage that is equal to the expected wage that could be obtained by moving elsewhere, minus an allowance to balance the costs of the movement (Daniel, 1990). Robinson (1933) employed Pigou's definition of exploitation as a payment that is less than the marginal product's value to identify the main causes of wage exploitation (Collins et al, 2018).…”

“…Nonetheless, the condition in which the wage rate is lower than the MRP is not sufficient for monopsony profit in the employment of labor in that one of the profit maximization conditions is to choose a rate of use of labor so that the MRP equals the marginal factor cost of labor providing that the ARP of labor exceeds the wage rate. Therefore, the ARP's neglect to identify labor exploitation could result in an incorrect assessment (Daniel, 1990). Daniel (1990) introduced pure exploitation due to the deficiencies in the definition of labor exploitation presented in the studies mentioned above.…”

“…Therefore, the ARP's neglect to identify labor exploitation could result in an incorrect assessment (Daniel, 1990). Daniel (1990) introduced pure exploitation due to the deficiencies in the definition of labor exploitation presented in the studies mentioned above. Based on the study, pure exploitation occurs when a worker's contribution to a firm's revenue exceeds their wage.…”