C.3 What determines the distribution between profits and wages within companies?

At any time, there is a given amount of unpaid labour in circulation in the form of goods or services representing more added value than workers were paid for. This given sum of unpaid labour represents total available profits. Each company tries to maximise its share of that total, and if a company does realise an above-average share, it means that some other companies receive less than average. The larger the company, the more likely it is to obtain a larger share of the available surplus, for reasons discussed later (see section C.5). The important thing to note here is that companies compete on the market to realise their share of the total surplus of profits (unpaid labour). However, the source of these profits does not lie in the market, but in production. One cannot buy what does not exist and if one gains, another loses.

As indicated above, production prices determine market prices. In any company, wages determine a large percentage of the production costs. Looking at other costs (such as raw materials), again wages play a large role in determining their price. Obviously the division of a commodity's price into costs and profits is not a fixed ratio, which mean that prices are the result of complex interactions of wage levels and productivity.

Within the limits of a given situation, the class struggle between employers and employees over wages, working conditions and benefits determines the degree of exploitation within a workplace and industry, and so determines the relative amount of money which goes to labour (i.e. wages) and the company (profits). As Proudhon argued, the expression "the relations of profits to wages" meant "the war between labour and capital." [System of Economical Contradictions, p. 130] This also means that an increase in wages may not drive up prices, as it may reduce profits or be tied to productivity; but this will have more widespread effects, as capital will move to other industries and countries in order to improve profit rates, if this is required.

The essential point is that the extraction of surplus value from workers is not a simple technical operation like the extraction of so many joules from a ton of coal. It is a bitter struggle, in which the capitalists lose half the time. Labour power is unlike all other commodities - it is and remains inseparably embodied in human beings. The division of profits and wages in a company and in the economy as a whole is dependent upon and modified by the actions of workers, both as individuals and as a class.

We are not saying that economic and objective factors play no role in the determination of the wage level. On the contrary, at any moment the class struggle can only act within a given economic framework. However, these objective conditions are constantly modified by the class struggle and it is this conflict between the human and commodity aspects of labour power that ultimately brings capitalism into crisis (see section C.7).

From this perspective, the neo-classical argument that a factor in production (labour, capital or land) receives an income share that indicates its productive power "at the margin" is false. Rather, it is a question of power -- and the willingness to use it. As Christopher Eaton Gunn points out, this argument "take[s] no account of power -- of politics, conflict, and bargaining -- as more likely indicators of relative shares of income in the real world." [Workers' Self-Management in the United States, p. 185] If the power of labour is increasing, it's share in income will tend to increase and, obviously, if the power of labour decreased it would fall. And the history of the post-war economy supports such an analysis, with labour in the advanced countries share of income falling from 68% in the 1970s to 65.1% in 1995 (in the EU, it fell from 69.2% to 62%). In the USA, labour's share of income in the manufacturing sector fell from 74.8% to 70.6% over the 1979-89 period, reversing the rise in labour's share that occurred over the 1950s, 1960s and 1970s. The reversal in labour's share occurred at the same time as labour's power was undercut by right-wing governments and high unemployment.

Thus, for many anarchists, the relative power between labour and capital determines the distribution of income between them. In periods of full employment or growing workplace organisation and solidarity, workers wages will tend to rise faster. In periods where there is high unemployment and weaker unions and less direct action, labour's share will fall. From this analysis anarchists support collective organisation and action in order to increase the power of labour and ensure we receive more of the value we produce.

The neo-classical notion that rising productivity allows for increasing wages is one that has suffered numerous shocks since the early 1970s. Usually wage increases lag behind productivity. For example, during Thatcher's reign of freer markets, productivity rose by 4.2%, 1.4% higher than the increase in real earnings between 1980-88. Under Reagan, productivity increased by 3.3%, accompanied by a fall of 0.8% in real earnings. Remember, though, these are averages and hide the actual increases in pay between workers and managers. To take one example, the real wages for employed single men between 1978 and 1984 in the UK rose by 1.8% for the bottom 10% of that group, for the highest 10%, it was a massive 18.4%. The average rise (10.1%) hides the vast differences between top and bottom. In addition, these figures ignore the starting point of these rises -- the often massive differences in wages between employees (compare the earnings of the CEO of McDonalds and one of its cleaners). In other words, 2.8% of nearly nothing is still nearly nothing!

Looking at the USA again, we find that workers who are paid by the hour (the majority of employees) saw their average pay peak in 1973. Since then, it had declined substantially and stood at its mid-1960s level in 1992. For over 80 per cent of the US workforce (production and non-supervisory workers), real wages have fallen by 19.2 per cent for weekly earnings and 13.4 per cent for hourly earnings between 1973 and 1994. Productivity had risen by 23.2 per cent. Combined with this drop in real wages in the USA, we have seen an increase in hours worked. In order to maintain their current standard of living, working class people have turned to both debt and longer working hours. Since 1979, the annual hours worked by middle-income families rose from 3 020 to 3 206 in 1989, 3 287 in 1996 and 3 335 in 1997. In Mexico we find a similar process. Between 1980 and 1992, productivity rose by 48 per cent while salaries (adjusted for inflation) fell by 21 per cent.

Between 1989 to 1997, productivity increased by 9.7% in the USA while medium compensation decreased by 4.2%. In addition, medium family working hours grew by 4% (or three weeks of full-time work) while its income increased by only 0.6 % (in other words, increases in working hours helped to create this slight growth). If the wages of workers were related to their productivity, as argued by neo-classical economics, you would expect wages to increase as productivity rose, rather than fall. However, if wages are related to economic power, then this fall is to be expected. This explains the desire for "flexible" labour markets, where workers' bargaining power is eroded and so more income can go to profits rather than wages. Of course, it will be argued that only in a perfectly competitive market (or, more realistically, a truly "free" one) will wages increase in-line with productivity. However, you would expect that a regime of freer markets would make things better, not worse. Moreover, the neo-classical argument that unions, struggling over wages and working conditions will harm workers in the "long run" has been dramatically refuted over the last 30 years -- the decline of the labour movement in the USA has been marked by falling wages, not rising ones, for example.

Unsurprisingly, in a hierarchical system those at the top do better than those at the bottom. The system is set up so that the majority enrich the minority. That is way anarchists argue that workplace organisation and resistance is essential to maintain -- and even increase -- labour's income. For if the share of income between labour and capital depends on their relative power -- and it does -- then only the actions of workers themselves can improve their situation and determine the distribution of the value they create.