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<html>
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<TITLE> C.3 What determines the distribution between profits and wages within companies? 
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<H1>C.3 What determines the distribution between profits and wages within companies?</h1>
<p>
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 <a href="secC5.html">section C.5</a>). 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 <B>source</B> 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. 
<p>
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. 
<p>
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 <i>"the relations of profits to wages"</i>  meant <i>"the war between
labour and capital."</i> [<B>System of  Economical Contradictions</B>, 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. 
<p>
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.
<p>
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 <a href="secC7.html">section 
C.7</a>).
<p>
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
<i>"take[s] no account of power -- of politics, conflict, and bargaining -- as
more likely indicators of relative shares of income in the real world."</i> 
[<B>Workers' Self-Management in the United States</B>, 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.
<p>
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.
<p>
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!
<p>
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.
<p>
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 <B>freer</B> 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.
<p>
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.
<p>
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