Inequality in the United States is rising because people are paying more to work. When people pay more to work, the share of national income that goes to the top 0.1% increases. The solution does not lie in a global tax on wealth but rather in workers not paying to work.
BY TOMAS ROTTA | DECEMBER 21, 2016
Workers pay to work. Even though we receive wages and benefits, many of us have to pay to work. If we didn’t, we wouldn’t have a job in the first place. If we didn’t, companies wouldn’t accumulate any profit. Profits are actually derived from what we as workers pay to work. This was one of Marx’s greatest discoveries about capitalism.
Marx himself never used the term ‘pay to work’. Instead, he used the term exploitation. Today, unfortunately, exploitation has acquired a meaning that is not in accordance with Marx’s theory of class struggle. Generally we use exploitation to refer to poor working conditions, but Marx was clear that exploitation should not be defined in these terms. For Marx, exploitation exists whenever those who produce wealth do not appropriate it. You and your coworkers produce together all the wealth for the company but you only get back a fraction of this wealth when you receive your wage. The other share that you created but for which you receive no compensation is what you pay to work.
It is challenging to talk about Marx’s ideas without relying on the language of value, surplus value, and exploitation. How do we engage in a conversation about exploitation when there is a general misconception that exploitation is defined in terms of working conditions? Even if someone works at Google or Facebook, with nice progressive offices, and higher pay, they are being exploited. Even if you have the pleasure of going to work in a nice office and making a good living, you are paying to work too. It just might not seem like it. But higher productivity compensates for bigger salaries. If it didn’t, those employees at Google or Facebook would not even be employed.
It is easier to explain Marx’s conception of exploitation through the phrase ‘you pay to work’ than it is to just tell people they are exploited. No one wants to hear that they are being exploited, especially if their material conditions are fairly comfortable. “How could I be paying to work?” “How is that possible?” Paying to work is possible because there is little to no democracy in the workplace. Most employees are not the shareholders of the corporations or companies they work for, and so they are not entitled to appropriate the wealth they produce.
Capitalism has surely brought us many benefits like high productivity, mass production, better living standards, and cheaper and cheaper goods and services. Capitalism, however, cannot offer these benefits without people paying to work. And paying to work is a major factor behind rising inequality. The more we pay to work, the more unequal capitalism becomes.
In Capital in the Twenty-First Century Thomas Piketty explored the rise of inequality among developed nations. He measured the actual income shares that accrue to the top 1% and the top 0.1% of the income scale. This accrual of wealth in the 1% is where Occupy Wall Street got their slogan. What drives the accumulation of wealth among the top 0.1%? Marx teaches us that a major cause of inequality is exploitation itself, or the fact that we pay to work. Inequality goes up when we pay more to work, and inequality goes down when we pay less to work. When you pay more to work, more of the wealth you produce goes to the owners (the shareholders) of companies and corporations, which are those at the top 0.1% of the income scale.
My research on the American economy indicates that the correlation between the income share of the top 1% and the rate of exploitation, or the rate at which we pay to work, is 0.95. For the top 0.1% this correlation is 0.96. A perfect correlation of 1.0 would mean that inequality and exploitation move exactly together. So 0.95 and 0.96 are remarkably high correlations, suggesting that paying more to work is closely linked to rising inequality in the United States.
Rate of Exploitation (or Rate of Surplus Value) and Top 0.1% Income Share in the United States: 1947-2011
From 1947 until 1980 inequality was roughly stable and even declining. Why? Because Americans paid less to work, mostly due to the development of the welfare state and the hegemony of the US in the global economy after WWII. But after 1980 the story changed. Americans paid more and more to work every year and the gains went to the top 0.1%. In 1974 the average American employee labored half of the working day for herself and the other half for her employer. By 2011 this same average employee was laboring one-third of the work time for herself and two-thirds of the time for her employer. As people paid more to work, more of the national income went to the top 0.1%.
Piketty has suggested that the golden age of capitalism from 1945 to 1980 was a mere exception. He points out that WWII, the reconstruction of Europe, and the Soviet revolution led the developed world into an exceptional period of decreasing inequality. But after the Reagan-Thatcher era, the rich countries are now back to the days of high inequality. Many call this post-1980 era ‘neoliberalism’.
So, what is the solution to rising inequality? For Piketty, it lies in a global tax on wealth and inheritance. But a global tax on wealth across countries would be very difficult to maintain in practice and the super-rich could undo it as soon as politics allowed, as they in fact did after 1980. For Marx, on the contrary, the true solution to close the wealth gap can only be an economic system in which we have prosperity without exploitation, prosperity without paying to work.
Tomás Rotta is Lecturer in Economics at the University of Greenwich in London, UK. He holds a PhD in Economics from the University of Massachusetts at Amherst, US, and an MA in Economics from the University of São Paulo, Brazil. You can contact him here.