The Inverse Relationship Between Profit and Labor Costs In Any Enterprise

profitnlabor.jpg (69634 bytes)

This diagram shows the inverse relationship between Profit and Labor costs.

When labor costs rise, profits fall (other things remaining constant).

When labor costs fall, profits rise (other things remaining constant).

THEREFORE,

there is a DIAMETRICAL OPPOSITION BETWEEN PROFITS AND LABOR COSTS.

LABOR COSTS are a measure of the Standard of Living of the workers.

Labor costs include:

Because of this diametrical, or absolute, opposition,

ANYTHING THAT RAISES LABOR COSTS HARMS THE EMPLOYER.

If workers get higher income from some alternative source -- for example, a family farm -- then they will not accept employment at a lower wage. They will only accept employment at a wage higher than their alternative source of income.

This is the reason why capitalism rests on the dispossessing the working class (or peasantry) of the means of production. Only if the working class has no other means of subsistance than their labor -- "nothing to sell but their labor power" -- can capitalists maximize profit by holding down wages.

"Other things remaining constant" refers to all factors outside the basic wage-profit contradiction. For example, if the enterprise is a coffee plantation and the price of coffee rises, then profits will go up unless the workers go on strike to get a proportional amount of the increased price as a wage increase. In that case, profits and wages will remain the same relative to one another, though both will rise. But the wage-profit antagonism remains the same.

One good example is the "NAFTA" agreement ("Nafta" stands for North American Free Trade Agreement", though the actual agreement only includes the United States and Mexico). Under NAFTA, auto parts can be manufactured in either Mexico or the U.S., and the automobiles can be assembled in Mexico and imported into the U.S. without any import tariff. As a result of this agreement, a number of U.S. auto assembly plants were closed and reopened in Mexico, using much cheaper Mexican labor. In theory, the cost of automobiles for U.S. consumers could have fallen proportionally with the fall in costs for the auto makers. In practice, however, the cost of automobiles remained the same or even rose, while the labor costs of the auto makers fell drastically.

The result was: unemployment for thousands of U.S. auto workers, no decrease in car costs for U.S. consumers, but very large profit increases for U.S. auto manufacturers.


http://chss.montclair.edu/english/furr/wl/profitnlabor.html | Email me | last modified 22 Mar 05