The Wage Determination Theory of Karl Marx
Karl Marx’s wage-determination theory is one of the key components of his socio-economic philosophy which he argued defined the class structure of society. This theory effectively looks at the relationship between the employer and employee, and the inequalities that emerge from this fundamental arrangement in capitalism. According to Marx, the wage-determination process is not based on the value of labour but on the power relations between employees and employers; thereby resulting in a system of exploitation for the workers.
Marx’s wage-determination theory has two main components: the first is a ‘specific value’ concept, which argues that the wages of a worker are determined by the amount of labour required to produce goods or services, and the second is a ‘labour power’ concept, which explores how the worker’s power is exploited by the employer. He argued that, based on the value of labour, workers should get paid for the entire amount of goods and services provided. However, Marx argued, employers use the power of the market to pay the workers less than the true amount of value their labour provides. This results in an unequal power relationship between employers and employees, and leads to an unequal distribution of wealth, which Marx saw as a fundamental characteristic of the capitalist system.
According to Marx’s wage-determination theory, employers pay lower wages than the full value of the labour provided by workers and as a result, the employer obtains extra profit. He argued that it is not the value of labour, but rather the power of the employer, which determines wages and consequently, the employers gain a disproportionately higher share of the wealth produced. This means that, despite producing a certain amount of wealth and value, the worker receives a much lower portion than what the employer receives. This explains why there is such a large gap in the amount of wealth between the two groups.
In other words, the power of the employer over the worker means that the excess profits made by the employer always benefit the employer, rather than the workers. Since the workers, in Marx’s view, are a commodity, the employer is effectively able to buy labour power from them, without understanding any of the value that the workers are providing. Faulty employer-employee power dynamics are, then, what Marx believes to be at the root of the inequality in the capitalist system.
Thus, the aim of Marx’s wage-determination theory is to demonstrate the fallen exploitative nature in the system, whereby the low wages of the workers do not reflect the real value of the labour they provide. Marx extensively argued that capital, not labour, is the driving force of production; hence it is necessary for wages to be determined based on the true value of the labour with no manipulation by the employer.
Marx was an advocate of socialism; a system which proposed the abolishment of private ownership of the means of production and distribution and the establishment of a social ownership. Through this system, wages would be granted based on the labour provided and the equity of the power dynamics would be achieved. Through a series of reforms, he argued for the establishment of a fairer distribution of wealth and a more even balance of power between employers and employees.
In conclusion, Karl Marx’s wage-determination theory provides an insight into the fundamental inequalities of the capitalist system. It identifies the exploitative nature of employer-employee power dynamics, which result in unequal pay and unfair wealth distribution. According to Marx, wages should be determined based on the real value of the labour provided by workers, rather than being manipulated by the employer; this would help to create a more equitable and just economy.
