Sometimes, paradoxically, it turns out that a problem is almost exactly the opposite of what we think it is. I've been thinking about this particular issue for a long time (and blogged about it just a year ago), but just this morning the counterintuitive insight hit me: Labour is undervalued because it is overvalued.
First, that it's undervalued. That's not really a new idea, of course, and Karl Marx made much of it in his analysis. In the last thirty years or so, the problem has become worse, as income inequality has expanded. Wages have barely kept pace with inflation, despite enormous growth in the economy and productivity; almost all of the increase has gone to a smaller and smaller portion of the population (the "1%", as the Occupy protests put it). So maybe it's not entirely accurate to say that the value of labour has dropped so much as the value of other things has risen. In any event, the net result is the same: it's harder and harder to get rich by wages alone. To become upwardly mobile now demands some kind of investment, playing the markets, and so on.
(Well, but does that mean labour is undervalued? Maybe labour just isn't worth very much now, given that we have so much technology that simply reduces demand for human effort. Maybe that's really just what it's worth. Maybe, but I'm not really going to argue that point, except to say that if someone can work a 60 hour week and still not make enough to prosper, then maybe we should ditch the rhetoric about poor people being "lazy".)
Second, that it's overvalued. I'm going to argue that it's overvalued because we think it is the only thing of value most people have to offer. That is, we value it more than the other things they have, which we treat as valueless. What other things do they have? Well, that's just the problem: we think they have nothing. We don't recognize the property claims that each of us morally has to assets we've traditionally ignored as unowned externalities.
Here's just one example: the Atmosphere. We all depend absolutely on it for the oxygen we breathe and use to burn other fuels, as well as to carry away the waste gases we produce. We use it to regulate temperature, and it carries precipitation to our crops. It shields us from space debris, and from harmful radiation from the Sun and other sources.
Now, no one has claimed the Atmosphere as property, because there's no meaningful way to exclude people from using it. We colloquially say that it belongs to all of us, but in practical terms, we act as if it belongs to no one. But what if it DID belong to all of us? What if each of us was the owner of a single share (of about 7 billion issued) of Atmosphere Corporation, which managed the use of the resource on our behalf?
There are limits to how much use we can safely extract from the atmosphere over any fixed amount of time, after all. It naturally processes a certain amount of pollution, but it takes time, and if you release too much pollution all at once, everyone else has to breathe it. So responsible management of the resource would involve recognizing just how much pollution-processing capacity there is in a given day or month or year, and selling that capacity at market rates. Some of the revenue from the operation of the Atmosphere utility would, of course, be reinvested in keeping the thing running smoothly, but profits could be distributed as dividends to the shareholders.
My point here is that each of us has a moral right to a share of ownership in heretofore "unowned" valuable assets, the atmosphere being just a convenient example. But at present, we do not recognize these assets as having value, and so the only thing of value we recognize most people as owning is their labour. Hence, we overvalue labour relative to all these other assets that people own but cannot realize value from.
This means that people who have only their labour to sell are what realtors call "motivated sellers". They may own all sorts of other stuff, but they're not able to realize any income from it, and so the only way to make cash is by selling labour, and that makes it a buyer's market. And as technology makes it possible to do more and more with less and less labour, the price falls.
If we actually valued these unrecognized assets (ownership of the atmosphere, the sun and other natural resources but also perhaps the currency system and other elements of culture and language), and everyone actually received cash dividends from their shared ownership, what would that do to the value of labour?
There are those who worry that things like welfare payments destroy the work ethic, and that if everyone were able to earn an income simply by collecting dividends like this, nobody would do any work and nothing would get done. But that's nonsense, and betrays a disturbing lack of faith. First of all, if no one did any work, no one would be doing anything that required them to pay for the use of any of these collective assets, and thus the dividends would be zero, and not enough to live on. You'd have to work in order not to starve. The market handles this sort of thing very well, after all.
No, what would really happen is that the price of labour would rise, because it people would no longer be forced to sell it at whatever price they can get. They could reasonably decide just not to sell it at all, if the price were too low. In essence, we'd have a more efficient labour market, one in which the supply would actually contract in response to low prices, instead of there being a permanent glut.
And so that's what I mean by the seemingly paradoxical claim that labour is undervalued because it is overvalued.