Unmasking exploitation with the monetary equivalent of labour time

If your boss makes a dollar, you make a dime. That’s why you analyze the links between social class and exploitation on company time. Rather than treating objective social class as some function of income, education, and occupation, we’re going to begin with capitalist exploitation in the workplace, then build out from there. Drawing on the labor theory of value, we’ll establish how much value each hour of labour adds to the overall production – the Monetary Equivalent of Labour Time – and use that as a basis for measuring exploitation.

Using data on employment from the Labour Force Survey, we can compare the average wage to the value of labor time to assess the degree of exploitation experienced by workers. In short, for every dollar in value added to the net product by an hour of labour, the average worker in Canada receives only a fraction of value back, about 45 cents in wages.

I am hopeful that this approach can be refined over time, using real world data, to provide an alternative view of the class structure and dynamics within capitalist societies, focusing on the central role of labor exploitation in creating class divisions. If you want more information on the assumptions this analysis uses, please see the notes in the appendix.

Exploitation is the foundation of class inequality

To paraphrase Marx’s famous axiom, the two original sources of all wealth are labour and the natural world. Capitalist exploitation centers on extraction of economic value created the labour of the working class in the process of producing commodities, i.e. goods and services for sale. Simply put, economic value (a.k.a. exchange-value) is a measure of the worth of a commodity relative to other commodities. Why does a car cost so much more than a roll of paper towel? Of course, it is because a car is a much more valuable commodity. Why is a car more valued, in that case? According to Marxian theories of value, economic value can only be added to commodities by the expenditure of socially necessary labour time (SNLT). Commodities that require more SNLT to produce have an accordingly higher value, so a car is more valued because it takes that much more work by society to make them – not just in the assembly, but also the past work done to mine and refine metals, manufacture parts, and so on.

Under capitalism, exploitation begins in the workplace, through the employer-employee relationship.¹ In prior societies, the ruling classes relied on people like bailiffs and knights to compel peasants, with force if needed, to do surplus labour in order to pay taxes and tribute. The capitalist has no need to be so direct. Capitalism is the society of generalized commodity production. That means just about everything you need to survive, let alone enjoy life, exists only as a commodity for sale. Lacking any capital of your own (because it is concentrated in very few hands) and the means of being self-sufficient (because it is often outlawed), you have no choice but to sell your labour-power (the capacity to work) for a wage to buy the means of living.

Since the capitalist owns the capital, they have great, often unilateral, power to set the legal terms of employment, to discipline workers into producing a surplus for the owning class. The essence of capitalist exploitation is thus – the boss pays for your labour-power with wages, but because they own the capital, receives the added value created by your labour, embodied (not physically, but in the price of production) in the goods or services you worked to produce. How would a person know if they are exploited at work? How can we measure this exploitation?

Here is a simple example. Assume a worker works an eight hour shift for a wage of $15 an hour. They produce goods with a sale price of $40 and fixed costs like raw materials and utilities of $30 per unit, yielding a surplus of $10 per sale. Producing 5 units in an hour, that worker has done enough necessary labour to cover their own wages ($120) in under three hours. Of course, they don’t get to call it a day at that point, according to the terms of their contract, they must work the rest of the shift doing surplus labour. In eight hours, they produce 40 units that can be sold for $1600, which after deducting fixed costs like raw materials and utilities ($1200) and the daily wage ($120), yields of surplus of $280, which works out to $35 per hour.

Where does this miraculous surplus of money come from? The source is the value added to commodities by the expenditure of labour-power. This difference between wages (the value of labour-power) and the value of the final products is referred to surplus value, out of which profit is taken, shareholder dividends are paid, taxes are extracted, and wages of people like supervisory workers are covered.

The connection between money and labour time

One of the most important innovations in the study of capitalism in recent decades has been the revival and refinement of a concept used by Marx to describe the relationship between money and human labour time. This tool is now aptly known as the Monetary Equivalent of Labour Time or MELT for short. The MELT is calculated² by simply dividing the total number of hours worked in an economy by the total net product of labour in money form. It is therefore a ratio that expresses the monetary value added by each hour of living labour performed in a capitalist economy.

Our intervention centered on the monetary expression of labor time. We argued that the important issue for Marx was … that money represents social labor time, and that one can therefore use a measure of the monetary expression of labor time … to translate flows of money in real-world capitalist accounts into flows of labor-time and vice versa. This way of looking at the labor theory of value dispenses with the need for a separate accounting system based on embodied labor coefficients.

Alejandro Ramos-Martinez

Value can be expressed in both hours of social labour and sums of money (a.k.a. prices), since value is both of those things at once. Human labour time is the substance of value, meaning units of SNLT are the basic building blocks of value that determine it’s magnitude.

Money is the form of appearance that value takes in reality – it is objectified social labour time. When we go shopping, we can’t see all of the labour done, past and present, to make the commodity, we only see the price expressed in money. But commodities with higher values, in general, tend to have higher prices, and vice versa, so the price we pay is innately tied to value. Yet value can only be realized, made material in the real world, if converted into money via sales. If goods go unsold, value can go unrealized and even be wasted. So there is a hidden inner relationship, happening out of sight, between social labour time and money as interrelated (and sometimes contradictory) aspects of value.

Using the MELT it is possible to convert amounts of economic value into either labour time or money, and to transition between either of those forms smoothly, as Marx does time and time again in his writings. In the one-worker example above, the net product, the money left over after fixed costs, but not wages, are deducted, works out to $400 in eight hours of work. That implies a MELT of $50, which is the amount of money value added by each hour of work. Conversely, each dollar represents about one minute and twelve seconds of socially necessary labour time, a measure sometimes called the value of money, the inverse of the MELT.

The value of an hour’s work in capitalist Canada

Recall that surplus value, the raw material of profit, is what remains after the worker’s share is deducted from the total product. In order to measure exploitation therefore, the value of labour-power (VLP) needs to be established. In the traditional school of thought, the VLP is defined by the value of the consumption goods that workers buy to live. There are many complications in making such calculations using real world data. Other scholars of capitalism have, more recently, defined the value of labour-power as the ratio of the money wage to the MELT. Using the MELT therefore, we can measure how much value workers receive in wages relative to the monetary value they create with each hour of their labour in terms of either money or labour hours.

To compute the MELT for Canada, we can divide net national income by the total number of hours worked at all jobs, sourcing data from the country’s national and industrial accounts respectively. In 2022, Canada’s net national income was about $2.3 trillion, while Canadian workers put in about 33.6 billion hours in at their workplaces. That works out to a monetary equivalent of labour time of $69 per hour worked. In other words, each hour of socially necessary labour done in Canada adds $69 worth of economic value to goods and services.

Given an average hourly wage of $36.20 in 2022, the value of labour power for an average hour of work was little over half (52%) of the monetary value created. In my reading of the literature, the MELT and MELT-derived VLP have been used extensively for macroeconomic analysis. I believe that there is potential to use these tools on other data sources to build objective indicators of exploitation in the study of the class structure of capitalism. Other than a few introductory blog posts by this author, I don’t think this kind of analysis has really been attempted yet, so from here on the work is going to be largely exploratory and a bit experimental.

Very few employees paid more than the value of labour time

So, where do we begin this exploration? It makes sense to me to start in the workplace, the hearth of capitalist exploitation, and build out the analysis from there. One possible point of departure is to ask who receives wages worth less than the monetary value produced by an average hour of labour? Those that are exploited will by definition get back less value in wages than the monetary value created by an hour of labour time – their VLP will be less than 100% and probably much less.

Conversely, we could ask who gets paid more than the money value of labour time? If such people exist, they would not be exploited, but an exploiter group, in the sense that their employment income would represent more value than the value of average labour time. For such individuals, the VLP will be 100% or higher. This would leave us with a binary measure of exploitation based on the value of labour power, defined as their hourly wage against the MELT, where those below 100% are exploited and those above are not exploited (at least in value terms).

Using data on employment and wages from the Labour Force Survey (LFS), we can see that the vast majority of workers (97%) have employment earnings worth less than the monetary value produced by their labour. Only about 3% of people in the labour force – a half-million individuals, give or take – are “over-valued” employees, meaning they are earning the full money value of an average hour’s work or more through paid employment. Note that because the LFS does not contain income data for the self-employed, all figures from here on refer to paid employees only, an important limitation of this data, as we shall see.

So nearly everyone is paid much less than the value created by an hour of labour. Of course, this is entirely expected, if it were not so, then either capitalism has broken down or ceased being capitalism altogether. Clearly, this binary measure of exploitation is going to be of limited use. We are going to need more detailed information to form a clear view of the structure of class in Canada. But let’s stick with the binary measure for a little while longer to see if it offers any further insights.

Who are the “over-valued” workers? Managers and professionals.

Just who are the lucky 3% that somehow manage to get paid more than the average value of labour? Again, we can use data from the LFS to dig a little deeper. The answer, in short, is professionals and managers, especially in senior and specialized management occupations. Managers were about 7% of the workforce in 2022, but nearly half (45%) of employees that were paid more than the monetary value of labour time. They are joined by a very small minority of professional employees in fields like business, science, and education. Notably, even among managers and professionals, a majority of employees still had hourly pay below the monetary value of labour time.

Specialized middle managers (147K employees) and professionals in the natural and applied sciences (108K employees) are the most numerous among the “over-valued” employees, accounting for just under half of them (49%). The remaining half is filled out with other middle (67K) and senior (20K) managers and smaller groupings of professionals in the fields of business (54K), education (38K), and legal or social/government services (37.8K), then much smaller clusters spread across the remaining occupations.

A noticeable absence stands out in this data – where are all of the highly paid professionals? While professionals were among the most likely to have a VLP of 100% or greater, the LFS data shows that it is only a very small minority that do so. One explanation is simply that information is obscured the level of aggregation of the LFS occupational data. For example, lawyers and judges are grouped into the broad category of “occupations in law and social, community, and government services.” In this broad occupational grouping, legal professionals form a very small minority, about 108K people out of a workforce of 2.2M in 2022, about 4.8% of the total. No doubt, if we could separate out legal professionals from the big group, we would see a very high share of people being paid more than the monetary value of labour time.

Another important reason for the low rates observed among professionals is that the LFS does not capture the income of self-employed people. Many highly paid professionals in fields like law or medicine earn most, if not all, of their income through self-employment, rather than as paid employees. Take doctors, for example, who have one of the highest rates of self-employment of any occupation in Canada. Under Canada’s health care system, the majority of doctors work for themselves, even if they labour in public health care settings like hospitals.

Doctors make most of their income (about three quarters) by billing the public health system for services rendered, not as salaried employees. In 2021-22, the average doctor billed $325,000 to the public. If the average overhead (e.g., paying staff, medical supplies) for operating a practice is about 25% that works out to an annual net income of $243,7500 for an average physician. In tax terms, this is referred to as ‘net professional income’ which is an important source of income for many of the top income earners in the country.

While few physicians appear to be paid over the MELT in their capacity as paid employees, many supplement their self-employment income with high paying teaching or research work in academic settings. To get a full picture, we’ll have to find another source of data that has information on the incomes of self-employed people.

Exploitation as a gradient, rather than a binary

Using a binary measure of exploitation shows a tremendous gap in wages between those on either side of the MELT. Compared to the vast majority of workers in their respective industries, average hourly earnings for the supervisory and professional employees with wages over the MELT are 200% to 300% higher. Here we are talking about the top tier of income “earners” below the corporate executive level.³

But what else can we say based on this? Looks like we are missing a lot of information in that wage chasm. I don’t think at this point, we can say 97% of people are objectively working class, because they get back less than the value of their labour at work, and call it a day. Instead of an all or nothing measure, it is probably more fruitful to consider a gradient of exploitation, based on the value of labour power as a share of the money value produced by socially necessary labour time.

Below is such a view of exploitation as a spectrum, rather than a binary, based on deciles of hourly employment earnings earnings. When considering an objective marker of class position based on exploitation, it’s not so much whether a person receives more or less in wages than the monetary value created by their labour, because nearly everyone gets less, but how much of that value they are able to retain as income.

Broken down this way, we can see that 90% of employed workers are paid hourly wages worth at most two-thirds (66%) of the money value of labour time. Workers in the bottom 50% of the earnings distribution took home even less, no more than 40% of the money value added by their labour. Even those in the top 10% of income earners took home on average, close to (92%), but still less than the full money value of an hour’s work.

Here is another view using the continuous measure of exploitation, broken down by some demographic variables. All factors that we already know relate to income inequality, like age, gender, race, or education, will similarly impact the value of labour power.

The average worker overall received wages worth about 45% of the MELT. Employees with a high school education, part-time and temporary employees, and those in non-managerial and non-professional jobs, had wages valued 30% to 40% of the MELT. At the other end of the scale, those with university educations and professional occupations were paid about 55 to 60% of the MELT, while only senior managers came close to the full value at 91% of the MELT.

At this point, we have to stop, lest we conclude that the ruling class is actually comprised of managers and professionals, as some have erroneously done – at some point, I might address the “PMC” thesis, but not today. Clearly, we will need more information. We haven’t yet addressed the flip side of this exploitation based analysis, namely the ownership side. If the value of the labour power of the average worker is 45%, where is the rest of that value going? For the most part, it is going to those who own the capital.

Income from ownership of capital will have to be accounted for, meaning we will need to look beyond the bounds of paid employment to examine the class dimensions of exploitation. Using the LFS, we can only consider income from paid employment. Yet in reality, there are many potential sources of income, like government transfers, self-employment, dividends, capital gains, and rents.

Next up, we will integrate another data source, the Canadian Income Survey, that contains more detailed information on incomes in Canada. Doing so, we can also broaden the horizons of the concept of exploitation a bit, to show how it can also take place outside of the workplace, as surplus value changes hands in the realm of market exchange.

Appendix

Technical assumptions

1. Aggregate vs. Industry level: The MELT is calculated and holds at the aggregate level of the entire economy, representing the money value added by an hour of human labour time that is average in character (e.g., complexity, skill, intensity, productivity). We are assuming, at the macro level, that concrete hours worked at all jobs is equal to the total number of socially necessary abstract labour hours worked. This assumption holds in the aggregate, though possibly not at the industry level. It is possible to calculate a MELT specific to each industry, but things behave a bit differently on the micro level, so for now we’ll put that to the side.

2. Productive vs. unproductive labour: That all labour is productive of surplus value, even though this is probably not the case. Some authors have indeed argued that all labour is productive of value. It’s also an assumption commonly taken just for the purpose of methodological simplification. But it is also possible to use data to make a distinction between “productive” and “unproductive” labour – technical, not moral categories – based on whether it produces a return to capital or not. I plan on introducing this concept later down the road, since there is so much baggage to unpack with these concepts.

3. Nearly anyone can be exploited: Leading from the last point, is that workers can be exploited even if they do “unproductive” labour, because the essence of class exploitation is not strictly limited to the production of surplus value. Across all modes of production, not just capitalism, the core of exploitation is the compulsion of the working classes to perform surplus labour for property owners. To the extent that all workers under capitalism labour under the disciplinary compulsion to perform surplus labour, they can be (potentially) exploited.

4. Equal rate of exploitation: That all workers produce the same amount of value with their work, regardless of the industry they work in, the productivity of their labour, or their level of education, training, and skill. Some scholars have argued that this is how capital works in practice. Other have argued that below the macro level, workers do produce different amounts of value, depending on the productivity and complexity of that labour. Sounds complicated. For now, we will be treating an average hour’s work is worth an average hour’s work, no more or less.

5. International dimension of exploitation: That we are only considering the Canadian economy in isolation. In practice, this is clearly not the case in the age of global supply chains. It is well known that surplus value is transmitted even between countries via unequal exchange, specifically enacting a transfer of value from exploited nations to those in the rich imperial core. So the picture of exploitation in Canada will look differently through an international lens, though by how much it is hard to say. I’m hoping to be able to address this at some point, but it would require a lot of work.