Monopolistic Exploitation of Labour | Imperfect Competition

In this article we will discuss about the concept of monopolistic exploitation of labour.

Famous English economist, Joan Robinson (1903-1983) has said that, if a factor of production is paid a price which is less than the value of its marginal product (VMP), then we should say that the factor is exploited by its employer. Thus, if labour is paid at a rate which is less than VMP_L, then we should say that there has been exploitation of labour by the employer.

Prof. Robinson has argued that a firm with a view to maximising profit would use that quantity of labour at which an additional unit (or the marginal unit) of labour adds precisely the same amount to total revenue and total cost, i.e., at which the marginal revenue product of labour (MRP_L) would be equal to the marginal expense for labour (ME_L).

As we have already known, the MRP_L is equal to MP_L x MR, and, under perfect competi­tion in the labour market, ME_L = AE_L = W (the rate of wage) = constant. Therefore, at the profit-maximising equilibrium level of employment under monopoly in the product market and competition in the labour market, we have MRP_L = ME_L ⇒ MRP_L = MP_L x MR = W.

Since under perfect competition in the product market, p (the price of the good) = MR (the marginal revenue), here we have: W = MP_L x MR = MP_L x p = VMP_L, i.e., the labour is getting a price which is equal to the value of its marginal product. That is, if there is perfect competi­tion in the product market, there is no exploitation of labour (or any other factor of production).

However, if there is monopoly in the product market (and competition in the labour market), the profit-maximising behaviour of the firm would drive it to buy that quantity of labour at which, as under perfect competition, MRP_L = MP_L x MR = W.

But here, since MR < p, we would have: W < VMP_L, i.e., the labour would be paid a price which is less than the value of its marginal product. That is, if there is monopoly in the product market, labour would be ex­ploited. Prof. Robinson has called this exploitation the monopolistic exploitation of labour.

The fundamental difficulty with monopoly lies in the fact that if the market price of the commodity reflects its social value, then the productive service here receives less than its con­tribution to social value (since MC < p in equilibrium). This cannot be remedied by raising the input price because producers would then merely reduce the level of employment until MRP_L increases to the level of the higher input price.

The trouble initially lies in the fact that imper­fectly competitive producers do not use as much of the resources as is socially desirable and do not attend the correspondingly desirable level of output. Thus, so long as the imperfectly com­petitive producers exist in the market, there must be some monopolistic exploitation of labour.

Let us now look into the significance of this exploitation. According to Chamberlin (1899— 1967), product differentiation is desired per se. But whenever there is differentiation, price and marginal revenue diverge, leading to exploitation.

Also, the alternatives to exploita­tion are not desirable. These alternatives are either state ownership and operation of all industries under imperfect competition, or, rigid price control by the state. For various reasons, these alternatives are likely to raise more problems than they solve.