The myth of the labour market

There can be no simple labour market under the free market: humans are humans, not inanimate commodities to be traded.

Commentary icon2 Sep 2020|Comment

Lord John Hendy KC

Chair of the Institute of Employment Rights

Professor Keith Ewing

President of the Institute of Employment Rights

There are a number of expressions which are particularly grating, especially when spoken by comrades.

Hearing the Prime Minister referred to affectionately as “Boris” is one, the use of the phrase “labour market” is another.

The phrase “labour market” gives a legitimacy to a capitalist mythology in which buying and selling labour is a natural and unalterable part of the human condition, in which humans who work for a living are no more than disposable “human resources” and in which those who sell and those who buy labour have some equivalence of bargaining power as they contemplate the wares on the stalls in the “labour market.” These myths are unrelated to the reality of capitalism.

For most of the three million years of hominid and the 150,000 years of human history, there has been no buying or selling of labour. Whatever required more than one person to do was done collectively, in the common interest: raising the young, caring for the elderly and sick, gathering food, hunting, building shelter and so on.

No-one paid or received pay for work. Nor, the anthropologists tell us, such as David Graeber in his work “Debt: the first 5,000 years,” did they barter.

Those able to help were expected to and did help; favours were met with favours without valuation of equivalence or worth.

Humans are co-operative beings and worked co-operatively in their communities. There are still societies which live like that outside the reach of “civilisation.”

Even in feudal times little labour was paid for, though the landlord took his slice of the peasant’s produce and often his labour.

For all but a tiny exceptional class of workers who have near unique and indispensable skills, individual workers do not negotiate; each is faced with terms set by the employer on a take-it-or-leave-it basis.

It is capitalism which has generated the “work/wage bargain,” as scholars of the contract of employment have pointed out.

The idea of a bargain, freely negotiated, is one that underpins the legal mythology of “freedom of contract” at work and supplies the moral justification for enforcing its terms by law.

The trouble is that in the world of work there is no such freedom to bargain. For all but a tiny exceptional class of workers who have near unique and indispensable skills, individual workers do not negotiate; each is faced with terms set by the employer on a take-it-or-leave-it basis.

Workers need to work in order to support themselves and their families; the alternative is dire poverty, as universal credit and the demeaning rituals required to obtain it demonstrates.

Even our Supreme Court has recognised the fundamental imbalance in power between the worker on the one hand and the employer on the other.

Because of that fundamental inequality in bargaining power at the workplace, inherent in capitalism, laws have been put in place to moderate the exploitation of humans by capitalism based on a free market in labour.

These laws are modest in the extreme and are just enough to prevent life being so intolerable that the stability of society on which capitalism relies is threatened.

So the capitalist establishment (by which we mean Parliament and the courts) has placed certain minimal limits on the freedom of employers to exploit their power (though, as we have seen in the Covid-19 pandemic, often these limits are not enforced).

Thus the “free market” in the hire of labour has certain (minimal) limits at the extremities of exploitation: laws against slavery and unwarranted deductions from wages, compensation for unfair dismissal and redundancy, minimum health and safety at work requirements, requiring equal pay for equal work, against discrimination on specified grounds and so on.

Trade unions have, of course, supported such measures which are, unsurprisingly, largely but not universally welcomed by workers. Employers too have benefited and enlightened employers have supported such measures. This is because, as well as stabilising society, labour laws tend to increase worker spending power generally.

This correspondingly increases demand in the economy and hence benefits employers supplying goods and services. More efficient employers prepared to invest in their businesses also benefit because such measures tend to preclude undercutting on labour costs and hence favour those which invest in competitive advantage by other means (research and development, technology, design and efficiency more generally).

But the labour law is not an egalitarian mechanism. Examination of any measure of apparent worker protection is strewn with judicial decisions restricting the legal limitations on employers’ freedom to exploit.

Indeed, the central notion of labour law, the contract of engagement, is by its nature a lopsided, hierarchical device which concretises employer power. In EU law the very definition of “worker” requires proof of a relationship of “subservience.”

The very idea that working people are no more than productive equipment to be bought, hired, sold or scrapped is a notion contrary to international law.

And of course, whilst Tories have railed for decades against excessive regulation of employers, they have been very happy to heap every conceivable legal regulation on trade unions so as to restrain the exercise by workers of collective power to rebalance the skewed scales of the “labour market.”

There are other matters to consider in relation to the notion of the “labour market.”

There is a legal aspect. The very idea that working people are no more than productive equipment to be bought, hired, sold or scrapped is a notion contrary to international law.

The first principle of the Declaration of Philadelphia 1944, the first treaty signed after WWII and now an annex to the Constitution of the International Labour Organisation (and binding as a matter of customary international law on every nation on Earth), states that “labour is not a commodity.”

There is also a human aspect. The equivalence between inanimate objects used in a business and human beings supplying their labour to it is only visible when looked at from the perspective of the capitalist. From this view point we can see that labour, like buildings, equipment, transport, raw materials, products and so on, are all pieces in the jigsaw of a business. Each element presents costs, each element can be replaced and each has limit to their useful duration.

From the perspective of the worker things look very different. The labour available for the worker to sell is not inexhaustible; as she gets older, her labour (though perhaps more valuable by reason of greater experience or qualifications) is a constantly diminishing resource which cannot be renewed.

While businesses fail for lack of investment, interruptions to supply of materials, changes in demand for goods or services, all have the possibility of infinite renewal.

The worker’s opportunity to earn from her labour is, in contrast, irreplaceable, limited by compulsory retirement, infirmity and death.

And the exam fiasco this year brought home to us how external socio-economic factors limit the worker’s opportunities to gain the qualifications needed to maximise her earnings from her labour.

There is another difference too between the inanimate commodity and the human worker. The worker has sensations, comprehension, initiative, the ability to act and work collaboratively and, of course, responsibilities to others.

Though artificial intelligence and algorithms gives some equipment amazing capacity to compute and to communicate and some abilities to respond to new situations, humans are employed as workers because of their autonomy and flexibility to adapt, their ability to sense, to understand, to relate to and work with other humans (and machines), to innovate and to deal with the unforeseen — all in the interests of the business.

This is true even in relation to the most menial, repetitive and mechanical tasks; there, workers devise the most efficient way of doing the job (often in ways not thought of by managers or designers) and instinctively take first responsibility to avoid adverse consequences for themselves and the business (from spillages to disasters).

Yet, in all but truly co-operative ventures, employers are threatened by the worker’s human characteristics, her ability to combine with others, to resist injustice and to fight for a greater share of the profit derived from her work.

This fear leads employers to seek to set limits to workers exercising their human characteristics. In part this is achieved by hierarchical structures of subordination and discipline, in part by complex contracts of engagement which encapsulate such subservience and in part by judicial and legislative restraints on collective action.

The modern deployment of computer platforms to engage workers is no more than a reversion to casualisation as an age-old device to constrain the ability of workers to resist exploitation and to minimise labour costs.

Casualisation is the just-in-time supply chain theory applied to labour; the worker is only engaged for the week, day, hour or minutes her labour is required. Solidarity with other workers is consequently more difficult and, outside the limited timespan of the engagement, the employer has the added advantage of avoiding all the costs and liabilities inherent in the rights of permanent workers.

It is universally accepted that collective bargaining increases wages and hence increases demand in the economy.

So the notion of a labour market in the sense of a free market in labour bears no relation to reality.

It only makes sense as a description of an arrangement in which employers are largely free to exploit workers by driving labour costs (which include not just wage levels but the costs of workers’ rights) down to the lowest level for which workers will work, subject to the twin factors of minimal employment rights (such as the minimum wage) and the deterrent effect of poverty and universal credit.

The effect was evident long before Covid-19 in the horrific fact that, in Britain, nine million people in poverty live in working households. Since the pandemic we have seen how the most valuable of our key workers, on whom we all depend, suffer low wages, insecurity of employment and the highest risk of illness and death.

There are really only two possible means to bring other factors into play in the setting of terms and conditions beyond the crude mechanism of supply and demand in “the labour market.”

Firstly, government can dictate wages and conditions. Legislation already sets certain minimal standards for some working conditions such as mentioned above. In relation to wages, it sets a national minimum hourly rate and, in the public service, imposes wage caps and Pay Review Bodies, the recommendations of which it may reject.

This is not a satisfactory system but a more universal system of state intervention by which governments determine wages and conditions is unlikely to be acceptable to employers or workers.

The only other alternative is collective bargaining. This is the technique required by international law. Collective bargaining by unions on behalf of workers utilises their collective strength and levels up the inherent imbalance of power at the workplace.

When conducted on a sectoral basis it has the capacity to set minimum terms and conditions for entire industries, adapted for the needs of the industry.

It gives workers a democratic voice. It is universally accepted that collective bargaining increases wages and hence increases demand in the economy. It creates more jobs, reduces the need for state benefits to prop up low wages, increases the tax take and, above all — as even the OECD accepts — it reduces inequality.

Sectoral collective bargaining will require legislation (we had some such legislation for most of the 20th century) both to establish the structures and to make the results of the bargaining binding on each industry.

Sectoral collective bargaining is the answer to the myth of “the labour market,” a phrase we should never hear on the lips of comrades again.

This article was originally published in the Morning Star

Lord John Hendy KC

Lord Hendy KC is Chair of the Institute of Employment Rights. He is a barrister specialising in industrial relations law, based in Old Square Chambers, London. He is President of the International Centre for Trade Union Rights (ICTUR) and a Vice President of the Campaign for Trade Union Freedom.

Professor Keith Ewing

Professor Keith Ewing is Professor of Public Law at King's College London. He has written extensively on labour law including recognition procedures and international standards. He is the President of the Institute of Employment Rights and a Vice President of the Campaign for Trade Union Freedom.