The Nature of Labor’s Vulnerability to Exploitation

Abstract

I identify a hitherto unrecognized contribution of labor to production stemming from an innate sense of psychological ownership of the fruits of one’s labor. This is rooted in the consciousness accompanying all human activities and is distinct from legal ownership. Consciousness is inalienable; it cannot be contracted on. Labor’s psychological ownership generates quasi-rents, which can be appropriated by capitalist firms with market power. Monopsony power, now empirically seen to be ubiquitous in labor markets, has more serious efficiency and equity consequences than recognized. In a neoclassical framework, I also show why labor is uniquely vulnerable to exploitation—reconciling it with Marxian views. If capitalist owners are taken to be unaware of their workers’ psychological ownership, this exploitation occurs even in competitive labor markets. JEL Classification: P12, J22, J3, J42, D41