[lbo-talk] taxation on labour or capital?

Mike Beggs M.Beggs at econ.usyd.edu.au
Fri May 9 00:44:38 PDT 2008


Bill Bartlett wrote:


>>So you concede that the logic does hold, to the extent that wages are
>>reduced by competition to the minimum necessary cost of
>>(re)production of labour? But you seem to believe that wages are
>>outside of the influence of market forces?

Sure, if the real wage is invariable, obviously changes in tax can only affect surplus. But it's not a realistic assumption.

I certainly believe wages are influenced by 'market forces', but the question is, what's the nature of the forces? The determination of wages is a tricky question. In different institutional circumstances supply and demand will interact in different ways. An upper limit to real wage growth is set by the fact that cutting into profitability will curtail investment, and lower demand for labour, but below that limit there's a lot of room to move and that's certainly compatible with a rising real wage given productivity increases. The achieved standard of living also sets a lower limit, below which you'd generally expect to see some serious labour troubles.

Competition in the labour market isn't all that's relevant in determining where a tax falls anyway. The ability of firms to pass on cost increases depends on the nature of competition in goods markets, too, as well as the price-elasticity of demand for their products.

So a business tax might ultimately come out of profit, or it might come out of wages. Depends.

Actually, Australia under the Accord in the 1980s provided an interesting little example - where income tax cuts and superannuation benefits were traded to workers explicitly in return for wage restraint.

Cheers, Mike


>>-----Original Message-----
>>From: lbo-talk-bounces at lbo-talk.org
[mailto:lbo-talk-bounces at lbo-talk.org]
>>On Behalf Of Bill Bartlett
>>Sent: Friday, May 09, 2008 2:34 PM
>>To: lbo-talk at lbo-talk.org
>>Subject: Re: [lbo-talk] taxation on labour or capital?
>>
>>At 11:07 AM +1000 9/5/08, Mike Beggs wrote:
>>
>>>That was in 1847, pretty early in Marx's study of political economy.
The
>>>logic is purely Ricardian - the sentence just before what you quote
is
>>>"Competition necessarily reduces the average wage to the minimum,
that
>>>is to say, to a wage which permits the workers penuriously to eke out
>>>their lives and the lives of their race."
>>>
>>>The context of this is the repeal of the Corn Laws, and Marx's views
of
>>>the time - explicitly based on Ricardo - are elaborated more in a
>>>pamphlet of a couple of months later - "On the question of free
trade":
>>>http://www.marxists.org/archive/marx/works/1848/01/09ft.htm
>>>
>>>The logic doesn't hold if wages are not pinned by competition to a
level
>>>"which permits the workers penuriously to eke out their lives and the
>>>lives of their race". Later Marx ditched this idea, e.g. in Capital
and
>>>the Critique of the Gotha Programme.
>>
>>So you concede that the logic does hold, to the extent that wages are
>>reduced by competition to the minimum necessary cost of
>>(re)production of labour? But you seem to believe that wages are
>>outside of the influence of market forces?
>>
>>Bill Bartlett
>>Bracknell Tas
>>
>>___________________________________
>>http://mailman.lbo-talk.org/mailman/listinfo/lbo-talk



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