The Planning Wage

Abstract

The two extreme views on the valuation of labour in surplus-labour economies have already been touched on previously. On the one hand there is the ‘traditional’ view that if the marginal product of labour in agriculture is zero, labour ought to be considered ‘costless’ in the planning process in order for current total output to be maximised (see Chapter 3). This is also the programming solution where the objective function is to maximise current income subject to resource constraints, but where labour is not a scarce resource and capital- and consumption-goods prices are not adjusted to reflect the social valuation of them (see Chapter 10). On the other hand, there is the opposite ‘modern’ view that if the wage in industry is higher than the wage in agriculture, and the propensity to consume is unity, labour transference will involve an increase in consumption, so that to maximise growth and output in the future labour ought to be valued at the industrial wage to maximise the investible surplus (see Chapter 3).

This chapter is a revised and condensed version of my paper ‘The Valuation of Labour in Surplus Labour Economies: A Synoptic View’, Scottish Journal of Political Economy (Nov 1971).