Explainer Features of Capitalism
Wage Labor
In a capitalist system, most people do not own the land, factories, machinery, or financial assets to support themselves independently. Instead, they earn income by selling their labor – exchanging their time, skills, and effort for a wage or salary.
Say he applies for a job at a coffee shop owned by John.
Let’s imagine Andrew, who does not own land or a business.
John agrees to pay him $15 per hour to make drinks and serve customers.
Andrew isn’t paid based on how much profit the shop earns – he is paid a wage in exchange for his labor.
Say he applies for a job at a coffee shop owned by John.
Let’s imagine Andrew, who does not own land or a business.
John agrees to pay him $15 per hour to make drinks and serve customers.
Andrew isn’t paid based on how much profit the shop earns – he is paid a wage in exchange for his labor.
Let’s imagine Andrew, who does not own land or a business.
Say he applies for a job at a coffee shop owned by John.
John agrees to pay him $15 per hour to make drinks and serve customers.
Andrew isn’t paid based on how much profit the shop earns – he is paid a wage in exchange for his labor.
This arrangement is central to capitalism.
Owners provide the capital – the building, equipment, supplies.
Workers provide the labor.
The goods or services produced are sold on the market.
Earnings first cover the costs of running the business, including wages.
Any money remaining after expenses becomes profit for the owner and investors.
Owners provide the capital – the building, equipment, supplies.
Workers provide the labor.
The goods or services produced are sold on the market.
Earnings first cover the costs of running the business, including wages.
Any money remaining after expenses becomes profit for the owner and investors.
Workers provide the labor.
Owners provide the capital – the building, equipment, supplies.
The goods or services produced are sold on the market.
Earnings first cover the costs of running the business, including wages.
Any money remaining after expenses becomes profit for the owner and investors.
In theory, wage labor is voluntary. Andrew is free to accept or reject the job offer, and John is free to hire or not hire him. If Andrew chooses, he can apply for other jobs (maybe on an apple farm owned by Ellen). In practice, however, people need income to survive. If someone does not own land or other assets to start out with, selling their labor may be their only realistic option.
And, let’s go back to that “any money remaining after expenses becomes profit for the owner and investors” part. Wage labor creates a clear distinction between owners and investors (capital) and workers (labor).
Owners and investors earn income from profits and investments. Workers earn income from wages. This distinction helps explain the patterns of inequality that arise within capitalist systems. The people with enough assets to launch or invest in a business in the first place collect the lion’s share of the profits. Owners and investors, then, tend to accumulate far more cash than the workers who produce the goods or services sold.
Owners’ economic power can shape the terms of workers’ employment. Adam Smith, for example, noted that when workers seek higher wages, owners tend to have an advantage: workers are much more likely to depend on wages for immediate survival, while owners usually have savings or property that allow them to wait longer during negotiations over pay. Ultimately, owners can “force [workers] into a compliance with their terms.” (The Wealth of Nations, Book I, Chapter VIII)
Such gaps in wealth and bargaining power are a reason why tensions between labor and capital tend to recur in capitalist systems. Workers generally want higher wages, better working conditions, and more security, while owners and investors may focus on reducing costs and increasing profits. These competing interests can lead to ongoing conflicts over pay, hours, workplace conditions, benefits, and the distribution of wealth.
Episode Connections
- Episode 3: Ships, Swords, and Fences: Starting in the 1500s, British Parliament passes legislation allowing communal lands to be converted into private property. Peasants who had sustained themselves by hunting and farming on these lands are forced to sell their labor instead.
- Episode 5: A New Thing in Human History: By the late 1800s, as America sees railroads expand and cities swell, the relentless pursuit of profit generates massive wealth for industrial titans – and brutal conditions for their workers.
- Episode 6: Thirty Glorious Years: In the mid-20th century, American workers organize powerful labor unions, which contribute to a robust middle class by securing higher wages, benefits, and stronger workplace protections.
- Episode 12: Reimagined Economies: Today, some groups practice alternatives to traditional wage labor, like corporations that are owned by their workers.