Everybody has heard of VAT—Value Added Tax. It is ironic that the tax authorities should have recourse to a concept—"value added"—that sounds as if it might have come from Marxian economics. But when you deal with the real world, as the tax authorities do in a way that academic economists don't, you do have to take account of facts such as new value being added to the previously existing value of materials by labour in the course of production.
Value-added, as used by the tax authorities and also by those who compile the National Income statistics, is the difference between the monetary value of the materials and services a firm buys and the monetary value of the output it sells. The Penguin Dictionary of Economics defines it as follows:
The difference between total revenue of a firm, and the cost of bought-in raw materials, services and components. It thus measures the value which the firm has “added" to these bought-in materials and components by its processes of production. Since the total revenue of the firm will be divided among capital charges (including depreciation), rent, dividend payments, wages and the costs of materials, services and components, value added can also be calculated by summing the relevant types of cost and subtracting that total from total revenue.
In other words, value-added is the monetary value of the new wealth produced in a firm, which is divided into the property income of the firm’s owners (profits and the various charges upon it such as rent, interest and taxes) and the wages and salaries of the firm’s employees whose labour produced that new wealth. (Strictly speaking, depreciation, which is a measure of the fixed capital used up in the process of production, should be excluded but as this can't be calculated so easily and so quickly as the other costs this is not always done; value-added including depreciation is known as “gross value added".)
Unpaid labour
This division of value-added into property income and labour income provides a way to measure the exploitation of the workers in a particular firm or industry. This can be expressed in a number of different ways: as the percentage share of wages and salaries (or of profits) in value-added; as the ratio between the amount of profits and the amount of wages and salaries (roughly the equivalent of Marx’s “rate of exploitation"); as the amount of working time spent producing profits (unpaid labour time); and. if the number of workers are known, as the amount of profit per worker.
The Annual Abstract Statistics, published in January each year by the Central Statistical Office, very obligingly provides a set of statistics (Table 8.1) which allows us to calculate what these all are and so the extent of the exploitation of workers in various sectors of industry.
The 1993 edition gives the latest figures, those for 1990, relating to “manufacturing", which covers most of the sectors of the economy where wealth is actually produced. In 1990 the “gross value added" (output) in this sector was £111,051m; the total paid out as wages and salaries was £59,712m; the average number of employees was 4,840,000. This, the Table records, gives a figure for “gross value added per person employed” of £22,945.
The Table stops here but we can use the figures to calculate the extent of exploitation. A figure for profits can be got by deducting “wages and salaries" from “gross value added", which gives £51,339m, so a profit (what might be called “surplus-value added") of £10,607 per worker. The share of wages and salaries in gross value added, as the workers' share in the product of their labour, was 53.8 percent. This meant that in every hour they worked 32 minutes to reproduce the value of their wages and 28 minutes working unpaid to produce profits for their employers. The ratio of profits to wages was 86.0 percent.
The Table, together that in previous editions, gives figures going back to 1981 and, once these have been converted into 1990 prices (so as to be comparable), it is possible to see what happened over the ten-year period 1981-90.
Between 1981 and 1990 output (“gross value added") increased in real terms from £97.704m to £111,051m, an increase of £13,347m, or 13.7 percent. Of this increase, £2,051m (15 percent) went to the workers as wages and salaries and £11,296m (85 percent) to the owners as profits. Over the same period the average number of workers fell from 5,778,000 to 4,840,000.
It is clear at a glance that this must mean that exploitation increased, even though the workers’ real wages also went up. A detailed analysis confirms this. Output per worker increased from £16,910 in 1981 to £22,945 in 1990 (36 percent); wages per worker, however, went up by much less, 24 percent, from £9,980 to £12,337, the balance going to profits. So all the measures of the rate of exploitation went up. Profit per worker increased from £6,930 to £10,608; the ratio of profits to wages went up from 69.4 percent to 86.0 percent; and the workers’ share in their product fell from 59.0 percent to 53.8 percent.
1990, it should be noted, as the year the current slump broke out, was not the best year for profits and, as the following table shows, exploitation increased steadily with the recovery from the previous slump in 1982. reaching a peak in 1988.
In any event, what the official government figures confirm is what the workers involved will have known already from personal experience: that in the 1980s the reduced workforce was forced to work harder to produce both more output and bigger profits for their employers. In concrete terms, at the end of the period the employers were extracting an extra £3,677 in profit from each worker left and, for a 40-hour week, had increased the period of unpaid labour time by 2 hours and 5 minutes.
Adam Buick
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