Economic abuse

Readers question: Is there anything in economic theory that addresses what I would like to call “economic abuse” Where the profit of a what a worker does is ten to a hundred times what the worker earns to the Owner or Individual paying the worker. The worker earns $10 a day doing labour that the owner profits a $100 or more from. Is this ever addressed or is the worker just seen as another cost of production?

Economic abuse

Economic abuse is where one party has control over another person and can control their access to economic resources. This makes one person ‘the victim’ dependent on a particular person controlling the resources. The term is usually used to in terms of inter-personal relationships, which may have other forms of abuse / mistreatment. It is not really used for a situation where a firm pays workers low wages. However, it could easily apply to extreme situations where workers feel trapped working for a boss at very low wages in poor economic conditions.

There are other economic theories which look at the unfair distribution of economic wealth, such as monopoly / monopsony and inequality.

Economic abuse may involve

  • Restricting a partner’s right to work / education / access to money
  • Controlling someone else’s finance, only giving small amounts in return for doing what abuser demands.
  • Preventing victim from obtaining education or getting job of their choosing.
  • Threatening to evict person from house without access to money
  • Slave labour. Illegal migrants who are smuggled into a country could easily become victim to exploitation. Because they are illegal immigrants they could face deportation, and they cannot easily live or work elsewhere. This enables the boss of the illegal immigrants to pay very low wages in return for very long hours. Because it is all on the black market there is no effective regulation and the illegal immigrants may feel trapped because they don’t speak good English and cannot easily return home. This is still very much a problem in developed economies.

Monopsony power and exploitation of workers

worker-car-wash-labour-market

There is a situation where a firm may legally employ workers and pay very low wages, which some may consider ‘unfair’ if not abusive.

A monopsony is a situation where there is only one employer of labour. Therefore, workers don’t have any alternative choices of employment. This gives the monopsony firms market power to set low wages and capture most of the economic rent and profit from the labour.

To give an example, in the Nineteenth Century industrial revolution often towns had only one major employer (coal mine owner / steel plant). Therefore the employer could pay low wages and decide on labour market conditions. The profit from business was captured mostly by the owner and not distributed towards other workers.

To counter-act this ‘exploitation’ of workers, we saw

  • Growth of trades unions which sought to protect rights of workers and bargain for higher wages
  • Government legislation on working conditions, maximum working week and minimum wages.
  • As the economy became more diversified, there became more employment opportunities and monopsony firms started to lose their iron grip on employment.

Inequality and the trickle down theory

Also, people may argue that inequality is an essential ingredient of capitalism. If entrepreneurs take the highest share of the profit, this is not necessarily abusive, in fact it may be increasing overall living standards of workers, who otherwise would have lower paid jobs elsewhere in the economy.

Does monopsony lead to ‘abuse’

You could make a case that the early industrialists were able to ‘abuse’ workers by paying very low wages, in squalid conditions. This early capitalist society was highly unequal and workers were effectively trapped because they lacked education or opportunities to move anywhere else. In the absence of government regulation, owners had the power to set not just wages, but working conditions, who got employed and even living conditions. To some extent, you could argue this still occurs to varying degrees today. Whether this kind of employment situation counts as ‘abuse’, ‘exploitation’ or just unequal distribution of wealth is a normative judgement.

The government is a monopsony employer of fireman, but you wouldn’t say the employment of firemen is economic abuse. Wages are seen to be relatively fair. Firemen could always change career and get different jobs.

What about Multinationals paying low wages to workers in developing economies?

Firms like Apple, Gap, Coca-Cola e.t.c are very profitable, but only a small share of profit is used to pay wages for workers in developing countries involved in the manufacture. Is this abuse or is it helping to increase living standards in the developing world?

  • On the one hand, you could say it is an unfair distribution of profit relative to the effort of workers.
  • On the other hand, you could argue these manufacturing jobs are offering better rates of pay than previous jobs (e.g. self-sufficient farming) So in that sense it is increasing economic opportunity, even if the profit of the enterprise is not distributed equally.
  • It depends how workers are treated. If workers get locked in a factory and are unable to go anywhere else, then this kind of behaviour would count as abusive. If firms are offering wages at or above market wages, then you could argue it is just an expression of market forces.

Conclusion

To me, economic abuse has to be more than just an ‘unfair’ distribution of profit. It would need to involves some kind of manipulative behaviour which prevents the ‘victim’ being unable to move elsewhere or have their opportunities curtailed. At its worst excesses, capitalist firms have engaged in some form of abuses – especially in the Gilded Age of the Nineteenth Century.

However, even if we see behaviour which is not classed as abusive, it may still need government regulation to ensure better treatment of workers and a more equitable distribution of resources.

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By on June 6th, 2016

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