Capitalism can be defined by the production and distribution of goods and their prices as determined by the private or corporate, business owners. A free market is key to capitalism. In this case, capitalists manipulate the market system for their own benefits. It is a command economy in the sense that people of higher hierarchies use their power to control those of lower hierarchy.
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The labor market is formed as a result of the workers’ interest to make money from employers’ demand. It is a voluntary existence. However, since employers have power over employees, conflicts usually occur. Such conflicts result from workplace safety issues, work intensity, wages and other benefits that an employee is entitled. The labor market is more competitive than other markets because there are many providers of labor, as well as many seekers of labor. Therefore, employers are forced to pay efficiency wages to increase work intensity and the cost of job loss. Employers and employees do need each other.
This relationship can be terminated by either the employer or the worker. Whichever the case, the employer has an upper hand as he can last without workers for some time. On the other hand, workers cannot last long without employers as they need labor to support their basic needs. Adam Smith stated that workers and employers need each other. However, for the employer, the need is not immediate. An employer and employee first agree on certain conditions before the work begins.
These conditions are about the wages, the work hours, the employee’s rights and other benefits. Some of these conditions can be precisely stated and obeyed by the employer. Nevertheless, there are numerous elements that may not be clear in the beginning such as the work quantity.
Some of these conditions are broadly stated. In this case, they can easily be manipulated to reduce or increase the cost of job loss to an employee. The main employers’ interest is to extract the maximum output from the worker. This is in order to make considerable profits. The employers should ensure that a certain amount of work is done within a certain time. Employers are the capital owners. Thus, they have the power to hire and fire workers.
On the other hand, workers have no option, but to work and earn a living. An employer will increase the cost of job loss by reducing any benefit an employee may enjoy in case of retirement or resignation. In this case, workers do not have an option of resignation. An employer may strategically increase the workers’ wages above the competitors’ wages. This is meant to ensure that employees stick around. Employees and employers always have conflicts, but employers always have an upper hand due to their capital ownership.
All markets are affected by government policies and regulations. Governments should ensure that employers observe regulations as far as production and employee welfare is concerned. These rules can include the minimum wages, health and safety standards regulations and rules relating to the rights of employees. Some governments give employees’ unemployment insurance payments in order for workers to support themselves during the unemployment period. For example, the United States government pays 26 weeks unemployment benefits. Therefore, an employee will have to estimate the risk. This is in relation to the period it can take one to find another job. This reduces the cost of job loss. Nonetheless, there are incidences where the cost of job loss that determines the intensity of work and the wage rate.
Social organizations and wages
A social organization workplace is where jobs are hierarchically organized in that superiors have control over subordinate workers. The employers organize a workplace to achieve maximum profit. This is done through manipulation of the work intensity, work efficiency, and wage rate. For an employer to get maximum profits, wages should be reduced while increasing the work efficiency and intensity.
The employers appoint managers and supervisors, and they give them power over subordinate employees. These managers are given higher wages through incentives and rewards to charm, motivate, and bully employees to make them work harder. The intention is to reduce wages as employees are pressurized to work harder and to the extreme. An example of this simple and controlled system is the McDonald restaurant. The employees are employed on the legal minimum wages, and they have to work harder to avoid dismissal.
Social organization also determines wages through a technical controlled system. It is intended to achieve the same results using a different strategy that involves increasing the work pace by machinery of production instead of supervisors and managers. The machinery drives workers to work faster to enable an individual’s productivity to be monitored and actions taken against non performers. The pace of the machine can be discussed between the employer and employees only if they are organized. All these forms of controlled systems are developed towards one goal, which is to reduce the cost of labor and maximize profits.