Labor Cost

Labor is the human input to production. It includes all activities, such as transportation to and from the work site, that are immediately necessary for workers to engage in a production process.

It excludes education, training, and other preparatory activities, which are not part of the production process per se.

The two determining factors in labor cost are labor quality and quantity.

Labor quality refers to such factors as the intensity of work, the presence of hazardous materials and dangerous machinery, and stressful relationships.

It also refers to work that is conducted at night. In 2007 the International Agency for Research on Cancer ruled that overnight shifts probably increase the risk of developing cancer. The Danish government has compensated women who developed breast cancer after working night shifts for a long period.1

Some night work — police, medical staff, etc. — is necessary for most societies, but this necessity should not be allowed to obscure the fact that these activities incur a relatively high labor cost.

High labor quality is characterized by such conditions as a clean working environment, tolerable noise levels, and manageable stress. Particularly important is labor intensity. When this is low or moderate, workers can avoid exhaustion, take frequent breaks, and have time to observe safety standards, thus avoiding most injuries.

For those doing work that requires fine motor skills — factory assembly, sewing, typing, etc. — eyestrain and repetitive strain injuries may not have a chance to develop. For those in stressful personal situations, frequent breaks may provide opportunities to relax and vent.

Labor quantity simply refers to the hours of labor. This is represented indirectly on most ENL graphs by the output quantity produced in a unit of time, on the assumption that labor productivity is constant.

For example, if it takes eight hours for a group of workers to produce 100 units of an output, then 75 units will be produced in six hours, 50 units in four hours, etc. Higher production quantities are therefore associated with higher labor quantity, which for a constant number of workers means a longer work-day.

The important topic of labor productivity is examined closely its own section, where the assumption of constant productivity is removed.

Labor cost rises with labor quantity for two reasons.

The first is that the negative aspects of labor quality — stress, exhaustion, noise, toxins, etc. — increasingly damage workers as the work-day becomes longer. Such effects tend to accumulate in the body, much like environmental contaminants accumulate in nature.

The risk of thresholds effects is also present — a human being who is pushed to the limit of stress or noise can suffer a collapse that is analogous to the collapse of ecosystems at their tipping points. As well, injuries will likely escalate among time-harried workers.

This is rarely acknowledged by standard economists, although Richard Lipsey and his co-authors once provided a commendable exception. Writing in the early 1980s, before neoconservatism had shifted their discipline decisively to the right, they stated candidly that:

Growth in productivity has often been accompanied by increased pollution and more industrial accidents.2

The second reason why labor cost increases with labor quantity is that more hours at work means fewer hours available for other life activities, such as leisure and sleep. Human beings need adequate leisure time to recover from intense work activities, and like other organisms they require adequate sleep to keep their bodies fully operational.3

For many people, especially the working poor, the most destructive aspect of work is often not the labor itself, but the excessive number of hours they spend getting to their jobs, working, and then getting back home. Especially if these workers have small children or other time-consuming responsibilities, they will be deprived of sufficient sleep and leisure, and their bodies will suffer significantly as a result.

The figure below depicts labor cost of low, average, and high labor quality. Labor productivity is here assumed to be constant, so labor quantity increases at a constant rate with output quantity.

Labor cost
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At a specific labor quality, cost increases with the length of the work-day, which increases with output quantity. The labor cost curve shifts up (greater cost) as labor quality decreases. It shifts down (lower cost) as labor quality increases.

To interpret this graph, recall that cost is the converse of value. Whereas positive value increases health, positive cost decreases it. Similarly, negative value decreases health, while negative cost increases it.

The middle curve, which represents average labor quality, begins in the negative range, which means that the health effects of this labor process are initially positive. The curve rises as labor quantity increases, and at output quantity Q1 labor cost becomes positive, indicating that the health effects have become negative.

It is extremely important to keep this converse relationship in mind: positive cost means negative health effects, and negative cost means positive health effects.

If labor is of high quality, the cost curve will start below the average curve and may never become positive as labor quantity increases.

On the other hand, if labor is of low quality, the cost curve will start above the average curve and will move rapidly upward. Workers in a coal or uranium mine could be engaged in such labor, which may be destroying their health even when output quantity, and thus labor quantity, is relatively low.

To what degree should labor productivity be increased so as to maximize overall health? Although other factors are involved, a key factor here is labor quality.

If labor quality is low, as in the top curve, productivity should be maximized: we want to drive labor quantity to the left as far as possible in order to reach the lowest point on the labor cost curve, thus minimizing the negative health effects.

If labor quality is average, as in the middle curve, productivity should increase until labor cost becomes zero. At that point all positive cost has disappeared, but all negative cost has been retained, thus maximizing health gains.

Finally, if labor quality is high, as in the bottom curve, productivity should be minimized. If labor results in health gains at all quantities, then any decrease in labor will also decrease the health that results. Of course, the last conclusion sharply contradicts standard thought, which seeks to maximize labor productivity unconditionally.

ENL's treatment of labor productivity fully addresses this question.

Labor Cost: Some Examples

Very little evidence has to date been published to support the idea that labor can increase health. Perhaps this is simply an oversight, or perhaps there is an ideological or practical reason for researchers to avoid this topic.

On the other hand, the evidence for the destruction of health through labor is voluminous. For instance, take this item from The Guardian:

An American study published in the Journal of Occupational and Environmental Medicine said that overtime and extended work schedules are associated with an increased risk of hypertension, cardiovascular disease, fatigue, stress, depression, musculoskeletal disorders, chronic infections, diabetes, and other general health complaints. In Japan, most karoshi victims succumb to brain aneurisms, strokes and heart attack.4

The article points out that these deleterious effects begin at about 45 hours per week — far fewer than the actual number of hours worked in many rich countries today.

Two of the major links between work and ill health are stress and lapses in concentration from fatigue, thus leading to accidents. Stress turns out to be the silent killer of the labor process, and it is important to understand how it works. Biologist Paul Ewald explains the mechanism for one specific pathogen in his book, Plague Time:

Herpes simplex viruses keep a low profile by hiding out in the neurons. There they are relatively safe because an immune system that destroys neurons could irreparably cripple the body. When a person is under stress, the viruses in the neurons break their latency and begin producing progeny, which migrate down the neuronal fibers.5

In other words, our bodies are loaded with explosive viral components, primed for detonation when highly stressful conditions arise. This is especially true for the chronic stress associated with powerlessness and insecurity, as in the so-called menial occupations.

In the rich countries there has been a broad downward trajectory in the frequency of workplace-related injuries, which is certainly a positive development. However, this statistical trend could be masking some grim realities.

A story in the New York Times stated that American employers routinely underreport work-related injuries and illnesses, and that workers are pressured to do the same. A report by the Government Accountability Office indicates that up to two-thirds of injuries and illnesses are thereby kept off the books.6

While high labor cost is pervasive, it is largely invisible to the public.7

In The End of Food, Thomas Pawlick cites a study that reported on the detrimental health effects of work in hog confinement buildings. The effects include cough, phlegm, scratchy throat, runny nose, burning and watery eyes, headaches, chest tightness, shortness of breath, wheezing, muscle aches and pains, and long-term lung damage.8

On the personal level we easily forget about such worker experiences when we fry our bacon and pork chops. In economic analysis, however, they must be included in the labor costs that are set against the health benefits we gain from consumption.

The high human cost of certain types of labor was fully recognized by novelist Herman Melville. The following passage is from Moby Dick:

…upon one particular voyage which I made to the Pacific, among many others we spoke [communicated with] thirty different ships, every one of which had had a death by a whale, some of them more than one, and three that had each lost a boat's crew. For God's sake, be economical with your lamps and candles! not a gallon you burn, but at least one drop of man's blood was spilled for it.9

Of course we must also ask why all this work is being done in the first place. Many recent thinkers have remarked on the absurdity of overwork in technologically sophisticated economies, but a long work-day was already deemed unnecessary in the late 19th century.

In 1899 Peter Kropotkin, a Russian anarchist and peasant activist, wrote the following:

…if we take into account how few are the real producers of wealth in our present society, and how squandered is their labour, we must recognize that [Benjamin] Franklin was right in saying that to work five hours a day would generally do for supplying each member of a civilised nation with the comfort now accessible for the few only.

…[Y]ou will be struck to see with what facility and in how short a time your needs of dress and thousands of articles of luxury can be satisfied, when production is carried on for satisfying real needs rather than for satisfying shareholders by high profits, or for pouring gold into the pockets of promoters and bogus directors.10

Exceptions to the above definition of labor cost can be identified. As stated, labor cost is mostly experienced by workers, who are directly engaged in production processes. However, members of the public can be hurt or killed by indirect and inadvertent participation in these processes.

Examples are a construction crane that topples and injures nearby office workers, and a transport truck that plows into a passenger vehicle and kills its occupants. Such injuries and deaths involve non-workers, but they are directly related to production and are therefore considered to be part of labor cost in the ENL framework.

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