Wages, economic development and the customary standard of life

Frank Wilkinson

Cambridge Journal of Economics, 2012, vol. 36, issue 6, 1497-1534

Abstract: This paper examines empirically the evolution of the customary standard of life and how this relates to real wages and economic development. Its starting point is Sraffa's reintroduction of the classical notion of wages as the cost of reproducing labour, so that they are necessarily a charge on production. However, when considering a production system generating a surplus, Sraffa offered no explanation of how the surplus might be realised and distributed. Rather, he concentrated on the choice of technique as the profit share varied from 0 to 1. His approach was one of taking a snapshot of a productive system at a point in time. In contrast, this paper explores the trend in wages in the UK over the past 150 years and the evolving level and composition of what became the social necessities of worker consumption, i.e. the customary standard of life. In this process, four dynamically interacting processes can be identified: (i) a progressive increase in the productive potential of the system; (ii) the diffusion of a greater quantity and varieties of consumer goods, the growth of property ownership by consumers, and their use of credit in a cumulative improvement in their customary standard of life; (iii) the consolidation of the customary standard of life into real wages by collective bargaining; and (iv) diffusion of improved living standards by an extension of collective bargaining coverage to include groups previously excluded, and the growth of the welfare state in which the failure to achieve the customary standard of life defines poverty and triggers policy designed to alleviate it. The central role played by the customary standard of life in driving real wages means that the inputs of labour power into commodity production can be represented by the commodity composition of the customary standard of life in Sraffa-style analyses. In this, the successive cross sections in the historical flow of economic development showing the commodity flows into and out of production will be ever changing (like the still frames in a moving picture show). Moreover, such a historical approach rules out the possibility that at any time changes in the rate of profit will precipitate the switching of methods of production. Past choices of techniques are historically embedded in the capital stock, the composition of which is modified by new investment and the scrapping of old as it wears out, becomes technically outmoded and/or demand for its products declines. Nevertheless, changes in the distribution of income have consequences for the future path of economic and social development, and what this might be is arguably the most useful area for economic and social research. Copyright , Oxford University Press.

Date: 2012
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