Heterogeneity in the extraction of labor from labor power and persistence of wage inequality

Abstract

AbstractThere is evidence that labor intensity is endogenous to wage compensation and that inter‐ and intra‐industry wage differentials are non‐negligible and persistent. We explore the implications of firms periodically choosing between alternative wage compensation strategies to extract labor from labor power more effectively. The frequency distribution of labor extraction strategies across firms is endogenously time‐varying as driven by satisficing evolutionary dynamics that generate wage inequality as a stable long‐run equilibrium under theoretically and empirically plausible conditions. Firms willing to extract more labor from labor power remunerate workers with a higher wage. Yet a larger proportion of firms following such a strategy does not necessarily result in a lower (higher) average unit labor cost (profit share) and hence in higher average rates of profit and saving‐determined output growth. The larger the proportion of firms that attempt to extract more labor from labor power by remunerating workers with a higher wage, the less these firms are successful. This result can be seen as characterizing another potential contradiction of the capitalist economy.