Hi there! I'm Shrijith Venkatrama, the founder of Hexmos. Right now, I’m building LiveAPI, a super-convenient tool that makes engineering life easier by creating awesome API docs from your code in minutes.
While I work on LiveAPI, I’ve been diving into economic ideas and sharing what I learn. Today, let’s explore natural and market prices, monopolies, and what drives pricing in markets.
We learned in the previous article that the real price (or cost) of a product consists of:
- Wage
- Profit
- Rent
The wage is taken by the labourer, profit by the proprietor, and the rent by the landlord.
I had simplified the relation to something like:
Price = Wage + Profit + Rent
Here, we are talking about real price or cost. Meanwhile, we also discussed in another article how companies and organizations are able to secure a higher market price, well above the real price of a product.
In this article, we will explore one of the components of the price equation: Wage.
Wage is the reward provided in return for labour.
Wage is also important because it is the foundation upon which the well-being of a company's people depends.
Wage can make or break the human capital of any organization.
So let's try to learn a few things about how labour works.
The Original State: When Labour Got the Entire Proceeds of Their Produce
Imagine a time before landlords, employers, and corporations—a theoretical "original state."
In such a state, labourers reaped the entire fruit of their efforts.
In this primitive economy, wages were simple: the labourer’s productivity directly translated into their wealth.
Then emerged the landlord and employer types of people.
Labourers had to work with both and share their produce with them in exchange for access to land, money, and other resources.
Why Workers Rarely Receive Their Full Due
Ever wonder why most workers don’t take home the full value of what they produce?
The answer lies in how profits and rents are baked into our economic systems.
With landowners and employers entering the scene, labourers now had to part with a portion of their output.
Employers deduct their profits to offset the risks and investments of providing capital, while landlords claim rents for access to the land.
This structure ensures that the value of labour is distributed across multiple stakeholders, often leaving the labourer with less than their original contribution.
The important thing for founders and associates is that human capital is crucial; one should make an effort at fair compensation while ensuring profitability.
Who Really Holds the Power in Wage Negotiations?
The negotiation table is rarely level when it comes to wages.
Employers, fewer in number and often better organized, typically hold the upper hand.
They possess the resources to endure strikes and disruptions far longer than individual workers can.
Additionally, historical legal systems have often sided with employers, restricting workers' abilities to organize and negotiate collectively.
However, in deep technology companies requiring long-term efforts, success often hinges on how well it aligns with the workforce's aspirations.
The Growth Equation: Linking Wages to Economic Prosperity
One may assume that wealthy nations provide the highest wages.
But that is not true. The highest wages are often provided in countries with the highest growth rates.
Economic expansion creates demand for labour, forcing employers to compete for workers.
This competition breaks the tacit agreements among employers to keep wages stagnant, leading to better pay.
For innovators, this is a powerful insight.
If you’re creating jobs or introducing new technologies, understand that your growth contributes directly to improved living standards.
Growth isn’t just about profits—it’s about enabling broader societal progress.
Conclusion: Building Bridges to a Prosperous Tomorrow
The history of labour and wages teaches us a profound lesson: progress happens when we align the interests of all stakeholders.
When labour and employers are not in friction, progress becomes possible.
What steps will you take today to ensure that your innovations lift everyone involved? The answers to these questions could shape not just your success, but the world’s collective future.
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