Labor, Capital, and Entrepreneurship Day

The Department of Labor tells us

Labor Day, the first Monday in September, is a creation of the labor movement and is dedicated to the social and economic achievements of American workers. It constitutes a yearly national tribute to the contributions workers have made to the strength, prosperity, and well-being of our country.

I won’t belabor (guffaw!) the point that the Church has a long and strong tradition of upholding the dignity of labor and the rights of laborers, and I don’t intend to minimize the contributions workers have made to society. We want laborers to be treated with dignity because they are people; but let’s not forget that everyone involved in business is a person too, and deserves the same respect and dignity as laborers. Call this a carryover from two of my posts at CatholicVote (here and here).

Economists generally talk about the factors of production as being land, labor, capital, and entrepreneurship. When we think about the factors affecting the (economic) “strength, prosperity, and well-being of our country,” labor certainly plays a big part but it is not alone. In my Intermediate Macroeconomics class, we discuss the things that affect both real GDP growth and the growth in real GDP per capita:

  • Labor contributes 32% to growth in real GDP, but -12% in per capita GDP
  • Education contributes 14% to GDP and 27% to per capita GDP
  • Capital contributes 19% and 20%, respectively
  • Advances in knowledge contribute 20% and 38%, respectively
  • Better resource allocation: 8% and 16%
  • Economies of scale: 9% and 18%
  • Land: 0% and -3%
  • Changes in legal and human environment: -1% and -3%

Clearly labor, by itself, drives a significant part of the growth in the overall economy (though more laborers, by itself, actually reduces per person output), but other factors are equally if not more important. The much-maligned capital is very important both for the growth of the overall economy (GDP) and for increased standards of living (per person GDP). Along with capital, the big drivers of improvements in standard of living are education and advances in knowledge. Most of the funding for capital and research and development comes from individual savers and investors.

You'd never see smokestacks on the goodguys' side today. LABOR DAY 1942 - NARA - 535654.tif at wikimedia commons

So, with the exception of land, each of the other three factors of production carry a large part of the load of our economy. Why not celebrate capital and entrepreneurship too on this day? I think we can sometimes easily fall into an industrial-era mindset which falsely pictures labor as downtrodden factory workers (I guess I’m more uptrodden), capital as fat cat millionaires doing nothing in a cushy office, and entrepreneurs as greedy hucksters selling snake oil. In reality, in today’s economy the same person may be an employee, a capitalist, and an entrepreneur, putting the lie to these rigid categories.

Employees typically would refer to themselves as labor first, but consider that in most modern jobs managers tend to value the input and creativity of all of their employees. The entrepreneurial function, which seeks to uncover better and cheaper ways to produce better and more useful products and services, is often executed not only by managers and CEOs but by the same employees who can sometimes more easily spot inefficiencies or untapped markets. The stereotype of the boss who couldn’t care less about his workers’ input and suggestions is a thing of the past.

Employees also overwhelmingly either contribute to retirement plans or earn enough net pay to save on their own. These savings are the fuel of investment and capital formation. When Marx criticized capitalists in the 1800s, he could hardly have predicted that the “capitalist class” today is made up mostly of workers: teachers, fire fighters, plumbers, whoever has a savings account. If capitalism was supposed to keep workers poor and separated from the capitalist upper class, it has done a very bad job.

For these and other reasons, Labor Day always seems a little odd and quaint to me. I’m happy to celebrate it and to recognize the value of a hard day’s work. But I also recall the enormous contributions of capitalists and entrepreneurs (usually the same people as the laborers!). If you have trouble getting into the Labor Day mood, perhaps these can help.

Of course, the real Labor Day(s) that I celebrate are the days that my wife went into labor with our two boys (here and here).



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