**From:** Phil Dunn (*pscumnud@DIRCON.CO.UK*)

**Date:** Mon Nov 08 1993 - 15:45:52 EST

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>Paul Cockshott wrote: > >I dont understand your concept of the natural wage rate >could you please explain it. Hi Paul Sorry, the original post was far too compressed. If natural wage rates are real they should be measurable in principle, even if that is difficult in practice. Following Adam Smith, they should be free from the fluctuations of supply and demand, although they will alter over time. The natural wage rate is defined for a transferable skill group. Workers in a transferable skill group are widely spread among different firms and industries. The relationship between firms and skill groups is many to many. Each firm employs workers from many skill groups and each skill group is employed by many firms. This mixing-up is good for statistical purposes. Suppose we try to measure the natural wage rate of electricians using wage data. The problem is that the wage rates of electricians are not statistically independent. This means that an average of electricians' wage rates will still fluctuate. The average is _a_ measure of the natural wage rate but not an accurate one. Wage data is no good. So try price data. This needs a bit of setting up. Suppose a total of 1 million hours are worked in a week, say. Suppose the total wage bill is 1 million dollars. Then the _real_ value of money is 1 dollar per hour. That is, 1 dollar buys 1 hour of averagely paid labour-power. To get from a nominal wage measured in dollars to the real rate measured in hours, just multiply by the real value of money. Suppose nominal value added totals 2 million dollars. Then the _absolute_ value of money is 0.5 hours per dollar. To get from a nominal price to a price measured in hours just multiply by the absolute value of money. For simplicity I will assume that the real and the absolute values of money are constant in time. Marx's 'value of labour-power' is gone. Instead there is labour-power value. The actual, recognised labour-power value of a clock hour of labour-power is equal to the real wage paid for it. The value creating power of labour-power is identically this real labour-power value. Also there is a potential-for-recognition for this actual labour-power value. This is the natural real wage. To measure it we need to do a least squares fit to price data: minimize with respect to x the square of (y - Mx) where x is a vector of hourly natural real wage rates, y is a vector of recognized labor activity, measured by money, expressed in hours. In other words y is equal to a vector of firms' absolute value added (nominal value added in dollars times the absolute value of money). M is a matrix. The element M(f,t) gives the hours worked in firm f by workers of skill type t. We need to have the number of firms much greater than the number of skill types to get a good fit. The dimensions of y and M are hours. x is dimensionless -- wages measured in money hours divided by clock hours. The y can be regarded as statistically independent. The fit disentangles value-creating powers from statistically independent value-addeds and the x should be immune from market noise. Hence they can be interpreted as natural wage rates. If the puzzle is how can value-added type of thing measure a wage type of thing, the answer is it is an absolute value added measuring a real wage. Phil

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