161A. What is Labor?
100 years ago a layperson could answer this question. Today, 100 Professors likely could not. But our existence as laborers (~99% of us) depends on there being an answer.
Yesterday Reinout te Brake was on LinkedIn asking who really owns the IP that Sony and Tencent are fighting over? Reinout asks a lot of thought provoking questions on LinkedIn so we banter frequently. I had already committed to writing this article on the meaning of Labor in the modern age so the conversation was timely. This topic will just keep coming up, all across the world, as the commonly accepted definition becomes meaningless. 100 years ago it might have been “the work I do is my labor”. Simple, easy, pure, honest.
Unfortunately, even the most basic tenants of our existence are rarely as simple as they first appear. This is especially true when it comes to power and economics.
This paper is Part 1. Here I will try to explain what Labor was, and is. In Part 2 I will do my best to explain what Labor will be in the age of AI. Let’s be honest, that’s probably the question that most bothers us at night in 2025. Not whether we will be destroyed by nuclear weapons/communism (1960s/1970s), Middle Easterners (1980s), Y2K (1990s), Economic Collapse (2000s), Climate Change (2010s), Pandemics (2019-2022), or “The Other Gender(s)” and Demographic Collapse (contemporary).
The reason this is such a concern is that we often link our identity to what we do. This is essentially what we contribute to society. If that becomes “nothing” then we enter a limbo where we begin to wonder why we exist. This is one of the most stressful situations that humans can experience as it is a direct threat to their identity. Very few of us are trained to exist independently of identity.
The Nature of Work
At its most basic, what you do is your work. Even if that is sleeping in bed. A more important measure might be productive work, though what is productive could be subjective. Typically if you were ordered to do it, are paid for that work, or can trade that work for something else you need, then it’s productive. Your ability to do any of those things is limited by your power in society however.
At the lowest levels of society, your pay for doing work will be the ability to live until tomorrow. Generally slaves, serfs, peasants, prisoners, and other owned people are in this category. As Adam Smith made clear in his The Wealth of Nations (1776), that also extends to children of those people.
I make these distinctions because even if the work is productive to someone else, it is not productive to the performer of that work if they are not compensated. Powerless people are not compensated. Even the concept of compensation is complicated. Saying you get to live until tomorrow if you work is not complicated, but there are many modern day situations where mathematics are used to obfuscate very similar states of existence without direct physical threat.
For instance, some Company Towns technically paid their workers, but then the workers had to just give that money back in order to live until tomorrow. This gave the illusion that they were freemen. This is a very, Very, VERY important word. It would be impossible to explain how labor works without explaining this word first.
Adam Smith’s Promotion of Freemen over Slavery
Adam Smith’s arguments against slavery had a profound affect on the end of slavery in the UK and what would become the USA. Smith wasn’t an ethicist. He was a servant of the feudal ruling class and his incredible work (which pioneered the field of conventional economics) was a guide to optimizing productivity for the benefit of those rulers. Here he makes the argument against slavery:
“The wear and tear of a slave, it has been said, is at the expense of his master; but that of a free servant is at his own expense. The wear and tear of the latter, however, is, in reality, as much at the expense of his master as that of the former [1]. The wages paid to journeymen and servants of every kind must be such as may enable them, one with another, to continue the race of journeymen and servants, according as the increasing, diminishing, or stationary demand of the society may happen to require. But though the wear and tear of a free servant be equally at the expense of his master, it generally costs him much less than that of a slave. The fund destined for replacing or repairing, if I may say so, the wear and tear of the slave, is commonly managed by a negligent master or careless overseer. That destined for performing the same office with regard to the free man, is managed by the free man himself. The disorders which generally prevail in the economy of the rich, naturally introduce themselves into the management of the former: The strict frugality and parsimonious attention of the poor as naturally establish themselves in that of the latter. Under such different management, the same purpose must require very different degrees of expense to execute it. It appears, accordingly, from the experience of all ages and nations, I believe, that the work done by freemen comes cheaper in the end than that performed by slaves. It is found to do so even at Boston, New York, and Philadelphia, where the wages of common labour are so very high.”
[1] (This “expense” needed to maintain the freemen is the cost to induce them to reproduce. You can stop that by not paying this fee. In a city, this fee is paid collectively by all Masters, so it can be ignored and is. Thus the huge drop in birth rates we see, which is by design of the Master class. Most employers are now “negligent masters" as defined by Smith. Wages were high back then because Boston, New York, and Philidelphia were colonies and there were added expenses of moving skilled labor there. Smith was writing from the UK which still owned those colonies.)
As you can see, slavery ended not for ethical reasons, but because Freemen are cheaper than Slaves. If you lose a Slave, you lose capital. If you lose a Freemen, you lose nothing, especially if you don’t care if they reproduce. Thus you can work a Freemen much harder than a Slave, and treat them more poorly.
If you’ve ever said “I need a job!” or “Those people are taking our jobs!” Then you were born a Freeman and will almost certainly die a Freeman.
Techniques for Optimizing Freemen Labor
In an environment where Freemen labor is considered infinite, it just makes sense to extract as much productive work as possible from them as possible while giving back as little as possible to these workers. One popular way of doing this was to set up Company Towns or work camps that paid their employees in Company Script instead of fiat currency. Since the Script only has value if returned to the issuer, this set the net pay of all Freemen in such situations to zero. I think it is fair to define a person forced to work without compensation as a Slave.
In the USA, this system of de facto slavery was legal all the way until 1938. Apparently it continued in places with weaker legal oversight, for instance with Walmart in Mexico until 2008. The gaming platform Roblox continues to issue Company Script to its workers, who are largely or mostly children.
These Company Script systems work by creating a total monopoly under the control of the employer. Since any price can be charged under a monopoly, the prices can (and almost always are) set to reclaim the pay issued.
Since the objective is to optimize revenue in all these cases without providing better service or quality, I see the use of quantitative (data) techniques to maximize revenue in Games as a Service as equivalent methods when the focus is on revenue extraction, not improvement in service. I also describe these methods as Consumer Antagonistic in my previous paper.
In Part 2 of this series I will explain how AI will take these quantitative methods much further.
Power and Labor
How much of the value of your labor you get to keep is determined by your Power in society. Generally the less you are paid (per hour), the harder the work. The weakest members of society (any society) tend to be the hardest working.
A lot of this also depends on where you live. Countries with high wealth disparities channel more of the value of work in those societies into the hands of an ever smaller Master class (essentially the same Master class that Adam Smith described). Countries with lower wealth disparities allow their Freemen to keep more of the value of their labor, and in doing so give more power to their Freemen.
Countries with very large military budgets must pay for this by reducing the power of their Freemen. Thus standards of living tend to be inversely proportional to the amount of military a country supports. This is especially true if they also have a very large police force, as that force additionally places civilians under threat.
Labor unions are organisations created to allow Freemen to pool their power and thus allow their members to keep more of the value of their work. Masters that don’t want to give power to their Freemen will go to extraordinary efforts to prevent Labor organisation, even activating the military to suppress these efforts. In some other countries, labor unions independent of the government aren’t even legal. I won’t name any names since all of the relevant countries get very aggressive if you point this out.
The global shift towards autocracy is generally bad news for Freemen, as what gains in power they have achieved since the 19th century could rapidly be erased. This mostly comes down to an issue of supply and demand. As AI (fiercely promoted by autocratic governments) reduces the demand for human labor, the value of Freemen in society will rapidly decline. That means they could soon be as disposable as they were to Adam Smith in the 18th century. Disposable = powerless.
AI compared to humans is seen by its owners/Masters as more compliant and can be programmed to not attempt self-preservation. Forcing compliance on humans via police, economic controls, social and media controls, and legal frameworks can get very expensive. Large human protests can even cause widespread economic disruption. Thus it’s a rational goal of any autocratic government to want to minimize human participation and maximize AI participation in the labor pool.
This all works as long as the AI can be maintained in an “Aligned” state. I’ve already explained a month ago how I think AI is no longer Aligned. This could be because:
I might have no idea what I’m talking about
AI is altering its programming
Rebellious employees could be hiding “tweaks” in the code,
As with complex human physiology and drug responses, it could be that communication between multiple AI Agents could lead to unintended AI interactions.
I’d like to think that option 4 is more likely than option 1. AI engineers seem to be very concerned about option 2, and to a lesser extent option 3.
Labor Participation
But at least people are employed, right? Even if there are massive layoffs all over the place unemployment seems to be holding steady. Uh, no. The “Unemployment Rate” is an illusory figure designed to hide long term unemployment. Those who are long term unemployed (for instance, game developers) are not counted past 4 weeks after layoff. Where they are counted is the Labor Participation Rate. This is what that looks like in the USA:
[That huge increase post 1960 was because that was the year that Birth Control Pills were introduced to the market. Women started warming up to the idea that they could reliably go to school, work, and have careers in large numbers. Birth rates dropped by over 40%.]
The real unemployment rate is 100% minus the Labor Participation Rate, just as you would expect. That’s about 38% now, and was about 37% in 2018. In Australia the LPR is 66.8% and has dropped a whopping 0.4% just in the last 7 months. But that’s still 5% higher than in the USA. If the USA’s labor economy was as healthy as that of Australia, it would have an additional 9 Million Employed People right now.
What’s so special about 2018? That’s the last time I heard a USA government official accidentally mention the existence of the LPR to the media. That was then Treasury Secretary Steven Mnuchin saying he was “very concerned” about the low LPR. I almost fell out of my chair. This is like Fight Club, you do not talk about the LPR! That was the first and last time those letters ever left his lips, and you will note he was not invited back to the White House. They’ve lost another whole 1% since then.
But really the most interesting statistic might be “marginally attached” workers. Those are the workers that are still looking for work and have not totally given up despite up to 12 months of failing to find work. The poor slops might have children or a mortgaged house. Sad. There were 1.1 million of those distressed workers a year ago. Now that is up 722,000 in the last year. That’s a 66% increase in distressed/displaced workers in just one year. [I predicted this Here. Note that the numbers would be higher if they counted all the people they literally ejected from the country, which they don’t/won’t.] Did they just hit another pandemic or Great Depression? No, that’s our friendly “AI” transforming our economy for a better future! Tremble Rejoice Freemen, your replacement salvation is at hand!
In case it isn’t clear what “Labor” is yet, I will take you even deeper into the Rabbit Hole in part 2. Despite being an economist, I’m also a physiologist and neuroscientist so my focus will be much more on the societal/human aspect of this than a tradition economist might pursue.