Labour Theory of Value

Labour Theory of Value

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The notion that the value of any good or service depends on how much labour it uses up. First suggested by ADAM SMITH, it took a central place in the philosophy of KARL MARX. Some neoclassical economists disagreed with this theory, arguing that the price of something was independent of how much labor went into producing it and was instead determined solely by supply and demand A flexible labour market is one in which it is easy and inexpensive for firms to vary the amount of labor they use, including by changing the hours worked by each employee and by changing the number of employees.
This often means minimal regulation of the employment (no minimum wage, say) and weak (or no) trade unions. Such flexibility is characterized by its opponents as giving firms all the power, allowing them to fire employees at a moment’s notice and leaving working feeling insecure.
Opponents of labour market flexibility claim that labour laws that make workers feel more secure encourage employees to invest in acquiring skills that enable them to do their current job better but that could not be taken with them to another firm if they were let go.
Supporters claim that it improves economic efficiency by leaving it to market forces to decide the terms of employment. Broadly speaking, the evidence is that greater flexibility is associated with lower rates of unemployment and higher GDP per head.