Worker wages come from money they generate

It’s easy to think that wages come from the generosity of employers. But if we take a closer look at how businesses work, we can see that workers are paid not from an employer’s pocket but from the revenue that workers themselves create through their labour. 

This is the cornerstone of capitalism—the wealth workers produce is appropriated by those who own and control the means of production. 

In a capitalist economy, labour is the source of value. When a worker makes a product, performs a service, or contributes to the production process, they add value to the raw materials, tools, or other inputs they work with. 

A carpenter who builds a table from wood transforms that wood into something more valuable. A potter who builds a bowl from clay transforms that clay into something more valuable. A nurse who bandages a wound transforms the bandages into something more valuable. A store clerk who stocks shelves and sells products transforms boxed inventory into something more valuable.

This increase in value is also called surplus value, and it’s the foundation of profit in a capitalist system.

Here’s the kicker though: while the worker creates the value that goes into the final product, they don’t get to keep all of that value. 

The owning class—the persons or companies who own or control the tools, machinery, and workplace—takes a portion of that value as profit. The worker’s wages end up being only a fraction of the value they create. 

Being paid less than the value you create is a form of exploitation.

Workers sell their labour power—their ability to work—to the owning class. In exchange, they receive wages. But unlike most commodities, labour power creates more value than it costs to purchase. For example, if the employer pays a worker $20 an hour but that worker generates $50 worth of value during that hour, the difference—$30—is surplus value.

During the workday, workers produce goods and services that are then sold to customers. The revenue from selling these goods and services includes the wages paid to workers, the cost of materials and equipment (also called embodied labour, since it took worker labour to make those materials and equipment available), other overhead costs, and the surplus value—the profit kept by the owning class.

Essentially, workers are paid from the revenue their own labour generates. However, they receive just a small share of the value they create. The rest is appropriated by the owning class.

Imagine a worker at a factory making $100 worth of products in a single day. Out of this $100, the employer pays the worker $20 in wages. The remaining $80 is divided between covering material costs, overhead expenses, and profit. If we assume $40 goes to materials and other operating costs, then $40 remains as profit. That $40 represents the surplus value created by the worker but kept by the owning class.

This surplus value is the foundation of the accumulation of wealth by the owning class. The more surplus value the owning class can extract from workers, the more profit they make. This is why the owning class always looks for ways to increase productivity while keeping wages as low as possible. They do this through longer work hours, production quotas, less safe working conditions, hiring workers less likely to complain, and implementing automation. Every measure aims to maximize the extraction of surplus value.

Common rhetoric often portrays employers as benefactors who create jobs and pay wages out of their own generosity. In reality, jobs exist because worker labour generates revenue and profit for the employer. If a business couldn’t make more money from a worker than it pays them, that job wouldn’t exist.

Take, for example, a retail worker earning minimum wage. Every hour, their labour helps sell products and generate revenue for the store. The employer, however, pays them a fraction of what their work actually contributes to the business. The rest of the value the retail workers creates is captured as profit, which might go toward expanding the business, paying shareholders, or increasing executive compensation.

If workers produce all the value, why don’t they receive the full amount? 

The answer lies in who owns the means of production: the factories, offices, tools, and machinery needed to produce goods and services. Under capitalism, these are privately owned by the owning class—the capitalists, those who spent the capital to start the company—not by the workers who use them.

Which brings up another point I often hear raised when discussing profit and surplus labour value.

The owning class puts up the initial capital, so they deserve to keep the surplus labour value, or so the claim goes. Here’s the thing though. That initial injection of capital is temporary. It’s basically a loan to the company, and this “loan” is paid back using revenue generated by—yep, you guessed it—worker labour. Not only that, but investors often recoup their investment costs with interest, which means that surplus value is extracted from worker labour at an even higher rate.

So, ultimately, it’s the worker who invests their labour; although it’s done over a longer period.

Plus, even if the profit was used to pay back the initial capital investment, should the profit be cut off from the owning class once the investment is paid back? That never happens though.

This private ownership over the means of production creates a power imbalance. 

Most of the necessities of life—such as housing, food, and clothing—cost money. As a result, workers must earn a living. Because workers need access to the means of production to earn a living, they’re forced to sell their labour power to the owning class. 

The owning class sets the terms, deciding how much of the value created by the worker will be returned as wages and how much will be kept as profit. This system ensures that the owning class remains in control of wealth and power, while workers stay dependent on wages to survive.

And if the worker tries to negotiate their wages when they’re hired, suggesting that the owning class isn’t paying them enough for their labour, they’re shown the door, and the owning class hires someone who will accept the wages they offer. 

There is no real sense of negotiation in a job interview.

This system of wage labour has profound implications for workers and society as a whole.

Since the owning class extracts surplus value from workers, wealth accumulates at the top. Over time, this creates massive economic inequality, with a small elite controlling most of the wealth while the majority of the population struggles to make ends meet.

Under capitalism, workers are alienated from their labour. They have little control over what they produce, how they produce it, or the conditions under which they produce it. This alienation extends to the products themselves, which are sold for profit rather than fulfilling the worker’s own material needs.

By prioritizing profit over people, capitalism often leads to overproduction, economic crises, and cycles of boom and bust. When workers can’t afford to buy the very goods they produce, it undermines the system’s stability.

What’s the solution?

Well, one option is for the workers to collectively own and control the means of production themselves. In such a system, the value created by workers would be distributed more equitably. Rather than being paid a wage, workers would receive the full benefit of their labour, either directly or through shared resources and services.

Workers could have more of a say in how surplus value of their own labour is distributed, making such a system more democratic.

Worker cooperatives provide a glimpse of this alternative. In a cooperative, workers collectively own the business and share its profits. Decisions are made democratically, giving workers more control over their labour and the outcomes of that labour. While cooperatives currently operate within the constraints of capitalism, they challenge the idea that private ownership is the only way to organize production.

Understanding that wages come from the revenue generated by the workers’ own labour is crucial for challenging the myths that sustain capitalism. It reveals that workers, not the owning class, are the true creators of wealth. By organizing and demanding a greater share of the value they produce, workers can push back against exploitation and build a fairer, more just economy.

This also highlights the importance of solidarity. When workers recognize their shared interests, they can collectively fight for higher wages, better working conditions, and systemic change. From unionizing workplaces to advocating for policies that prioritize people over profit, there are countless ways to challenge the status quo.

And it potentially pushes us toward a society where we can take care of those unable to create surplus value through their own labour, such as children, stay-at-home parents and other caregivers, retirees, students, disabled folks, and so on.