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The “exploitation of labor” refers to the class relation between capitalists and workers in Marxist political economy. For Marx, under capitalism people are divided into two classes: the bourgeoisie (those who own the means of production) and the proletariat (workers who sell their labor as a commodity in exchange for...

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The “exploitation of labor” refers to the class relation between capitalists and workers in Marxist political economy. For Marx, under capitalism people are divided into two classes: the bourgeoisie (those who own the means of production) and the proletariat (workers who sell their labor as a commodity in exchange for wages). For Marx, the real source of value in capitalist societies is labor, and in order to extract a surplus profit, the bourgeoisie have an interest in driving the cost of labor lower and lower. Let’s consider the example of a textile factory. Through their labor workers transform raw materials like cotton into commodities like t-shirts and socks that can be sold on the market. Let’s say it costs a company $5 dollars to make a t-shirt—thanks to consumer demand, they can sell it for $20. All of that surplus goes to the bourgeoisie, despite the fact that it’s the workers’ labor which turned the raw cotton into clothing and created this value. Therefore, the exploitation of labor occurs when workers create more value than they receive.

For Marx, this cycle of exploitation engenders estrangement and alienation from labor. People, dealing with dire conditions and low wages, work to barely survive rather than finding affirmation and security through labor.

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Since you have this tagged with "wage determination," I assume that you are not asking about the more general Marxist idea that laborers are exploited by the bourgeoisie.

In more technical terms, exploitation of labor is what occurs when an employer pays laborers less than their labor is worth.  In theory, this can only happen when an employer enjoys a monopsony.  When there is only one employer, workers must work for that employer at whatever wages the employer is willing to give.  If there were competition in the labor market, wages would be higher.  Because there is none, wages are set lower than they would be.

When there is such a difference between the value of a worker's labor and his/her wages, exploitation exists.

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