Labor in the Command Economy

by Richard J. Stendardo

There are a few fundamental principles that govern labor in the command economy. Instead of the often disruptive opposition that exists between employers and employees in capitalist systems, the people's interests are, in theory, supported by their employers. This is because the Communist party is supposed to represent the interests of the working class (which is supposed to encompass all of the nation's citizens) in the government (which is the employer of all working class people). It should be noted that in this paper Wilczynski believes that the Soviet Union and all East European nations follow the Stalinist principle that the only factor of production that can create value is labor.

Whereas the government exerts almost complete control over the allocation of both capital and labor, in the form of machinery or wage payments (including wage structure), people retain "freedom of the choice of occupation and the place of work." (99) Exceptions to this rule include new graduates of technical colleges and universities who may be assigned certain jobs in any geographical area, as well as those recruited to work in particular industries or areas. The risk of being assigned to a particular job in any area is also very real for those who are members of the Communist party. However, all working age, able-bodied individuals are guaranteed employment by the state, and they must work because holding a job is the only way to earn an income in the command economy. (Article 12 of the Soviet Constitution says, "He who does not work shall not eat.") It is also essential to the economy that all of those in the workforce are employed because state run enterprises create positions based on the central planners' allocation of labor which have the goal of producing a specific output.

Another feature that has been implicit in the command economy has been the tradition of full employment. (This is due to the central allocation of labor and the creation of jobs in state owned enterprises that occurs in order to meet production goals.) In most countries this is defined as employment of the entire workforce with the exception of the out of work due to frictional unemployment (which should not exceed 1%). In reality Czechoslovakia, the GDR., and Hungary were prone to overemployment while Yugoslavia and Poland, which undertook policies supporting their belief that optimal employment was below full employment, suffered from minor unemployment.

Trade unions play a very important role in the Soviet type economy. Unlike the unions of the United States, Soviet type unions include both employers and employees; the unions also provide recreation and education for members and their families as well as social security. Like Western trade unions, the unions act to protect workers against management and elect representatives to national conferences. However, these goals are in obvious conflict with the union's responsibility to cooperate with the government and help implement its economic plans. It should be noted that membership in the trade unions is voluntary and that union funds are a combination of employee dues and subsidies from the state.

While the above description fits trade unions in most East European countries, in Yugoslavia the employees have had a more direct influence over management through Worker's Councils. Established in 1950, these groups are composed of a number of elected workers and managers who act much like the board of directors of a Western corporation. They have a number of powers, from budgeting and distribution of profits to marketing and the appointment of a general manager, and there decisions can only be reversed by the enterprise director, and only when the council's policies violate state laws.

While it may be true that workers enjoy great freedom in picking their occupation and places of employment, central planners maintain strict control over the total amount to be paid to labor and the wages at which workers in every industry will work. At the local level there is some control over individual wage rates however, the greater the control at the local level, the greater the risk involved for the company in terms of wage fund guarantees. Wage rates are based on the principle, "to each according to his work," (103) an idea which peaked in the fifties when the ratio of skilled to non-skilled wages was 4:1. The wage structure is similar to that of the West with the exceptions that western managers and those with skills in short supply will earn more than their eastern counterparts, and both minimum wage laws and the principle of "equal pay for equal work" (105) serve to protect unskilled workers in the East.

The incentives for workers in command economies fall into two categories: moral and material. The foundation of moral incentives is the idea that workers will have a need, based on their conscience, to contribute to the social welfare. Typical methods of arousing such feelings in the workforce (including pride in one's work and status among peers) are the distribution of medals and other awards as well as the use of slogans and rallies.

Material incentives, in the form of money, vacations, or other goods, are awarded to workers based on performance (quantity and quality of work) in the workplace. While Marx and Lenin saw these bonuses as an anti-social relic of capitalism, one major reform of East European economies has been the bolstering of these incentives. It is believed that while initially the wages of the unskilled need to be high in order to provide a basic standard of living, as the economy strengthens material incentives must be pursued to avoid a decline on growth rates. A second method of implementing material incentives is based on the performance of an entire corporation. In this manner a portion of profits is held by the management who distribute them to employees as real money bonuses, amenities, or services. The advantage to this type of system is its push for increased output in conjunction with an increase in quality and a decrease in waste.

The final area of analysis of labor in the command economy is the effect of changing wages on productivity. According to Wilczynski, "One of the traditionally accepted laws of socialism is that real growth should exceed the rise in (real) wages" (111). While this was shown to be true in most East European countries between 1950 and 1965 (In Czechoslovakia productivity increased by 115% while the real wage increased only by 45%.), in the long run this would imply a continually decreasing share of consumption in national income. This discrepancy has led to the supposition that wage increases should initially lag behind productivity increases, and later the increase in wages should be proportional to the increase in worker productivity.

Wilczynski goes on to say that, as a source of growth in productivity, technology will have a far greater effect than the workers. Thus he says that workers should only receive increased wages when it is the workers level of exertion that increases total output for the corporation. In this manner the increased revenues associated with increases in productivity external to the workers can be used to increase the overall wage level, reduce the price of goods and services, or expand "social consumption provided free by the state" (112).

Works Cited

  • Wilczynski, J. The economics of Socialism. London: George Allen and Unwin Ltd., 1970.




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