The following applies to Air Canada workers before the COVID-19. The situation undoubtedly has changed since then since the airline industry has suffered disproportionately an economic crisis relative to some other industries (such as food production).
In another post, I presented the twenty largest employers in Canada according to level of profit (see A Short List of the Largest Private Employers in Canada, According to Profit). One of those employers is Air Canada, a privatized airline company (that used to be under public ownership).
I have tried to calculate the rate of exploitation of workers of Magna International in an earlier post (see The Rate of Exploitation of Workers at Magna International Inc., One of the Largest Private Employers in Toronto, Part One); Magna International is one of the largest employers in Toronto.
I decided to look at the annual report of some of the largest private companies in Toronto and Canada if they are available in order to calculate the rate of exploitation at a more micro level than aggregate rates of surplus value at the national or international level. Politically, this is necessary since social democrats here in Toronto (and undoubtedly elsewhere) vaguely may refer to exploitation–while simultaneously and contradictorily referring to “decent work” and “fair contracts.” Calculating even approximately the rate of exploitation at a more micro level thus has political relevance.
Conclusions First
I am going to begin with a conclusion, and then explain what it means and how it is calculated so that the reader understands where I am headed in the calculations:
For every hour worked that produces her/his wage, a worker at Air Canada works around an additional 42 minutes for free for Air Canada.
In a 6-hour work day, the worker produces her/his wage in about 3.5 hours and works 2.5 hours for free for Air Canada. Of course, during the time that the worker produces her/his own wage, s/he is subject to the power of management and hence is also unfree (see, for instance, Management Rights, Part Four: Private Sector Collective Agreement, Ontario and Employers as Dictators, Part One).
In an 8-hour work day, the worker produces her/his wage in about 5 hours 36 minutes and works for 2 hours and 24 minutes free for Air Canada.
In a 12-hour day, the worker produces her/his wage in about 8 hours 24 minutes and works for free for 3 hours 36 minutes for Air Canada.
Of course, social democrats refer to this situation, in one way or another, as “fair.” They do so by using such terms as “fair contract,” “free collective bargaining,” “fairness,” “economic justice,” “good contract,” “decent work,” “companies paying their fair share of taxes” and similar rhetoric. Such rhetoric, rather than enlightening workers about their situation, actually hide it. The working class deserves better than this ideology.
The Nature of the Rate of Exploitation
But what is the rate of exploitation? And why not use the usual rate of profit or the rate of return? The rate of profit is calculated as profit divided by investment. Since employers purchase both the means for work–buildings, computers, office supplies, raw material–and hire workers–we can classify investment into two categories: c, meaning constant capital, or the capital invested in commodities other than workers; and v, or variable capital, the capital invested in the hiring of workers for a certain period of time (wages, salaries and benefits).
The purpose of investment in a capitalist economy is to obtain more money (see The Money Circuit of Capital), and the additional money is surplus value when it is related to its source: workers working for more time than what they cost to produce themselves. The relation between surplus value and variable capital (or wages and salaries) is the rate of surplus value or the rate of exploitation, expressed as a ratio: s/v.
When the surplus is related to both c and v and expressed as a ratio, it is the rate of profit: s/(c+v).
In Marxian economics, you cannot simply use the economic classifications provided by employers and governments since such classifications often hide the nature of the social world in which we live. The rate of profit underestimates the rate of exploitation since the surplus value is related to total investment and not just to the workers. Furthermore, it makes the surplus value appear to derive from both constant capital and variable capital.
How I Calculated the Rate of Exploitation of Air Canada Workers
I calculated the conclusion as follows:
The income statement is broken into the following categories for 2019 (in millions of Canadian dollars) :
Total revenue: $19,131
Total operating expenses: $17,481
Wages, salaries and benefits: $3,184
Aircraft fuel: $3,862
Regional airlines expense:
Aircraft fuel: $485
Other: $1,95
Depreciation and amortization: $1,986
Aircraft maintenance: $1,004
Airport and navigation fees: $990
Sales and distribution costs: $874
Ground package costs: $627
Catering and onboard services: $445
Communications and information technology: $397
Other: $1,671
Operating income: $1,650
Non-operating income (expense) [if it is income according to standard accounting practices, it has no parentheses; if it is an expense, it is within parentheses and needs to be subtracted–but see below): $125
Foreign exchange gain (loss): $499
Interest income: $164
Interest expense: ($515)
Interest capitalized: $35
Net financing expense relating to employee benefits: ($39)
Gain (loss) on financial instruments recorded at fair value: $23
Gain on debt settlements and modifications: $6
Gain (loss) on disposal of assets: $13
Other: ($61)
Income before income taxes: $1,775 (adding operating income and non-operating income (expense) together)
Some explanation of “interest capitalized” is in order. I have had difficulty in understanding the nature of “Interest capitalized.” As far as I can tell, interest that is normally paid and is an expense for the particular employer is treated, in Marxian economics, as part of surplus value because, at the macro level, it comes from the surplus value produced by the workers. Interest capitalized seems to be different since the interest charged on money borrowed for the purpose of the construction of fixed assets (with a specific interest rate attached to it) is “capitalized,” or not considered part of interest expenses until the construction is finished and the fixed asset is ready to use. This accounting distinction, however, from the macro point of view, is irrelevant since both interest expenses and interest capitalized are derived from the surplus value produced by workers (or appropriated from them in another industry). Accordingly, both interest expenses and interest capitalized should be added to the amount of “Income before income taxes” category.
The adjusted “Income before income taxes” therefore is: ($1775 +$515)=$2,290 (interest capitalization has already been added to income so there is no need to add it here).
Another necessary adjustment relates to the category and amount “Net financing expense relating to employee benefits: ($39)”. Pension-related expenses should probably form part of wages and hence should be shifted to “operating expenses.” This shift does not change the surplus value produced nor the “Income before income taxes” category; it just changes the distribution of expenses, from “Non-operating income (expense) to “Total operating expenses” by way of increasing the category “Wages, salaries and benefits” by $39; the category “Wages, salaries and benefits” are therefore $3,223.
The final calculations with adjustments before determining the rate of surplus value are:
Total revenue: $19,131
Total operating expenses: $17,520
Operating income: $1611
Non-operating income: $640
Income before income taxes: $2251
To calculate the rate of surplus value, we need to relate “Income before income taxes” to “Wages, salaries and benefits.” So, with the adjustments in place:, s=2251; v=3223. The rate of exploitation or the rate of surplus value=s/v=2251/3223=70%.
That means that for every hour worked that produces her/his wage, a worker at Air Canada works around an additional 42 minutes for free for Air Canada.
In a 6-hour work day, the worker produces her/his wage in about 3.5 hours and works 2.5 hours for free for Air Canada. Of course, during the time that the worker produces her/his own wage, s/he is subject to the power of management and hence is unfree (see, for instance, Management Rights, Part Four: Private Sector Collective Agreement, Ontario and Employers as Dictators, Part One).
In an 8-hour work day, the worker produces her/his wage in about 5 hours 36 minutes and works for 2 hours and 24 minutes free for Air Canada.
In a 12-hour day, the worker produces her/his wage in about 8 hours 24 minutes and works for free for 3 hours 36 minutes for Air Canada.
I have used the lengths of the working day as 6, 8 and 12 because the length of the working day varies. According to one source:
As a customer service agent, you ll work from 3:00 am, 4:00 am and 5:00 am morning shifts, or 11:00 am, 12:00 pm, 2:00 pm. Afternoon shifts. Not sure about night shifts as I never work any of them. Part time is 6 hrs per day and full time can be 8-16 hrs. per day. You can exchange shifts, give away shifts, trade, pick or even parcial shifts. That part helps a lot when you need a day or 2 off.
Social-Democratic Rhetoric Neglects the Wider Context that Reveals the Exploitation of Workers
Of course, social democrats refer to this situation, in one way or another, as “fair.” They do so by using such terms as “fair contract,” “free collective bargaining,” “fairness,” “economic justice,” “good contract,” “decent work,” “companies paying their fair share of taxes” and similar rhetoric. Such rhetoric, rather than enlightening workers about their situation, actually hides it. The working class deserves better than this ideology.
By neglecting the fact of exploitation, other social democrats draw incorrect political conclusions. Thus, there are social democrats who try to claim that we need to reform the police rather than abolish it (see, for example, Reform versus Abolition of Police, Part Two) because workers have property. Some workers in the more developed capitalist countries do indeed have property (and fewer, of course, in the less developed capitalist countries), but they obtain that property by being exploited in the first place. If they understood that, would they support the police, whose main function is to protect the power of the employer to exploit them (and, only secondarily, to protect them and their own property)?
If the above calculations can be improved in any way, please comment on the above. I have been unable to find many guideposts about how to calculate the rate of exploitation or the rate of surplus value at the level of particular companies.
The Abolitionary 
Dear abolitionary how do you account for the phenomenon of surplus value produced within a firm being ‘transformed’ at the aggregate level according to organic composition of capital before being redistributed back to the firm as profit?
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This issue has been discussed to death in Marxian economics as a purely academic issue. I prefer to look at in terms of its relevance politically for workers.
For those who are unfamiliar with this issue, I will outline the issue or problem. I will not offer a solution since I think the specification of the problem politically is more important. I will also offer first the conclusions in order to motivate some to proceed with the calculations–which may be tedious for some.
Conclusion First
Politically, though, this issue is important for two reasons. Firstly, it shows one of the reasons why workers do not realize that they are exploited: the rate of profit may not change even when there is a change in the rate of exploitation in a particular firm or industry. Alternatively, there may be a change in the rate of exploitation with no change in the rate of profit.
Secondly, the transformation of values into prices of production means that the amount of surplus value produced for a particular firm or industry and the amount received in that industry need not coincide and usually will not coincide. This means that the amount of surplus value received by a capitalist in a particular industry or firm is related to the exploitation of all workers and not just to the particular employer. When a worker works for a particular employer, s/he is working both for a particular employer (if that particular employer goes bankrupt, for example, it will be the immediate workers who will lose their jobs) and for the class of employers.
Social democrat typically fail to address this issue. They assume that working for a particular employer is just that—something that has no relation to the class power of employers as a whole. On the other hand, those on the extreme left often refer to the “working class” as if workers worked did not work for a particular employer. Both positions are false.
The transformation of values into prices of production thus has political implications.
Specification of the Problem
Biswadip is referring to what some call the problem of the transformation of values into prices of production because the amount of surplus value produced in a particular firm need not coincide with the distribution of the surplus value produced in that firm. In different industries, there are different proportions used between constant capital, or c (machines, raw material, buildings) and labour power (the commodity the worker sells, the value of which is called variable capital, or v. Since only workers produce a surplus value s, with different proportions of c and v, in each firm there would be a different rate of profit, which is defined as s/(c+v).
For example, let us take two firms, Magna International and Air Canada (the numbers are taken from the annual reports, but I am using them for illustrative purposes only and am unconcerned about their accuracy in representing c. The point is to understand the problem and not to determine the actual rate of profit or prices of production).
Magna International purchases of c (machinery and equipment) are $17.781 billion. Air Canada purchases of c (property and equipment) are $12.834 billion.
Given the calculated v of Magna International is $2.862 billion, the proportion of c to v (the composition of capital) is $17.781/$2.862, or 6.2. Given that the calculated s is $2.258 billion, the rate of profit is s/(c+v)=2.258/(17.781+2.862)=2.258/20.643=10.9%.
Given the calculated v of Air Canada is $3.223 billion, the proportion of c to v is $12.834/$3.223 or 4.0 Given further that the calculated s is $2.251 billion, the rate of profit is 2.251/(12.834+3.223)=2.251/16.057=14.0%.
These examples provide a problem for explaining the nature of capitalism. Magna International has a lower rate of profit (10.9%) when compared to Air Canada (14.0%). This is the case despite a higher rate of exploitation or rate of surplus value for Magna International workers (s/v=2.258/2.862=79% than for workers at Air Canada (s/v=2.251/3.223=70%).
Since surplus value is derived completely from the workers and nothing from c or constant capital, the material conditions in different capitalist industries result in different rates of profit (unless differences in the rate of surplus value balance the differences in compositions of capital—which is unlikely).
However, there is a tendency for the rate of profit to be equal as capitalists shift investment from one industry to another in search of higher profits. Changes in investment, in turn, change supply conditions (with some commodities increasing in quantity and others decreasing as investment increases or decreases), which change the prices of commodities.
The result is that there is a tendency for commodities to be sold, not at their values (their costs of production according to the amount of labour time required to produce them) but at their prices of production—where there is the same rate of profit across industries even with different compositions of capital.
How this arises—whether it is only conceptual or is empirical and occurs through time is not something in which I find I can address. Perhaps others can enlighten us.
Political Implications
Politically, though, this issue is important for two reasons. Firstly, it shows one of the reasons why workers do not realize that they are exploited: the rate of profit may not change even when there is a change in the rate of exploitation in a particular firm or industry. Alternatively, there may be a change in the rate of exploitation with no change in the rate of profit.
Secondly, the transformation of values into prices of production means that the amount of surplus value produced for a particular firm or industry and the amount received in that industry need not coincide and usually will not coincide. This means that the amount of surplus value received by a capitalist in a particular industry or firm is related to the exploitation of all workers and not just to the particular employer. When a worker works for a particular employer, s/he is working both for a particular employer (if that particular employer goes bankrupt, for example, it will be the immediate workers who will lose their jobs) and for the class of employers.
Social democrat typically fail to address this issue. They assume that working for a particular employer is just that—something that has no relation to the class power of employers as a whole. On the other hand, those on the extreme left often refer to the “working class” as if workers worked did not work for a particular employer. Both positions are false.
The transformation of values into prices of production thus has political implications.
A Concrete Example
To conclude this reply: Let us assume that Magna International and Air Canada are the only capitalist firms in the economy. We then have:
1. Magna International c + Air Canada c=$17.781 billion + $12.834 billion=$30.615 billion
2. Magna International v + Air Canada v=$2.862 billion + $3.223 billion=$6.085 billion
3. Magna International s + Air Canada s=$2.258 billion + $2.251 billion=$4.509 billion.
4. Total c+v=$36.7 billion
5. Average rate of profit=p=total s/(total c+v)=4.509/36.7=12.3%.
6. If we apply this average profit to the capital invested (c+v) in each firm, we have:
7. Magna International: (17.781c + 2.862v) (1+p)=(20.643) (1+0.123)=$23.182 billion
8. Air Canada: (12.834c+3.223v) (1+p)=(16.057) (1+p)=(16.057)(1.123)=$18.032 billion
9. With an average rate of profit of 12.3%, there will be a redistribution of surplus value from Air Canada to Magna International
10. Original Magna International total value of c+v+s: 17.781c+2.862+2.258=$22.901 billion; now it is $23.182 billion. Prices of production are greater than the value of the commodities by $0.281 billion due to the higher composition of capital.
11. Original Air Canada total value of c+v+s: 12.834+3.223+2.251=$18.308 billion; now it is $18.032 billion. Prices of production are less than the value of the commodities by $0.276 billion due to the lower composition (they should be identical, but they are not due to rounding).
12. Some have argued that the since c as output has a changed price of production, the c purchased also has a changed price of production and therefore should be calculated simultaneously with the output. I will not go into this issue since it requires a level of mathematics beyond my skill. However, there are those who argue that the use of simultaneous equations is inappropriate since there is a difference in time between the purchase of inputs and the actual output to be sold on the market (Andrew Kliman argues this—although as I said the mathematics is beyond me).
13. Jorgen Sandemose (2004) (The “Transformation Problem”: Wage Form, Numéraire, and Value Transfer,” in International Journal of Political Economy, Volume 34, Number 3, pages 41-58, argues that there can be no transformation of values into prices of production of labour power since labour power is not a direct product of capital. Wage goods, of course, can, but there is an additional problem here. Workers provide credit to employers, and the wage is specified beforehand, but the workers then receive their wage in the money form in a subsequent period so that it is highly unlikely that the wage stipulated and the value of the received money wage will be equal.
14. All these complications, at the level of the firm, cannot be resolved. The rate of surplus value calculated at the firm level undoubtedly includes surplus value produced elsewhere or less surplus value produced for that firm and distributed elsewhere. The point is to start to calculate the rate of surplus value at the micro level since social democrats have had a field day at implying or directly claiming that such jobs are “decent,” that workers in such jobs receive a “fair wage,” and so forth.
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I truly appreciate your detailed response which, I confess, will take me some time and effort to digest. If, having done that, there is anything I can add to the discussion I will certainly do so.
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