Relative wages refers to the proportional share of wages in total output, as against profits. Whilst nominal wages may rise, whilst real wages fall, both nominal wages and real wages may rise, whilst relative wages fall. It is the difference between portion and proportion. Put another way, if the size of the pie gets bigger, both labour and capital may get bigger portions, but the increase in the portion of one may be larger than that of the other.
If nominal (money) wages rise from £100 to £120, but the price of the 100 units of wage goods that workers consume rises from £1 per unit to £1.50 per unit, real wages will have fallen. Previously the worker's real wages consisted of 100 units of wage goods, but their £120 now buys only 80 units. Although nominal wages rose by 20%, real wages fell by 20%. At times when the demand for labour is lower than the supply, this is one way that real wages can be reduced, and real profits rise, even without firms needing to reduce actual money wages, which workers tend to resist. It requires only that firms are able to raise prices, which is facilitated by the central bank providing additional liquidity, so as to reduce the value of the currency/standard of prices.
However, at times when labour is in relatively shorter supply, workers see that although their money wages have risen, the prices of wage goods has risen faster, so that their real wages have fallen. Not only do they see that, but they are in a position to respond to it. As Marx sets out in Theories of Surplus Value, Chapter 21, that response comes in a number of different forms that change as the shortage of labour develops.
Firstly, the shortage of labour goes along with a rise in economic activity/demand for labour. So, workers might initially make up their wages by taking advantage to work additional paid hours. At first, those paid hours might be at flat rate, so their hourly wage does not change, but their daily and weekly wage rises. In terms of households, this is also manifest as a rise in household income, because more family members are employed, more are employed full-time, rather than part-time etc.
If the rate of surplus value is 100%, it doesn't matter whether this is measured hourly or daily. If the worker works 50 hours per week, and is paid £50 in wages, they produce 25 hours of surplus value, also with a value of £50. But, for each hour of labour that also means £1 of wages and £1 of surplus value. If the worker, then, works 12 hours per day, instead of 10, and is paid at flat rate for the 2 hours of overtime, their wages for the day rise to £12, but the amount of surplus value, for the day, also rises to £12.
If the price of commodities remains constant, then not only will nominal wages have risen by 20%, but real wages will also have risen by 20%, i.e. the worker can buy 20% more commodities than they did previously, proportional to the 20% of additional labour-power sold. But, surplus value will also have risen by the same proportion, because there is no change in the rate of surplus value. The portions of both wages and profits rise, but the proportions of both, in total output, remain constant.
However, as the demand for labour continues to rise, and the competition between firms for labour intensifies, firms are led to have to offer enhanced rates for overtime. Workers may be paid the same £10 for the 10 hours of normal time, but get a 50% premium for overtime hours, i.e. for the 2 hours of overtime, they get paid £3 rather than £2. During these 2 hours, therefore, the rate of surplus value falls from 100% to 33.3%. For the whole day, the worker produces the same £24 of new value, but, now gets £13 in wages, rather than £12, whilst surplus value falls from £12 to £11. Compared to the original day of 10 hours, surplus value has still risen by 10%. The portion of both wages and profits rises, but, now, the proportion of wages rises, relative to the proportion of profits.
This is further enhanced when workers also succeed in reducing the length of the normal working-day, or obtain additional holidays and so on, so that, any labour performed in addition to that, is also, then, counted as overtime to be paid at enhanced rates. Finally, as the demand for labour rises further, firms are led to increase the nominal wage offered for the normal working day itself, i.e. hourly wage rates rise. So, for the original 10 hour day, the worker may be paid £1.20 per hour, or £12 for the day. In that case, having produced the same £20 of new value, during that time, surplus value is reduced to £8. The rate of surplus value falls from 100% to 66.6%.
These are the conditions, described by Marx in Theories of Surplus Value, Chapter 21, and also set out, in Capital III, Chapter 15, which, ultimately, results in a crisis of overproduction of capital. That is as capital expands, and employs more labour, which is in increasingly short supply, it cannot expand absolute surplus value, by expanding the individual working-day, or social working-day, and cannot expand relative surplus value either, indeed seeing it shrink as the demand for labour causes wages to rise, and the rate of surplus value to fall.
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