Introduction

The research explores the concept of the commoditisation of labour, a process where technological progress simplifies work tasks and makes individual workers more interchangeable. While classical economics, following Adam Smith, often highlights the significant productivity gains achieved through the division of labour, this report examines the alternative perspective famously discussed by Karl Marx. It focuses on the reduction of worker bargaining power that occurs when jobs become so simplified that almost anyone can perform them. Modern instances of this trend are highly visible in the service sector, particularly within fast-food restaurants, large-scale warehouse operations, and customer service centres. In these environments, tasks are standardised to such a degree that they require minimal training or specialised skills. For example, warehouse staff who previously needed to memorise storage layouts now follow digital instructions from handheld devices. Unlike automation, which involves machines replacing workers entirely, commoditisation retains human labour but makes the individual’s specific talents less critical. This shift improves the firm’s outside options in an imperfectly competitive labour market, allowing employers to pay lower wages relative to worker productivity.

A simple model of commoditisation of labour

The report presents a formal mathematical model where the labour market is influenced by search and matching frictions. Within this framework, jobs are treated as durable assets that involve significant initial creation costs. Each position consists of a wide range of tasks, and the total output is determined by the extent of standardisation. When a specific task is standardised, the individual worker’s unique know-how or aptitude no longer influences the result; instead, the firm’s underlying technology dictates the output. As the fraction of standardised tasks increases, firms become less selective about the quality of the workers they hire, leading to a noticeable decrease in reservation match quality. Consequently, workers become more replaceable and disposable from the employer’s viewpoint. This model clearly distinguishes commoditisation from automation, noting that while automation reduces wages by destroying existing jobs, commoditisation suppresses wages by making workers interchangeable and enabling firms to increase their wage markdowns.

Implications of standardisation

The researchers examine the broad effects of increased standardisation on firm output, worker compensation, and the overall labour share of income. For “superstar” firms possessing high-quality technology, higher levels of standardisation lead to a strictly increasing average output per worker. However, this is accompanied by a strictly decreasing average wage. This divergence occurs because standardisation improves the firm’s outside option—the ability to easily fill a vacancy with any applicant—which allows the firm to capture a larger share of the surplus through wage markdowns. At the aggregate level, standardisation is shown to lower the total labour share of income, provided that firms in the economy are heterogeneous. If all firms were identical, the improvements in outside options for both workers and firms would cancel each other out. In reality, as high-productivity firms adopt standardisation, they grow in size by filling vacancies more rapidly, even while offering lower wages, which causes the aggregate share of income going to labour to fall across the sector.

A quantification of the effects of standardisation

To evaluate the model’s empirical validity, the study utilises a quantitative calibration based on economic data from 1980. The baseline model matches the firm-size distribution and the sizable wage premium once associated with large firms. Since the 1980s, the economy has witnessed a sharp increase in the employment share of “megafirms”—those with 10,000 or more employees—particularly in services with companies like Walmart and Amazon. During this same period, the large-firm wage premium has diminished significantly. The model suggests that increased standardisation has allowed these large organisations to expand their workforce without the need to offer higher wages. The results indicate that the premium for megafirms dropped from nearly 60% in the 1980s to approximately 20% by the 2010s. Empirical data from the Society for Human Resource Management (SHRM) further supports these findings, showing that the cost per hire is consistently lower for larger firms. For instance, firms with over 5,000 employees face hiring costs roughly one-third of those for small businesses. Low-wage service industries, such as accommodation and food services, exhibit the lowest costs, with an average of $71 per hire.

Conclusion

The research concludes that the commoditisation of labour through technical change makes workers more replaceable, increasing productivity while eroding worker bargaining power. This dynamic results in the creation of “bad jobs” that offer lower compensation despite a high demand for labour. These insights help to explain several major economic shifts: the divergence between rising productivity and stagnant wages in the retail and service sectors, the collapse of the large-firm wage premium, and the rapid growth in the value of intangible assets for superstar firms. The model proves that wage markdowns can rise even in sectors where local labour market concentration is declining, as long as firms adopt technologies that render their workers interchangeable. Ultimately, workers find it easier to obtain new employment in a commoditised market, but the rewards associated with those positions are significantly diminished.