Labor Theory of Value in 2025: Relevance for Australia’s Economy

The Labor Theory of Value (LTV) is a classic economic concept, but in 2025, it’s gaining renewed attention across Australia. As debates over wage stagnation, the impact of automation, and the gig economy intensify, LTV offers a lens to examine who creates value—and who benefits—in our changing economy.

What Is the Labor Theory of Value?

First articulated by thinkers like Adam Smith, David Ricardo, and Karl Marx, the Labor Theory of Value argues that the value of a good or service is fundamentally determined by the amount of socially necessary labor time invested in its production. In other words: labor creates value, and the price of things should, in theory, reflect this labor input.

While neoclassical economics largely replaced LTV with marginal utility theory, the basic questions it raises—about the relationship between work, value, and compensation—are as relevant as ever in 2025.

• Adam Smith: Saw labor as the ‘real measure’ of exchangeable value.

• Karl Marx: Used LTV to critique capitalism, arguing that profits represent ‘surplus value’ extracted from workers.

• Modern critics: Argue LTV oversimplifies value creation, ignoring factors like innovation and capital.

Wages, Productivity, and Value: The 2025 Debate

Australia’s wage growth has lagged behind productivity for years, and the issue is a hot topic in 2025. According to ABS data, real wages have only recently begun to catch up after a decade of stagnation, even as corporate profits hit record highs in sectors like mining, tech, and finance.

This mismatch—workers producing more, but not necessarily earning more—echoes classic LTV arguments. If labor creates value, why isn’t that value flowing back to workers in the form of higher wages?

• 2025 Policy Spotlight: The Albanese government’s Fair Pay Agreements, introduced in 2023 and expanded in 2025, aim to rebalance bargaining power and ensure productivity gains are shared more equitably.

• Union Perspective: The ACTU and other unions cite LTV in arguments for stronger collective bargaining, pointing to the gap between labor input and compensation.

• Business View: Industry groups argue that value is created by a combination of factors, including investment, technology, and risk-taking—not just labor.

Ultimately, the LTV debate underpins key economic questions: How should value be measured? Who deserves the biggest share of the pie?

Automation, AI, and the Gig Economy: New Frontiers for LTV

Technological change is challenging old assumptions about labor and value. With AI and robotics reshaping everything from manufacturing to services, the question of who ‘creates’ value is up for grabs. Is it the coder who writes the algorithm, the gig worker who delivers the service, or the firm that invests in the platform?

• Gig Economy: Platforms like Uber, Airtasker, and Deliveroo have expanded rapidly in Australia. Workers often face low pay and precarious conditions, raising questions about how much of the value they create is captured by tech companies versus workers themselves.

• AI and Automation: The Productivity Commission’s 2025 report highlights that while automation boosts overall productivity, the benefits are unevenly distributed—mirroring concerns raised by the LTV about surplus value.

• Policy Response: In 2025, the government is trialling portable benefits schemes and minimum standards for gig workers, explicitly linking these reforms to the idea that labor should receive a ‘fair share’ of value generated.

As the nature of work evolves, LTV remains a powerful tool for analysing who benefits from economic change—and who gets left behind.

Why LTV Still Matters in 2025

While few economists today accept the Labor Theory of Value in its purest form, its core questions remain front and centre in Australia’s economic debates:

• Are workers fairly compensated for the value they create?

• How should society balance the interests of capital, labour, and technology?

• What policies can ensure productivity gains are shared, not hoarded?

In 2025, as Australia navigates a fast-changing economy, the LTV offers a framework for understanding and debating the relationship between work, value, and fairness. Whether you’re a worker, employer, or policymaker, these questions matter more than ever.