Productive and unproductive labour are concepts that were used in classical political economy mainly in the 18th and 19th centuries, which survive today to some extent in modern management discussions, economic sociology and Marxist or Marxian economic analysis. The concepts strongly influenced the construction of national accounts in the Soviet Union and other Soviet-type societies (see Material Product System).
Classical political economy.
The classical political economists, such as Adam Smith and David Ricardo, raised the economic question of which kinds of labour contributed to increasing society's wealth, as against activities which do not increase wealth. In the introduction to "The Wealth of Nations", Smith spoke of the "annual labour" and "the necessaries and conveniences" a nation "annually consumes" before explaining that one of the two steps to increase wealth is reducing the amount of "unproductive labour". "Annual" and "annually" refer to a cyclical reproduction process; "unproductive labor" are commodities and services which are not inputs to the next economic cycle and are therefore lost to economic growth. In contrast, theories with no such time horizon tend to understand Smith's unproductive labor as referring to services, and productive labor as meaning vendible goods. Smith’s distinction between productive and unproductive labor corresponds to Sraffa’s (1960) distinction of basic and non-basic goods, as basic goods re-enter the productive process, whereas non-basic goods are destined for consumption, with no value for reproduction.
 ;templatestyles src="Template:Blockquote/styles.css" / ;There is one sort of labour which adds to the value of the subject upon which it is bestowed; there is another which has no such effect. The former, as it produces a value, may be called productive; the latter, unproductive labour. Thus the labour of a manufacturer adds, generally, to the value of the materials which he works upon, that of his own maintenance, and of his master's profit. The labour of a menial servant, on the contrary, adds to the value of nothing. Though the manufacturer has his wages advanced to him by his master, he, in reality, costs him no expense, the value of those wages being generally restored, together with a profit, in the improved value of the subject upon which his labour is bestowed. But the maintenance of a menial servant never is restored. A man grows rich by employing a multitude of manufacturers; he grows poor by maintaining a multitude of menial servants. The labour of the latter, however, has its value, and deserves its reward as well
As Edwin Cannan observes, Smith’s view of annual reproduction and as a consequence the distinction of productive and unproductive labor stems from his meeting, and the influence of, the French economists have known as the Physiocrats. Before his visit to France in his "Theory of Moral Sentiments" Adam Smith sees the gluttony of the landlords as an "invisible hand" which helps the poor to partake in the landlord's wealth. In "The Wealth of Nations," it is seen as the consumption of unproductive labor, limiting the growth of wealth. Smith's view that human labour – but not unproductive labour – is the source of wealth reflects the classical position that all commodities can be reduced to actual labour and produced inputs which in turn resolve into labour and former inputs.
Within an enterprise, for example, there were many tasks that had to be performed, such as cleaning, record keeping, and bookkeeping, and repairs, which did not directly contribute to producing and increasing wealth in the sense of making a net addition to it – in other words, such tasks represented a net cost to the enterprise which had to be minimized.
There were also whole occupations such as domestic servants, soldiers, schoolteachers, etc. which, although necessary, did not seem "productive" in the sense of increasing the material wealth of a society.
Part of the population consumed wealth but did not create it. To maximize economic growth, therefore, "unproductive costs" which consumed part of the total national income rather than adding to it should be "minimized"; productive labor had to be "maximized".
Many different economic and moral arguments were made to either justify or else criticize the incomes gained from different activities, on the ground that they were "productive" or "unproductive", "earned" or "unearned", "wealth-creating" or "wealth-consuming".
Neoclassical economics.
In neoclassical economics, the distinction between productive and unproductive labour was however rejected as being largely "arbitrary" and irrelevant. All the factors of production (land, labour and capital) create wealth and add value; they are all "productive".
If the "value" of a good is just what somebody is its marginal utility, then regarding some activities as value-creating and others not is a purely subjective matter; "any" activity which produces anything, or generates an income, could be considered "production" and "productive", and the only question that remains is "how" productive it is.
This could be measured by striking a ratio between the monetary value of output produced, and the number of hours worked to produce it (or the number of workers who produce it). This is called a "output/labour ratio". The ratio "GDP per capita" is also used by some as an indicator of how productive a population is.
However, in calculating any output value, some concept of value is nevertheless required, because we cannot relate, group and aggregate prices (real or notional) at all without using a valuation principle. All accounting assumes a value theory, in this sense - we always need to distinguish conceptually the definition of value equivalence, comparable value, value transfer, loss of value, conservation of value and newly created value. For this purpose, a knowledge of prices is ultimately not sufficient, since the decision to group and categorize prices in a certain way involves criteria and valuations which themselves cannot be derived from prices.
A persisting management preoccupation, particularly in large corporations, also concerns the question of which activities of a business are value adding. The reason is simply that value-adding activities boost gross income and profit margins (note that the "value-added" concept is a measure of the "net" output, or gross income, after deduction of materials costs from the total sales volume).
If the aim is to realise maximum shareholder value, two important valuation problems occur. Firstly, productive assets being used in production have no actual market price, being withdrawn from the market and not offered for sale. They have at best an historic cost, but this cost does not apply to inventories of new output produced. The current value of productive assets can therefore be estimated only according to a probable price that they would have, "if" they were sold, or if they were replaced. Secondly, there is the problem of what exactly the increases or decreases in the value of productive assets being held can be attributed to.
In what has become popularly known as "value-based management", these problems are pragmatically tackled with the accounting concepts of market-value added (MVA) and economic value-added (EVA). This style of management focuses very closely on how assets and activities contribute to maximum profit income.
National accounts.
In national accounts and social accounting theory the concepts of productive and unproductive labour do survive to some extent.
A large amount of work done in society is not captured in national accounts, because it is unpaid voluntary labour or unpaid household labour. The monetary value of this work can be estimated only from time use surveys. Thus, national accounting definitions of "production" are strongly biased towards activities which yield a money-income.
Marx's critique.
Karl Marx regarded land and labour as the source of all wealth, and distinguished between "material" wealth and "human" wealth. Human wealth was a wealth in social relations, and the expansion of market trade created ever more of those. However, wealth and economic "value" were not the same thing in his view; value was a purely social category, a social attribution.
Both in "Das Kapital" and in "Theories of Surplus-Value", Marx devoted a considerable amount of attention to the concept of "productive and unproductive labour". He sought to establish what economic and commercial ideas about productive labour would mean for the lives of the working class, and he wanted to criticise apologetic ideas about the "productive" nature of particular activities. This was part of an argument about the source of surplus value in unpaid surplus labour. His view can be summarised in the following 10 points.
Marx accordingly made, explicitly or implicitly, 10 distinctions relevant to defining productive labour in a capitalist mode of production:
In most cases, using these distinctions, it would be obvious whether the labour was capitalistically productive or not, but in a minority of cases it would be not altogether clear or controversial. In part, that is because the division of labour is not static but constantly evolving. The general criterion which Marx suggests is that:
"If we have a function which, although in and for itself unproductive, is nevertheless a necessary moment of [economic] reproduction, then when this is transformed, through a division of labour, from the secondary activity of many into the exclusive activity of a few, into their special business, this does not change the character of the function itself" (Capital Vol. 2, Penguin ed., p. 209).
Obviously, functions falling outside capitalist production altogether would not be "capitalistically" productive.
Generally, Marx seems to have regarded labour as mainly unproductive from the point of view of capitalist society as a whole, if it involved functions which have to do purely with:
Such activities were an inevitable "cost" to capitalist society which had to be met from reserves and from current income. This didn't necessarily mean that unproductive functions are "not socially useful" or economically useful in some sense; they might well be, but they normally did not directly "add" net new value to the total social product, that was the point, they were a (necessary) financial cost to society, paid for by a "transfer" of value created by the productive sector. Thus, they represented an appropriation or deduction from the surplus product, and not a net addition to it. Obviously, unproductive activities could stimulate productive activities however (for example, the production of security installations). Many unproductive costs are accepted by business, either because they involve activities which lower total business costs, and thereby indirectly contribute to income, or because they are unavoidable in doing business.
In the division of labour of modern advanced societies, unproductive functions in this Marxian sense occupy a very large part of the labour force; the wealthier a society is, the more "unproductive" functions it can afford. In the USA for example, one can calculate from labour force data that facilitating exchange processes and processing financial claims alone is the main activity of more than 20 million workers. Legal staff, police, security personnel and military employees number almost 5 million workers.
Productive labour as misfortune.
In the first volume of "Das Kapital", Marx suggests that productive labour may be a misfortune:
 ;templatestyles src="Template:Blockquote/styles.css" / ;That labourer alone is productive, who produces surplus-value for the capitalist, and thus works for the valorisation of capital. If we may take an example from outside the sphere of production of material objects, a schoolmaster is a productive labourer when, in addition to belabouring the heads of his scholars, he works like a horse to enrich the school proprietor. That the latter has laid out his capital in a teaching factory, instead of in a sausage factory, does not alter the relation. Hence the notion of a productive labourer implies not merely a relation between work and useful effect, between labourer and product of labour, but also a specific, social relation of production, a relation that has sprung up historically and stamps the labourer as the direct means of creating surplus-value. To be a productive labourer is, therefore, not a piece of luck, but a misfortune.
The idea here seems to be that being capitalistically "productive" effectively means "being exploited," or, at least, being employed to do work under the authority of someone else. Marx never finalised his concept of capitalistically productive labour, but clearly it involved "both" a "technical" relation (between work and its useful effect) "and" a "social" relation (the economic framework within which it was performed).
Ecological critique.
The ecological critique focuses on mindless "production for production's sake", attacking both the neoclassical notion and the Marxist concept of "productiveness". It is argued neoclassical economics can understand the value of anything (and therefore the costs and benefits of an activity) "only" if it has a "price", real or imputed. However, physical and human resources may have a value which