According to Karl Marx, there is a clear distinction between labor and labor-power in economics. "Labor" refers to the actual activity or effort of producing goods or services (what Marx called use-values). Neoclassical economists sometimes refer to this as "labor services." On the other hand, "labor-power" (or "laboring power") refers to a person's ability to work, his or her muscle-power and brain-power. In some ways, this concept is similar to that of "human capital."

Under capitalism, according to Marx, labor-power is a commodity – it is sold and bought on the market. A worker tries to sell his or her labor-power to an employer, in exchange for a wage or salary. If successful (the only alternative being unemployment), this exchange involves submitting to the authority of the capitalist for a specific period of time. During that time, the worker does actual labor, producing goods and services. The capitalist can then sell these and realize a profit – what Marx called surplus value – since the wages paid to the workers are lower than the value of the goods or services they produce for the capitalist.

See also exploitation.