First, it was a mainframe software company, then a CPA firm, a Canadian avionics company, a huge IT contractor/shipbuilder, a computer products reseller and a small IT consulting company. In my long career, these have been the companies from which I have been laid off. Also, I jointly owned a small retail business that in three years of operation did slightly over $2 million in revenue. Although we paid about $650,000 in salaries to employees over that time, I was paid not a dime, ever, though I was the CFO, because the business was not profitable.
I start this piece with that assertion for a reason. In each case, the firm in question had finite resources, and they valued the product I could provide them such that they could not afford it, whether they thought their resources inadequate for a valuable (and thus expensive) product -- my services -- or they thought the value of my contributions not high enough to warrant paying someone what they were paying me to produce it, when matched against the limits of their resources.
If that seems to be being awfully nice to a bunch of companies who had taken away my living at the time, it's because I understand the decisions involved, and also understand the value of work products. I've been the boss, too, and been on the other side of the table. When you are tinkering with someone's livelihood, you know it. But waste in labor is only a little more concerning than waste in expenses, and a dollar of each affects the viability of a company the same.
So here's the thing. There's a pile of written words out there from the "income inequality" crowd about the minimum wage, and about the concept of a "living wage." And I want to take that whole argument and blow it up and start over again, not that I'm a violent person or anything.
There are two micro-economies going on in the discussion:
(1) There is a human being, looking at his/her expenses for the month and recognizing that, in order to make bills, whatever they are, she needs $X to pay them (I'm going to use the female pronoun for a while for convenience). She is the employee, and has control over what she spends and has to spend based on choices she has made.
(2) There is the employer, trying to produce a product or service for sale, and recognizing that the costs of production, fixed and variable, need to be offset by the revenue from sales of the product or service. If, between rent, raw materials, utilities, labor, taxes, permits and whatever, it costs $100 to make a product that the market will only pay $90 for, the company needs to reduce its costs to get down to $85 or less in order to be viable and pay its own bills.
The company's viability is every bit as fragile as the bill-paying capability of the employee, especially in a small business where every penny affects its profitability in a large way (watch a few Shark Tank episodes and extrapolate if you don't believe me). So why is the economy of the employee more important to the press than that of the employer?
Truly, it is this simple. At the risk of the "corporations are people too" accusation, the value of an employee is based essentially on the value that employee brings to the productivity of her employer, without any regard to the financial needs of the employee. In other words, you have to start with the assumption that, in the absence of that employee, the company could not produce the number or quality of salable items or hours of service. Therefore, the employee has a value that can be quantified by removing the employee from the equation and looking at the impact. The basic value estimate for the worth of that employee starts from what her absence would cost and what her presence adds.
Then and only then can you factor in the ancillary matters -- the value of an experienced employee in terms of efficiency, the value in subsequent hiring that a happier work force affords in attracting talent, even in certain cases the ability to take into account the needs of the individual employee external to their value to the company. But if the company's books show that the value of a position is $3,000 per month, and the company can only afford $3,000 per month, it doesn't matter that the employee's home costs are $3,200, does it? The employee cannot generate enough value in that job to produce the extra $200 in revenue she needs to pay her personal bills -- unless they jointly change the duties to add that value back in.
That is why the whole concept of a "living wage" makes no sense once we put away our sympathetic handkerchiefs. In fact, the "minimum wage" really doesn't make much sense either, except as an artificial floor on wages; it is the Government saying to companies that if your job need doesn't produce more than $7.25 per hour, or whatever, in value, you don't have a legitimate job opening and may not hire anyone, even if there is an agreement with a potential employee that your job is worth $6 per hour and they're willing to take that (because their needs allow them to take it). "Nay, nay", says the Government, "thou canst not do that."
I can stretch a bit to accommodate the concept of the minimum wage if a good enough argument can be put forth. But I stop right there at the "living wage." I simply don't care what it takes to live on. OK, actually I do care; I just don't see how what an employee's needs are should by mandate affect what they're paid. I salute those employers who can allow it to affect them; it will produce happier employees. But it is not the Government's role to tamper with the determination of the value of labor at that level of granularity.
"To each according to his need; from each according to his ability" -- the closer we get to that precept of Karl Marx, the further we fly from a free society. The "living wage" is a hideous mask over the face of socialist intrusion into that society
Copyright 2014 by Robert Sutton
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