Let’s reflect on an implicit presumption — indeed, I’m sure, a presumption held unawares — that undergirds many familiar discussions of workers’ relationships with employers.
This common presumption is that employers generally are philanthropic benefactors of their employees.
Consider that many pundits, politicians, and ordinary folks believe that workers are expendable – that one of the surest and least-painful ways for firms to cut their costs and improve their bottom lines is to fire workers. This belief make sense only if workers contribute little to firms’ profits. Put differently, this belief make sense only if, in employing workers, firms don’t expect much in return.
In short, this belief makes sense only if most workers are overpaid.
A worker who is not overpaid is a worker whose compensation reflects pretty accurately that worker’s contributions to his employer’s revenues. So if a firm fires workers who are not overpaid, that firm suffers a loss of revenue at least equal to the compensation that that firm would have to pay those workers in order to keep them in its employ. Such properly paid workers are not expendable; firing them is not key to improving the firm’s bottom line.
Of course, if workers are underpaid, the above holds true with special ummpphhh. An underpaid worker is one who contributes more to his employer’s revenues than that employer pays to keep that worker on the job. So firing underpaid workers is an especially bad deal for their employers.
So in this view – what we might call the “Progressive” view – workers are seen as contributing little to their employers (which is why employers can so blithely fire workers). At the same time, employers are seen as contributing enormously and philanthropically to their workers. “Enormously” because the presumption is that the typical worker’s next-best employment option would pay him or her much less than he or she makes in the current job, and “philanthropically” because the presumption is that the worker is paid more than he or she is worth to the employer.
Strange economics.
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Is this any more strange than the Progressive presumption that employers owe their employees jobs, rather than employment being a market exchange of labor for money?
Isn't this just about the conflict between long and short term? There may be some category of employees – let's call them R&D – who are working right now but the fruits of their work may be many months away. I can improve the next quarter's figures by firing them and see an immediate reduction in payroll costs with no apparent effect on earnings. The lost earnings will only be felt in the quarter after next. By the time that situation arises, the falling revenues can be blamed on "unfavourable market conditions". So in the long term, the company is punished and loses out to wiser competitors, but in the short term there is an apparent reward that serves to tempt the stupid.
Of course this is not a failing of competitive markets. It's more a failing of large companies that internally operate like centrally-planned states, so they suffer from leadership that lacks the information needed to make decisions in its own best interests. (Why such companies form in the first place, or how they survive long enough to be noticeable, is another exciting mystery!)
Firms hire workers based on a production roll out plan, so workers, once hired, become a part of future production and are treated a little like capital.
The more accurate the firm is (except a monopoly) then the deeper it is in employment hierarchy. Once the firm reaches the limit of accuracy then the firm or market reorganizes.
The problem is that firms decide to reorganize all at once, so they synchronize.
Economists need to focus on that problem.
I think many employees know that their employers could replace them with a machine, with substantial savings and an improvement in performance. They're glad their employers don't — which makes them philanthropic.
My guess is that these beliefs are most common among people who in some form work for the government — in which case their employer really is a philanthropic benefactor.
…just seeing 10% of my company laid off today, this was particularly interesting.
"but, you can't fire that guy! he worked overtime all the time!"
me:
"umm…and he was paid to do so."
I suspect that the way most people view the employer/employee relationship is more complicated. What if an employee contributes tremendously to the revenue of a company over a twenty year period, but then the market changes so that the employee's contribution is small net loss for the company? I think people who have been loyal to a company feel that there should be a quid pro quo that creates at least a moral obligation that the company be loyal to them. I think that companies might find that creating an environment that fosters loyalty in both directions is profit-maximizing behavior.
shawn:
Exactly. Maybe they have others who can do a better job without working overtime, and for less compensation.
I suspect that, at least where I work, there are plenty of people that don't contribute to the company equal to their cost.
Getting rid of people is very difficult. Having under-paid employees is my guess for what is the key to staying profitable.
Of course, this is anecdotal. I'm not sure how this could be proven empirically.
Some people just don't believe in competition, and don't believe that markets are real. This same is true at the other end of the pay scale.
http://www.forbes.com/2008/05/08/ceos-not-overpaid-ent-competition08-cx-mh_0508hodak.html
Shawn –
Here's a problem: if you fire the guy who worked overtime all the time, it communicates to everybody else "you can't save your job by working hard." That seems to be the opposite of the message you actually want to send.
Layoffs create incentives among the remaining employees which are probably adverse to the company's interest. A previous employer of mine did a series of layoffs a few years ago, with the idea that the most valuable people would be the last to be laid off. That didn't work out, though, as many of the best people found other jobs shortly after the first layoffs. They recognized that a company going through layoffs was not likely to give them a raise and was more likely to lay them off at a time when it would be hard to get a job.
In the real world employers run the gamut from brilliant to moronic, and from compassionate to sociopathic.
Accordingly, generalizations are difficult. However….
Smarter employers tend to view employees as assets.
Dumber employers tend to view employees as a necessary nuisance.
The dumber employers never seem to understand why management is so diffiult, but make wonderful revenue sources for management consultants. Bless them.
chris,
hardworking and best aren't necessarily the same. if someone worked really hard (including weekends) just to keep pace with someone else who works half as long to do the same amount of work, would you keep him on? i think the message you want to send to your employees is that they need to work smart.
Hutch makes an excellent point. I know people who work a lot harder than I do, but I continually am considered to do a good job. If I solve a problem in 6 hours that takes someone else 9, I can then do whatever bonus activity I want and leave on time, while the slow bugger in the cubicle next to me calls his wife to say he will be late getting home.
Hard Working Employee = High Value Employee is a foolish myth of the Marxist. All that matters is the value you produce, not how much sweat it takes to produce it.
In todays day and age, I think that employers treat employees as disposable resources. Use them until they are no longer needed. I think that if you (both employer and employee) are realistic then when "your time is up" it should not be a big surprise to anyone.
Banker
After reading all these posts, I think the first is absolutly the best and most simple. Bob Smith, you got it right. I might also mention that life happens, layoffs happen, companies fold.
One other point: I feel that it is essential leadership that does not seek "bad" power that makes the good companies.
PaulD: "I think people who have been loyal to a company feel that there should be a quid pro quo that creates at least a moral obligation that the company be loyal to them."
There is no moral obligation between employee and employer beyond the basic contract that the employee provides a service to the employer, then the employer pays him. In other words, every two weeks, on pay day, the employee and employer are squared up.
The employer is under no moral obligation to keep someone on the pay roll simply because he has worked at a company for a long time. The company has been PAYING him that entire time.
At any time an employee can quit for any reason at all, yet I never hear about an employee's obligation to stay at a firm because that firm depends on him. But, when an employer no longer needs the services of an employee, the are let go, then there are all sorts of outcries.
What nonsense.
Chris: "if you fire the guy who worked overtime all the time, it communicates to everybody else 'you can't save your job by working hard.'"
Wrong. Working overtime isn't communicating that I work hard. Usually, it's communicating that I can't get the job done in the 40 hours that I was supposed to get it done. Or, I'm saying look how hard I'm working. You should never lay me off.
The problem with this is that your supervisor all ready knows how good of an employee you are. If you are not all that good, you are only magnifying how inefficient you are and how willing you are to waste company resources, i.e., scarce salary dollars.
Almost all the overtime I've ever worked was so I could pad my paycheck. It did help the company, but by how much- I got paid time and a half up to two and a half times my base. I only NEEDED to work about 10% of all the overtime hours I've ever worked. The other 90% were because I like money and the supervisors approved of it.
Banker: "In todays day and age, I think that employers treat employees as disposable resources. Use them until they are no longer needed."
In this day and age, employees treat employers as places to make money and earn experience while looking for a better job and more money. Employees use employers until they are no longer needed.
I've been self employed for 30+ years acting as an independent contractor, owner, or partner — but never as an employee.
Having had, and having, employees — I see the employer/employee relationship the same as I see a master/slave relationship, there's just more rules. The government fosters it.
The tax code is so skewed in favor of the free man (the "independent contractor" or owner) that no amount of protection the government pretends to provide for employees could ever compensate them in return.
Life is a game — learn the rules. Being a wage slave is, quite simply, just what it is.
I had to look this up — for The Wealth of Nations.
"Ch.8, Of the Wages of Labour
The wear and tear of a slave, it has been said, is at the expence of his master; but that of a free servant is at his own expence. The wear and tear of the latter, however, is, in reality, as much at the expence of his master as that of the former. The wages paid to journeymen and servants of every kind must be such as may enable them, one with another, to continue the race of journeymen and servants, according as the increasing, diminishing, or stationary demand of the society may happen to require. But though the wear and tear of a free servant be equally at the expence of his master, it generally costs him much less than that of a slave. The fund destined for replacing or repairing, if I may say so, the wear and tear of the slave, is commonly managed by a negligent master or careless overseer. That destined for performing the same office with regard to the free man, is managed by the free man himself. The disorders which generally prevail in the economy of the rich, naturally introduce themselves into the management of the former: The strict frugality and parsimonious attention of the poor as naturally establish themselves in that of the latter. Under such different management, the same purpose must require very different degrees of expence to execute it. It appears, accordingly, from the experience of all ages and nations, I believe, that the work done by freemen comes cheaper in the end than that performed by slaves. It is found to do so even at Boston, New York, and Philadelphia, where the wages of common labour are so very high."
And yet the government (at least one party), continues to promote policy that makes a free man a slave. Social security, workmans compensation, health insurance, tax on income (as opposed to tax on profit), etc.
Ken,
I think you miss out on the joy of work by reducing it to an economic agreement between an employer and employees. Though I think that Dickens' "A Christmas Carol" goes overboard in its portrayal of the change in Ebenezer Scrooge, it's not a bad thing to bring a degree of humanity to work in the way one treats employees.
Socialists believe that bad decisions by managers to punish/fire good employees is "unfair" and should be prohibited by law. They don't believe in the corrective actions by the free market to punish these companies bad decisions. After all, in the short term those employees are suffering from the bad decision.
What has to be weighed are the pros/cons of interfering with that corrective market force.
Ken:
Employers and employees use each other to their mutual benefit. Why get the government involved?
Good employers – by that I mean competent – understand implicitly or otherwise that there is a certain amount of value in every employee that manages to just show up and do their job without causing a train wreck of some kind.
More to the professor's point though, most people do unfortunately view a job as a right, and employers as wealthy incompetents who fire and hire randomly.
I usually address this in conversation by asking if my neighbor has a right to mow my lawn for wages of his own determination.
Therefore isn't that the gripe against the notion of the 'just wage'? A 'just wage' invariably implies there's also a 'unjust wage'. If wages are deemed 'unjust' then you have the calls for 'minimum wages' and 'maximum wages'. The reality there is an 'as it is wage'.
But still (esp. SheetWise) how is there proof of an institution called slavery? If there is should onus of escape be on the 'slaves'? What if the 'slaves' don't want to be free because they can't see how they'd be better off in the open world because there are no free workers doing the same work (or there is but the work's pretty much the same except you get to 'love it or leave it'). If 'slaves' aren't particularly willing to leave then how is it necessarily 'slavery' but free people choosing the least worst form of employment? Alternatively, how do we know slavery is an unprofitable institution since it has lasted so long? Surely the sensible master would make more profit than idiot master and the idiot master would be driven out of business. Besides Ancient Roman city slaves were treated quite well and had a great deal of responsibility so should the life of slave be automatically worse than a free person?
I think you miss out on the joy of work by reducing it to an economic agreement between an employer and employees. Though I think that Dickens' "A Christmas Carol" goes overboard in its portrayal of the change in Ebenezer Scrooge, it's not a bad thing to bring a degree of humanity to work in the way one treats employees.
That's why the best scenario for workers is a surplus of jobs available, a scenario that government and unions work against.
Check this article defending Scrooge from the them thar dang Socialists:
http://www.lewrockwell.com/shaffer/shaffer93.html
In my experience, when companies make employees redundant during tough times, they are usually recognising something that they should have done earlier. Over time, unnecessary jobs build up – sometimes because of a reluctance to remove jobs after automation or some other efficiency improvement and sometimes just the result of empire building in departments.
Tough times for the business forces management to face up to this.
Usually it would have been far better for everyone if the redundancies had been recognised much earlier.
Alternatively, how do we know slavery is an unprofitable institution since it has lasted so long?
Interesting enough that you're using slavery to defend a warped sense of freedom. Something about human rights would answer that question. Then again, it's not stopped, it's now the Taft-Hartley Act.
Employers and employees use each other to their mutual benefit. Why get the government involved?
One of those parties usually has a lopsided disadvantage. It is not the employer, as they can spend tons against the employee.
Mutual benefit stopped when firms could be hired to turn it into a war of attrition. If they can't win, they just attempt to sink the ship.
I think people who have been loyal to a company feel that there should be a quid pro quo that creates at least a moral obligation that the company be loyal to them. I think that companies might find that creating an environment that fosters loyalty in both directions is profit-maximizing behavior.
Well said. That is how you survive without unions, not by Reaganist hostility.
Does a worker/employee ever quit for the good of the company? If companies are expected to be loyal, shouldn't it go both ways?
"Boss, I'm overpaid. You're losin' money on me. I'll be on my way. Thanks for carrying me despite my inadequate productivity."
I still ask is there really such a thing called 'slavery'? Somehow I doubt it from a truly free market point of view.
I still ask is there really such a thing called 'slavery'? Somehow I doubt it from a truly free market point of view.
What do you think of corporate subsidies?
Are companies such as ADM, et al, enslaving you just a bit?
"I still ask is there really such a thing called 'slavery'? Somehow I doubt it from a truly free market point of view.
Posted by: Gil | May 10, 2008 9:31:17 AM"
Gilduck,
I have no doubt that you still ask is there really such a thing called "slavery".
I also have no doubt that you also still ask is "why is there air"?
and
"does the same water lap the same piece of shore eternally"?
and
"Why does the moon shine"?
and
"Do I have to eat all my spagetti"?
and
"What do I do with the booger that is now on the end of my finger"?
I witness you still asking foolish questions and making silly pointless poorly crafted comments on a daily basis.
No doubt, as this is a free market blog, I will see you continue this line of discourse.
Try focusing on things you can handle, such as "righty tighty, lefty loosey".
Ironic isn't it Gilduck, how that little saying works for mechanical things and it also works in political philosophy as well.
Right, neat, tight, and kept together; left, loose, disorganized, and falling apart.
When my employees come to work, they get a check on Friday. If I screw up and lose money — they still get a check. If they screw up, and lose my money — they still get a check. When they're in training, and unprofitable to me — they get a check. I shoulder the entire financial risk — making or losing money. That's the quid pro quo. That's the loyalty.
Slavery isn't necessarily a bad thing, and there's good reason to believe, in any period of history, that some would chose to be slaves. What we object to is people being born into slavery, and not being free to leave. A lot of slaves have a really good gig — why would they quit? I'm certain it's always been so.
Some very interesting viewpoints, but nobody discussed slavery, unions and overpayment for work in the public sector vis-a-vis the private sector.
In the kind of market described here, why is the public sector so philanthropic?
Why are public sector unions necessary?
How come an individual that wants to work for a government doesn't have the right to work for a government without belonging to a union?
Also, how come that private sector contractors with the lowest price can't win a construction contract with governments, when all other things are equal?
Derp! I asked is there truly anything really called 'slavery'. I remember reading how there's no way a boss can 'exploit' a worker especially in a way that would justify unions. The worker accepts the position or leaves. If an employer used some sort of force and/or fraud on the work site then it's a criminal act not 'exploitation' (as exploitation is usually defined as grossly unfair yet technically legal). Similarly in history is there any employment or association called 'slavery'? It's not the employer's fault the worker has a crumby job rather it the worker's fault for not having or trying to learn any productive skills which pay well. It a similar story to native people complaining there's no jobs or opportunities only for migrants to keep coming in, working hard, seizing opportunities and within a generation or two become rather well off.
P.S. If someone chose to be a 'slave' then then it isn't slavery is it? But I do believe it is traditional that a debt carries on to next of kin lest it create a situation of someone who's terminally ill financially ruining everyone around him.
David Graf: "I think you miss out on the joy of work by reducing it to an economic agreement between an employer and employees."
Expecting work to be something more than economics is the root of more misery at work than anything else I can think of.
Freedomlover: "Employers and employees use each other to their mutual benefit. Why get the government involved?"
Please reread my posts and note NOT ONE reference to the government getting involved.
I remember reading how there's no way a boss can 'exploit' a worker especially in a way that would justify unions
There's no way a boss can exploit a worker in the way that justifies unions if bosses in general are behaving in a rational and law-abiding manner. The reason I'm not a libertarian is that there's a big horizon problem for decision makers: anyone who has been in business has inevitably learns that it's highly costly to deviate from the status quo. Further, for large businesses, the business as a whole constitutes a vastly complex system, which means that determining how you deviate from the status quo is very costly.
That means that you can have a large business that treats its employees in irrational or even criminal ways that might obviously be exploitative to an outsider, but just "the way things work in this business" to an insider.
Similarly in history is there any employment or association called 'slavery'?
The Constitution of the Confederate States of America explicitly mentions slavery, and explicitly protected the "right of property of negro slaves."
If someone chose to be a 'slave' then then it isn't slavery is it?
It's called indentured servitude. Slept through history classes much?
Ken –
I agree that my experience does not apply to all situations. It was an engineering environment; nobody got paid overtime and getting things done often required late nights and weekends, largely because the equipment we worked on needed to be scheduled.
I think my broader point is still valid — when a company has layoffs, employees often infer things (some true, some not) which the company didn't intend to communicate. And, those inferences create incentives.
I'm not suggesting that lay-offs should never happen. I assert, though, that they often have costs that go well beyond the forgone work that those employees were doing.
Which ties into the main point — companies will often not fire underperformers (especially if they are clustered together), just to avoid those other costs. So, to a certain extent, employers ARE philanthropic benefactors.
The only person who should be judging "exploitation" is the person allegedly being exploited. For example, many feminists think strippers are being exploited. Many strippers think feminists are daft. At any rate, if the employee concludes they're being "exploited", they can renegotiate the terms of their employment, or they can leave. If the outsider wants to save workers from "exploitation", why don't they start their own business? If what they say is true, employees will flock to their banner and the bad, evil employers will go out of business for lack of employees. The answer is this was never about the employees at all, but rather the outsider himself. He demands no risk to himself in the pursuit of his principles. His high-minded, self-righteous rhetoric justifies imposing his will and beliefs on others for their own good, and he will not hesitate to use whatever coercive capablity he has at hand to get others to do what he wants and what he says.
I can't comprehend a discussion of the employee/employer relationship that doesn't include the concept of slavery. Yet, I think the word "slave" has incited too much rationalizing. I always thought Smith's opinion was interesting, especially given the date of it's writing — but that's a whole 'nother story.
As an example — I have an employee now who is a very well educated man, 50+ years, intelligent, a graduate of a well known seminary, fun person to be around and liked by all. I consider him an asset to my enterprise, and he enjoys working with us. But he has a problem — when I hired him he was homeless. He was homeless for the next year. When he got paid on Friday, he was broke on Monday (with nothing to show for it). He could not handle money — period.
Understand, he can leave anytime he wants. So here's how we handle it today. He shows up 40 hours a week. I pay his rent and utilities. I pay his cell phone. I buy him a bus pass every month. I pay his medical insurance. He has several restaurants where he can charge his meals to me. Of course, I deduct all of this from his paycheck. I give him whats left, and to nobody's surprise — he's still broke on Monday. But — he has a place to live.
Am I a slave owner?
Isn't that the point SW? It's near on impossible to define 'slavery' without an essence of criminality. If force&fraud is being used there's a criminal act in progress. Yet if someone seems to be exploited by some onlookers it isn't slavery nor is it necessary the fault of the employer. The employee for all we know feels better (seemingly exploited by onlookers) because low paid work is better than no money for anything.
Gil — Yes. It's obvious to those involved in voluntary exchange.
To those involved in "public service", it's a bit of a mystery at best — and often times viewed as a conspiracy.
Isn't that the point SW? It's near on impossible to define 'slavery' without an essence of criminality. If force&fraud is being used there's a criminal act in progress.
Interesting point from a character on this comment board who regularly champions/advocates for government to legislate away all socio-economic injustices.
Yet if someone seems to be exploited by some onlookers it isn't slavery nor is it necessary the fault of the employer.
So, is the logical position to take, Gil, is to form a majority of concerned onlookers that will stop this so-called eploitation? To opt for the slavery of all onlookers, the exploited, and the eploiters because that scenario is best?
The employee for all we know feels better (seemingly exploited by onlookers) because low paid work is better than no money for anything.
The liberty and freedom to choose one's own lot is better than not to have it, in my opinion. I suspect that the inner fairness policeman within you wants no part of liberty and freedom for those that are 'exploited'. That so-called enlightened and altrusitic position of yours, Gil, makes you the slave master.
Ouchies LCJ!! That dreary strawman of accusing all non-Libertarians of being baby-eating Communists? I'm wondering what is slavery? People complain about sweatshops but it just employment for poor people in a way a country might overall exit poverty. Or people whinge and whine about being 'exploited' they have no rational basis for it. Maybe I wonder how Libertarians necessarily feel more exploited to call themselves 'Libertarians' or how the world would be different if it were 'Libertarian'? It seems there are plenty of grump vidyohsesque would-be total private property owners who'd be as mean as any Guvmint except it'd be called rules not regulations and rent not tax.
Strawman, hell. Using government as a tool to rid society of all economic unfairness — as defined by those with communist/socialist sympathies (e.g. you, muirgeo, sometimes Martin Brock, others that come around) — is an idea that you seldom, if ever, disavow. This is not some sort of strawman, Gil, because you bring it upon yourself. You just cannot handle others highlighting the stark consequences and pretzel logic of your precious ideas.
Yeah right. Create a false dichotomy – you must choose between Libertarianism and Communism – there's no 'third way'. It's just like saying to a mildly religious person "you're as damned as any Atheist".
Poor Gilduck,
Precious Gilduck, I feel for you, I really do.
Find out where muirduck went, and go there. You will feel so much more comfortable.
You are just so lost here. History has shown all of us that, like muirduck, you're not here to exchange ideas and learn from that, you're here to babble confused sophomoric silliness and invite people to chase you around the mulberry bush, much like Martin Brock.
Cool blog…thanks.
"Understand, he can leave anytime he wants. So here's how we handle it today. He shows up 40 hours a week. I pay his rent and utilities. I pay his cell phone. I buy him a bus pass every month. I pay his medical insurance. He has several restaurants where he can charge his meals to me. Of course, I deduct all of this from his paycheck. I give him whats left, and to nobody's surprise — he's still broke on Monday. But — he has a place to live.
Am I a slave owner?"
Is your employee free to quit? If he can, then you are not a slave owner.