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Workers and Employers

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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