:: KipperCat :: =^. .^=

:: Saturday, May 17, 2003 ::

:: posted by John ::

Capital & Labor: an Old Story Still Looking for Resolution

Since I am still new to supply side theory, I will opt to wrestle with nuts & bolts of work. It adds up to much the same, except many millions (here) are part of the labor portion.

As a disclaimer, I am not terribly upset per se with uneven distribution of wealth; if anything I would prefer that our government be a little less involved in re-distributing it through graduated income tax. But, that tale of pain and suffering is for another time. I will endeavor to concentrate on those aspects of “Risk & Reward” that trouble me.

Rather than wrestle with the position that labor is paid from capital, I would like to focus on a two-fold aspect of the employee/employer relationship. One, that the employee assumes no risk and the two, the inherent problem relating to the on- going struggle to determine what a “fair” wage is. Since I have only briefly been in a union (many, MANY years ago-and I did not really understand what I was doing at the time) I will expound on the second part first.

A “fair” wage is what you (the employee) think you are worth. If you are currently working, and being paid the wage is fair. If you are unhappy with the wage, then you owe it to yourself and your employer to seek another job that will pay you more. That said, my other insight is that since a paycheck comes out of the profitability of the employer, your employer is always going to try to keep your compensation as low as possible. This is neither cruel nor unusual; it is the “company” trying to maximize profitability. So, with this before us; allow me to take it down to the “trenches”. I work for a living; I have been in the same basic industry for the last quarter of a century in a line of work that is pretty much learned "on the job”. So, I have twenty-five years of experience, expertise and connections within my line of work that I bring with me everyday to the job. This experience, et.al. allows me to do my job faster, better and more efficiently than someone that is just entering the industry. From my conceited point of view, this makes my skill more valuable than someone that is just starting and I expect to be compensated accordingly. But, remember, my employer has a vested interest in keeping their cost as low as possible; so we negotiate. If I decide that I am being severely under-paid, then I will pick my stuff up and go else where.

It has been pointed out that the cost of an employee comes out of capital; again, I am not competent to contest that. I will point out that many industries require that there “be” employees; the enterprises are simply too large for one person or even a small group of entrepreneurs to engage in. So, like it or not, the employee is part of the process of making a capitalist endeavor generate capital growth, if in no other way, profit on the investment the person or persons made in order to establish the business. And it is here that life gets complicated. What is the “value” of an employee? They have to be paid something, slavery being dead in this country since the Emancipation Proclamation and subsequent amending of the Constitution following the Civil War (I DO sometimes wonder if all employers are aware of this… but like taxes that is an issue in its own right). In the early stages of the Industrial Revolution, the owners and operators of the fledgling factories and businesses paid as little as possible and worked their employees as long as possible. In mill and mining towns, the development of “factory” and/or “mine” towns was not an exercise in owner kindness, but rather a means by which the labor force could be maintained as close to the place of business as possible so that minimum time was lost between shifts. There were other side issues such as the rents and “credit” at the company store, but those issues are not central to this discussion. Labor unions grew out of the efforts of the employees to get a better wage and/or lower hours from their employers. In this country, the nineteenth and early Twentieth Centuries are very much defined by this struggle.

Ironically, one of the more successful businessmen of the early 20th Century, Henry Ford, not only avoided some of the worse confrontations with unions; he discovered that he possessed his own ready market in his employees. He voluntarily gave his employees an above average wage without then need of the unions striking for it; the reason was simple. By paying the employees more he was able to attract better help and keep his labor base stable. The real coup was the fact that by doing so, he also was developing his best customers; his employees had enough surplus cash to buy a Ford. Neat trick, I often wonder why more businesses have not noticed the advantages of this.

Which takes me, at least briefly, back to my other point. A good employee does have a very deeply vested interest in the profitability of the company he works for. After all, if the company goes under or becomes less profitable; the employee will join the ranks of the unemployed where compensation is at a MUCH lower level than working. A good employee looks for ways to make his situation more profitable, not for the sake of the company but for his own sake. In an “ideal” situation (kind of like economic theory), the employee realizes these aspects of being employed and works to the betterment of the business. Again, this is self-interest same as Henry Ford paying his employees a higher than industry standard wage. If you work to improve the enterprise, either cutting cost or improving profitability then you should be regarded as a valued employee and compensated in return.

Where all this fits into supply side economics, I will wait for another posting to discover. I just thought that the nuts and bolts side needed a little exposure (yes, I am one of the “nuts” that attaches to the bolt to try and keep the whole thing going!).


Update: Jim Hart comments :: 5/19/2003 11:02 PM ::

A few comments:

First, to the last. You say:

Where all this fits into supply side economics, I will wait for another posting to discover.

Don't get too hung up on supply side theory. Supply side theory is just a small part of the body of economic theory and not very much of what we have discussed here has much to do with supply side theory.

You say:

"A “fair” wage is what you (the employee) think you are worth. "

Well, no. A fair wage is a compromise between what you think you are worth and what your employer is willing or able to pay. A fair wage is the result of negotiaion between employee and employer. Without negotiation, there is no fairness (which is one reason why a government imposed minimum wage is not a fair wage, but that is another story).

You say:

a paycheck comes out of the profitability of the employer,

No, it doesn't. It comes out of the cash reserve of the employer. There are a great many unprofitable companies issuing paychecks. The long-term ability of the employer to replenish his cash reserve depends on his profitability, but that can be a very long term consideration.

You say:

your employer is always going to try to keep your compensation as low as possible.

A smart employer is going to try to keep compensation as low as necessary to keep the employee happy or at least willing to work efficiently and still remain in business.

You say:

Henry Ford, not only avoided some of the worse confrontations with unions; he discovered that he possessed his own ready market in his employees. He voluntarily gave his employees an above average wage without then need of the unions striking for it;

Excuse me? There is a bit more to the story.

In 1916, Henry Ford paid his workers higher wages to keep them from changing jobs, and probably to undermine the union attempts to organize. He avoided labor problems all right. Unions couldn't strike if they wanted to because there were no unions at Ford. Ford refused to recognize the United Automobile Workers Union for years and used armed guards and police to deal with union organizers and industrial unrest.

In nineteen-thirty-two, hungry, unemployed men marched near the Ford factory. Police, firefighters and Ford security guards tried to stop them with sticks, high-pressure water and guns. Four of the marchers died, and twenty were wounded. Ford dismissed all workers who attended funeral services for the dead.

In nineteen-thirty-seven, union organizers were passing out pamphlets to workers at the Ford factory. Company security guards struck. They were led by the chief of security, Harry Bennett. Harry Bennett knew nothing about cars. But he did know what Henry Ford wanted done, and he did it.

The Ford Motor Company did not agree to negotiate with the UAW union until nineteen-forty-one when Henry Ford finally accepted a government mandated agreement. If he had not, his company would have lost millions of dollars in wartime government business.

You say:

I often wonder why more businesses have not noticed the advantages of this.

They may have, but most companies don't have such a general use product as an automobile. How much air freight do you personally ship per year? How much more would you ship if you got a raise?

Early on, Henry Ford did pay his workers more than other manufacturers, but he also sold his cars for less. As a result, Ford sold more cars to more people, brought in more money (though with less profit per unit), and became very successful. But other companies soon started selling low priced cars as well and when Ford was forced to accept the union, Ford lost much of the early advantage that it had.

-JRH

:: -- John 5/17/2003 08:20:00 PM [+] ::
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