5 ms·
Economics has a lot to say about how bad an idea sharecropping is. (This is apart from the obvious racism/slavery aspect of sharecropping in the southern US).
by cjensen 5y ago
Economics has a lot to say about how bad an idea sharecropping is. (This is apart from the obvious racism/slavery aspect of sharecropping in the southern US).
When you take a percent of income, you necessarily demotivate the worker. It comes down to this: Once the bare necessities are paid for should I work an extra hour, or should I go home and spend some more time with the family? If the income for the extra hour is decreased, it necessarily decreases the worker's interest in working the extra hour. Or maybe they still work two extra hours, but not three.
To make this work out you either need to make the payback a simple loan (the traditional solution) or you need to put an achievable cap on payments. Either way the optimal societal goal is that if the worker works a bit harder they should earn 100% of the profit from the extra work.
Historically this worked out as the disaster that was sharecropping. The tenant earned 50% and provided labor, and the landowner (who also provided capital equipment) earned 50%. The natural outcome was that laborers rationally did not work as hard as they could have, and the landowner failed to properly invest in equipment since extra income from productivity gains was halved.
Percent of income may make investors salivate, but it's a self-defeating idea.
- TulliusCicero 5y agoI think it’s potentially attractive to people for two reasons. One is that it’s “safer” than a traditional loan: if the education doesn’t work out and you don’t get a good job, well, you only have to pay a percentage of your income, so your low wage job is still okay. Or maybe it’s contingent on a certain type of job, so you don’t have to pay anything. Second reason is that ostensibly, it aligns incentives. The education company only gets paid if you do, so they’re highly incentivized to provide effective education that actually lands you a good job. But of course, there’s also downsides, as the twitter OP states.
- missedthecue 5y agoSorry I don't see why this is true? If you're in an income sharing agreement, the only way for you to make more money is to work more, but this is how it works for people who don't have income sharing agreements too. The motivation isn't changed, one person just has more take home pay than the other person. (And if that person has a loan instead of an income sharing agreement, the disposable income between the two individuals are identical)
- wffurr 5y ago>> Either way the optimal societal goal is that if the worker works a bit harder they should earn 100% of the profit from the extra work That doesn't seem to have really ever been true for a lot of people. It's very rare for workers to be paid in proportion to the amount of profit they produce for a company. Salaries are almost always determined by the labor market and the average wage for the role. Wage labor, which most of these ISAs seem designed to promote, seems to be fundamentally different from the kind of sharecropping relationship you describe. I'm not saying ISAs are good either, but that this doesn't seem to be true for many, if not most, workers today.
- MrPatan 5y agoNow do taxes.
- imtringued 5y agoNever tax work. Always tax finite resources.
- sokoloff 5y ago> optimal societal goal is that if the worker works a bit harder they should earn 100% of the profit from the extra work We already have income taxes (wherein the last hour you work is taxed at the full amount of your marginal [highest] tax rate) which serve to act against this goal in the same way, right?
- gruez 5y agoYeah, that's why economist say the least bad tax is the land value tax, not the income tax we have now.