4 ms·

There is nothing to be confused about, the scenario is pretty straightforward: you are presented with a (non)choice of either taking a pay cut or finding a box

There is nothing to be confused about, the scenario is pretty straightforward: you are presented with a (non)choice of either taking a pay cut or finding a box waiting for your on your desk. By being placed in this position, you have already been placed in a predicament where you have to accept the financial downside either in the form of taking a pay cut or having to find a new job. Again, the downside has already manifested and you are left dealing with the situation. So how exactly has being a salaried employee protected your from the said financial downside? When you're a 20something techie living in the Valley, it really doesn't matter since you'll have 5 offers waiting in your inbox tomorrow. When you're a 50 year old blue collar worker with a family, a mortgage and maybe a medical condition, this kind of situation can ruin your life. Most company owners don't readily share profits with their employees when their company is doing well but don't have a problem downsizing and cutting salaries across the board when they aren't doing so well. Since it's impossible to guarantee somebody income (even the best companies will go through rough patches), the only fair thing for managers to do is to share more wealth with the people who created that wealth when the times are good.

yummyfajitas 13y ago
...you have already been placed in a predicament where you have to accept the financial downside either in the form of taking a pay cut or having to find a new job. Again, the downside has already manifested and you are left dealing with the situation. You seem to be confusing your wages with a bond or perhaps a call option. Just because you sold something at a price $X does not mean you own some right to continue selling it at the same price. And if someone chooses not to keep paying you an old price, you have lost nothing - you simply have not gained as much as you thought you might. Being a salaried employee protects your 50 year old blue collar worker from downside because the 30 years worth of savings he piled up is completely safe even if the company goes insolvent.
- namdnay 13y ago
  > Being a salaried employee protects your 50 year old blue collar worker from downside because the 30 years worth of savings he piled up is completely safe even if the company goes insolvent Except that a blue collar family with children don't exactly "pile" up savings... and most of those savings are tied up in his house, whose value is closely correlated to local employment. It's obvious that you are neither a blue collar worker, 50, or with children, so try to see things from that point of view instead of simply projecting your personal political beliefs
- gjm11 13y ago
  I don't think anyone is arguing that an employer has a legal obligation to give employees a share in profits, or to continue employing them at their existing salary when times are difficult, or indeed to do anything beyond what they are contractually obliged to do. What I'm hearing is a different argument, to which your analogies with bonds and call options and forward contracts and whatnot are (I think) completely nonresponsive. The argument goes something like this: 1. The success of a company is due to the work of its "ordinary" employees at least as much as to the genius or hard work of its executives or the generosity of its shareholders. 2. Ordinary employees are not adequately compensated for the work they do and the risk they bear. (This is primarily a claim in the realm of ethics, not economics.) 3. In particular, they share in the downside (via the likelihood of losing their jobs or taking substantial paycuts, if times are difficult) without getting much of the upside (via any sort of profit-sharing, or substantial pay rises, if times are good). 4. Yes, in principle, any employee is free to go elsewhere in search of better compensation (or other improvements) but in practice other jobs are often in short enough supply that there is little prospect of this. 5. You might argue that this means that they can't possibly be being underpaid because they're getting what The Market gives them, and The Market is the sole arbiter of what constitutes fair compensation -- but (a) if that's meant to be some kind of moral axiom then it isn't very plausible as such, and (b) if it's meant to be some kind of consequence of market efficiency, economists' optimality theorems, etc., then there are a whole lot of missing steps that look like they make desperately overoptimistic assumptions about what markets do. 6. The fact that employees are treated in this way means that in difficult economic times they are liable to find themselves in desperate situations. This is a bad thing. If employers were more generous then their employees would be at less risk of (e.g.) losing their homes, and society as a whole would be more stable and happier. (This is one sense in which it is possible for someone to be underpaid despite getting the salary The Market gives them: it may be that a higher salary would still leave the employer with a substantial gain from employing them, while making society as a whole better off.)
  - Tycho 13y ago
    Poverty and vulnerability seems to cloud the issue a bit. If we take the example of a Hollywood movie where the actors are paid a fixed amount for their work, then I don't think many people would disagree with yummyfajitas' analysis. If the movie bombs, they still got their pay, meanwhile the producers actually lose their capital. So it's not unreasonable that if the movie turns into a smash hit, the producers capture all the upside and the actors just get their fixed pay. When we change the scenario to workers who are not wealthy Hollywood actors, it seems no one agrees with the analysis any more. Even though it's essentially the same relationships and principles at work. Why is this? If a business employs non-wealthy people, do the owners also take on a whole package of social issues beyond the basic contract of employment? Does our judgement change due to pity?

yummyfajitas 13y ago

...you have already been placed in a predicament where you have to accept the financial downside either in the form of taking a pay cut or having to find a new job. Again, the downside has already manifested and you are left dealing with the situation. You seem to be confusing your wages with a bond or perhaps a call option. Just because you sold something at a price $X does not mean you own some right to continue selling it at the same price. And if someone chooses not to keep paying you an old price, you have lost nothing - you simply have not gained as much as you thought you might. Being a salaried employee protects your 50 year old blue collar worker from downside because the 30 years worth of savings he piled up is completely safe even if the company goes insolvent.

namdnay 13y ago
> Being a salaried employee protects your 50 year old blue collar worker from downside because the 30 years worth of savings he piled up is completely safe even if the company goes insolvent Except that a blue collar family with children don't exactly "pile" up savings... and most of those savings are tied up in his house, whose value is closely correlated to local employment. It's obvious that you are neither a blue collar worker, 50, or with children, so try to see things from that point of view instead of simply projecting your personal political beliefs
gjm11 13y ago
I don't think anyone is arguing that an employer has a legal obligation to give employees a share in profits, or to continue employing them at their existing salary when times are difficult, or indeed to do anything beyond what they are contractually obliged to do. What I'm hearing is a different argument, to which your analogies with bonds and call options and forward contracts and whatnot are (I think) completely nonresponsive. The argument goes something like this: 1. The success of a company is due to the work of its "ordinary" employees at least as much as to the genius or hard work of its executives or the generosity of its shareholders. 2. Ordinary employees are not adequately compensated for the work they do and the risk they bear. (This is primarily a claim in the realm of ethics, not economics.) 3. In particular, they share in the downside (via the likelihood of losing their jobs or taking substantial paycuts, if times are difficult) without getting much of the upside (via any sort of profit-sharing, or substantial pay rises, if times are good). 4. Yes, in principle, any employee is free to go elsewhere in search of better compensation (or other improvements) but in practice other jobs are often in short enough supply that there is little prospect of this. 5. You might argue that this means that they can't possibly be being underpaid because they're getting what The Market gives them, and The Market is the sole arbiter of what constitutes fair compensation -- but (a) if that's meant to be some kind of moral axiom then it isn't very plausible as such, and (b) if it's meant to be some kind of consequence of market efficiency, economists' optimality theorems, etc., then there are a whole lot of missing steps that look like they make desperately overoptimistic assumptions about what markets do. 6. The fact that employees are treated in this way means that in difficult economic times they are liable to find themselves in desperate situations. This is a bad thing. If employers were more generous then their employees would be at less risk of (e.g.) losing their homes, and society as a whole would be more stable and happier. (This is one sense in which it is possible for someone to be underpaid despite getting the salary The Market gives them: it may be that a higher salary would still leave the employer with a substantial gain from employing them, while making society as a whole better off.)
- Tycho 13y ago
  Poverty and vulnerability seems to cloud the issue a bit. If we take the example of a Hollywood movie where the actors are paid a fixed amount for their work, then I don't think many people would disagree with yummyfajitas' analysis. If the movie bombs, they still got their pay, meanwhile the producers actually lose their capital. So it's not unreasonable that if the movie turns into a smash hit, the producers capture all the upside and the actors just get their fixed pay. When we change the scenario to workers who are not wealthy Hollywood actors, it seems no one agrees with the analysis any more. Even though it's essentially the same relationships and principles at work. Why is this? If a business employs non-wealthy people, do the owners also take on a whole package of social issues beyond the basic contract of employment? Does our judgement change due to pity?