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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 sa
by 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 agoPoverty 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?
- gjm11 13y ago1. It doesn't seem unreasonable for an employer's attitude to an employee's pay to depend on how desperately the employee needs that pay. This doesn't need to involve pity as such (though it might be indecent not to feel pity, in some cases). If I see you drowning in a lake, then arguably I am obliged to help you even if it takes some time and costs me money (e.g., to get my clothes cleaned afterwards) -- but if I see you in a less desperate situation I might owe you no help of any sort. 2. A movie actor is (I think) generally engaged on a limited-term contract to make a particular movie. That's quite a different situation from a (so-called) permanent employee who is (foolishly or not) hoping to go on being paid for an indefinite period. 3. The real complaint (as I understand it) is not simply "Employees should get a substantial fraction of the large upside if their company has a good year"; it's that it seems a lot of employees are getting neither that upside nor security and stability: they are in big danger in bad years but don't get the big gains in good years. Or, to put it differently, the primary complaint isn't that employees get exposed to a different pattern of risk from employers; it's simply that they are underpaid. 4. As it happens, I think there's a lot to be said for paying movie actors partly in proportion to the success of the movie. (Though I fear that in practice that would turn into a way to underpay them grotesquely, via "Hollywood accounting".) So I don't think I'm guilty of the inconsistency you allege. (Others might be; I don't know.)
- Tycho 13y agoI would say the diff between actor and salaryman are superficial: yes the expectations are different but their contracts have the same fundamental property (you do some work, then you get irreversibly paid for it). However I think what's really happening in this debate is that one side is arguing about conditions for individual labourers, and the other about labor in aggregate. The two can lead to very different conclusions. For instance high income tax is good for individuals who benefit from public spending, but it also consolidates the gap between those who already own the wealth and those whose only chance to acquire it was through higher income. So in a sense it's bad for 'the class'. Could probably think of a better example but hopefully you get what I mean.