The debate "Profiting off other's labour is another form of worker taxation." was started by
August 14, 2019, 3:17 am.
45 people are on the agree side of this discussion, while 35 people are on the disagree side.
That might be enough to see the common perception.
It looks like most of the people in this community are on the agreeing side of this statement.
Allirix posted 19 arguments, MightyJackalope posted 1 argument to the agreers part.
TheExistentialist posted 7 arguments, Nemiroff posted 4 arguments to the disagreers part.
Allirix, poopy, itzmeboi, codyray16, MightyJackalope, YEET and 39 visitors agree.
TheExistentialist, Hopetown27, Aby, Nemiroff, Bokamoso_Chuene, whackamole1, jrardin12, CastLight, Agrumentman and 26 visitors disagree.
I fundamentally agree that the ltv theory is true insofar that employee's do not share the fruits of their labor with the employer's, it is the other way around. However, this is not exploitative as the worker agrees to surrender the fruits of his labor in exchange for a steady paycheck, a luxury that many employers live for years without even on the small chance that they get lucky and the business ultimately succeeds.
re the 75k figure.
happiness wage is also very different from living wage.
re min wage
that model doesnt seem realistic. ghettos are made of subsidized housing. the subsidies mask, they dont change, the land's value. the cost of living would be measured unsubsizied as that would be amongst the goals.
creating urban ghettos can alternarively be spun as "affordable housing", a very central and vital crisis facing many of the big cities that provide much of the low wage jobs. i think your simply looking at it wrong. also the only factor being affected by that is rent, which is high in the crappiest parts of big cities, while ignoring the consistent food, transportation, education, and healthcare costs. + others likely. all of these cost of living issues would have to be addressed in order to lower wages, and that wouldnt really be a bad thing...
in your example:
correct me if im wrong, but the key factor is profit, and how much the owner wants to take home, not employee performance or job details. salaries will vary wildly from one store to the other, where you work will become as important as what you do. would it not also be easier to hire a few high paid outliers (consultants) if only temporarily to give yourself a boost rather then handing out permanent increases. trying to back down during tough times might cause a riot.
we have to clarify, are we discussing CEOs or shareholders? ceos dont set their salaries, and much, if not most, of their compensation is in stocks. shareholders are owners who are the ones who pay themselves.
i believe an "automation tax" (of very vague details), would be necessary to fund the steady rollout of a full UBI. with automation potential being exponential, so should the income from that tax. currently anything more then a token "income" is unaffordable by the USgov.
" that 75k figure is probably an average"
it's definitely a number derived from metadata studies
"i think matching the minimum wage to the lowest cost of living within a certain travel time would be the ideal mil wage focused solution. if we institute a flat 15, im moving to west virginia the very next day, js."
The problem with this is that it maintains income inequality and will create defacto "ghettos". You're essentially incentivising municipalities to create low income neighborhoods that straddle multiple "high income zones" in order to justify lower wages for things like waiters etc... in high cost living areas. I think we all know the social, economic, and racial problems that follow this kind of segregation (food deserts, high crime, predatory businesses, bad schools, lack of transportation, etc..).
"my only concern is the reason behind the wage increase, it seems entirely disconnected from the actual job and more to do with profitability of the company"
That is why I chose an average salary, not a "lowest paid" model. A company has an incentive to hire high skill, high paid labor since it brings up the average salary. So we essentially prioritize the use of profits for the greater social good. The company has an intrinsic incentive to first: hire more people, second: raise the wages of their employees, and third: pay themselves more. I believe that market value will still dictate salary even under this system.
If we go back to the grocery store example, I think simply looking at the 2 workers is perhaps too simplistic. The grocery company would also benefit from hiring marketing people, website developers, project managers, data scientists, GIS specialists, etc... since they would help the company gain a greater market share and grow. This along with a marginally higher base pay for their floor staff would bring up the average salary to a point where CEO's could get a greater salary while maintaining growth and thus fiduciary responsibilities to their share holders. The company would also still have to compete for these higher skill workers with other industries and thus would have to maintain a higher salary for them than their floor staff.
I also believe however, that this isn't necessarily enough. Automation will come for most "jobs" and we will eventually need a UBI and tax on automation to deal with this issue. But that's a different discussion I think.
re: min wage.
i think if one holds min wage relative to cost of living instead of flat rate it should resolve the political will required to maintain it at effective rates.
to begin with, a flat min wage is pretty useless nation wide. that 75k figure is probably an average, but im sure it might still be a bit tight in a big city, meanwhile 50k would be overluxurious in rural low cost areas.
i think matching the minimum wage to the lowest cost of living within a certain travel time would be the ideal mil wage focused solution. if we institute a flat 15, im moving to west virginia the very next day, js.
your system seens excellent at maintaining economic stability of the consumer. my only concern is the reason behind the wage increase, it seems entirely disconnected from the actual job and more to do with profitability of the company. this could have consequences in regards to motivating future career choices. i do very much like it when markets choose who to reward based on demand for that position (with difficulty being factored in the supply of workers), i just wanted to make sure the market doesnt completely abuse those who are of minimal demand, and abundant supply.
in your example the 2 workers may have an exaggerated salary for a field that doesnt require much skill or much future workers. yet their outsized compensation, bloated only so that the owner can pay himself more, will incentivize a career with minimal societal benefit.
" i was previously of the mindset that as long as the minimum is above a debatable standard, it doesnt matter how high the top cap is"
Most studies do actually support this. Studies have shown that (currently) a salary of about $75K/year is the "goldilocks" salary. It is the point at which most people no longer have constraints on their happiness from financial burdens. Beyond $75k/year the happiness index doesn't increase in any significant way.
Here is the problem though:
Let's look at something like grocery shelf stocking. If we invent a machine to automatically stock shelves, we'd lose a lot of employees in that industry. Let's just make up some numbers and say that all of a sudden 2 employees can do the work of 20. However, these 2 employees must acquire new skills to operate the robots and troubleshoot them.
If we had a minimum wage approach, we'd look at the productivity of the workforce as a whole and conclude that we need to raise the min wage since the avg productivity has gone up. However, we'd also be raising the min wages of other industries which haven't seen a bump in productivity. You'd have lobbyists from both the grocery store owners and every other industry trying to oppose such a change.
In a max salary approach we have no need for political intervention do deal with this shift in labor. The grocery stores as a whole would likely be more profitable since they need to pay fewer people, but they couldn't actually pay themselves any more unless they raise wages or hire more skilled workers to bring up their average salary. Since no political action is necessary to raise wages, grocery stores couldn't lobby against a wage increase. Furthermore, no other industry would be incentivised to join them in lobbying since their wages aren't affected by this.
Essentially it boils down to minimum wage laws being very slow to adopt to new innovations and requiring political will to actually upkeep and max wage laws being industry specific, more adaptable, while requiring less political input to maintain status quo.
I'll break this up into 2 parts.
First here is a more in depth look at the max wage system I'd be in favor of and then second I'll address the main differences between min and max wages and why I think max is superior.
The concept I advocated for is known as a "Relative Earnings Limit".
There are two main ways of implementing this kind of wage limit. One is to use a specific multiple of the lowest paid employee; the second is to use the average of employee wages and use that as a multiple. Generally speaking the former does better at limiting income inequality and the latter does better at encouraging larger numbers of hires as the more employees you have the more likely it is that the average salary is higher (you don't need as many janitors as you need people on the production line).
I'm in favor of the "average salary" system since it is a more encompassing system and better for the greater number of people. It also addresses a point of yours:
"some achievements deserve greater reward"
The "average salary" system would do this. Let's illustrate how through company A and company B.
Company A develops a new technology. In order to do this they had to hire engineers, programers, etc....
Company B manufactures textiles. They hire mostly low skilled workers.
Company A will have a higher average salary simply by virtue of having higher skilled employees and thus the founder of company A can rake in a higher salary.
Company B will have to raise wages or hire high skilled workers and innovate and bring up their average salary that way in order for the founder to rake in a higher salary.
I like this system since it rewards innovation and doesn't limit CEO salary to how much they can pay a janitor, dishwasher, etc.... but rather looks at the value the employees provide as a collective. It maintains a incentive to innovate and maintains an incentive to pursue high skill jobs.
why do you support capping max wages instead of lifting the floor on minimum wages?
i do like your theory of tying the 2 together so there is no absolute cap but a relative cap rising the 2 together. it is novel. however i was previously of the mindset that as long as the minimum is above a debatable standard, it doesnt matter how high the top cap is. some acheivements deserve greater reward, like revolutionary innovations, and as long as noone is being excluded, the reward should be limited only by the scale of the benefit, and the sky is the limit.
ethically i still lean towards my previous idea, but your system seems to be a self adjusting algorithm which should maintain stability of the economy. im torn. id like to hear your thoughts on the comparison.
i agree that workers who hussle and put together extra units should get a bonus (your adjustment coefficient), but they have little to do with profits. profit margins improve from decisions such as what materials to use, how to design products, which suppliers to buy from (and negotiating with them), and how much to charge for your product.
producing more units in a certain time increases overall revenue more then profit margins. it should be rewarded with a set bonus.
so employees share in the benefits of profits, but not in the risk for loss? who is the company working for? what is the meaning of "owning" a company in your view?
and what effect do janitors or assembly people have on profitability?
Companies tend to keep a cash reserve so they don't need to borrow or raise more equity to cover unprofitably. In the example I used of a company handing out bonuses I reserved 20% of the profit so employees wouldn't need to repay their own money.
if a company posts negative profits, do workers suffer decreased pay?
I'll give it one last try without an equation.
A worker creates value for an organisation but does not receive all that value in return. They capture part of that value as a wage, but the other part is transferred elsewhere as profit. If a company's profit is a pie then each worker is responsible for contributing a small slice. Same goes for value creation. If a company's value creation is a pie, then each worker contributes a small slice. The size of a worker's profit and value slice is equal. The profit they are responsible for corresponds to the value they create. Since the value pie can be approximated with a wage pie, and wages are knowns, you can estimate the slice size and use it to find the profit a worker is responsible for.
Worker Value creation = Wage + profit * wage / all wages
My gripe is Capitalists don't want to be taxed on the money they earn, but they're perfectly fine taxing the money their employees earn
"so where is the explanation for compensation between different positions?"
Ah I misread this question. Since you were asking about entire departments before I only read "position" as the unique part of the question.
you said their compensation is (wage / total wages of the position)
now you say their contribution is (wage / total wages of the position)
earlier i was asking for compensation when you first provided that formula. im not able to follow your argument. sorry.
And the calculation is just to show what the worker tax is. Bonuses were just an example of how this method could exist within the current system. If the 'tax' was ever removed or reduce at an industry level then obviously the labour market would respond by increasing wages and decreasong the 'tax'.
This appears to be harder to explain than I thought. In your first example one worker contributes 0.01 or 1% and in your second they contribute 0.001 or 0.1%. You multiply a proportion by 100 to convert it to %, which is what you asked me to do (in %).
You're right about missing something when making that 1/10th claim. You're forgetting profit. If all workers are equally productive then each extra worker increases profit by the same margin. That means 10x the workers means 10x the total profit.
In real terms that means all workers deserve the same compensation in your example. In real terms (which is what my first equation that included profit was) value added is:
Wage + private tax
Private tax = profit * worker contribution percentage
Worker contribution percentage = worker wage / sum of all wages.
ok, if thats the case im totally lost. if the market sets the wage, and you are simply modifying that wage with a clever algorithm, won't the market simply adjust to your algorithm so that the end compensation is the same as it is now?
well let's see what your modifiers do to the end result now that you simplified you're equations to just the wage variable.
a worker makes 50k with 100 coworkers of the same position. with your math we get
50k/(50k*100) = $0.01
i think you previously added a x100 which seems to bring his annual salary to $1. am i missing something?
i also think this is very dependent on size of company which imo should be irrelevant to compensation, but lets plug it into the formula and see the same situation but with 1,000 coworkers.
50k/(50k*1,000) = $0.001 which means this guy makes 1/10th of his small business fellow with no consideration of effort or value. just due to company size. i must be missing something.
my focus has been on differentiating between positions, which doesnt seem to be what you were focusing on. what is the purpose of your approach? not the vague goal of eliminating labor tax, but specifically? is it meant to increase worker pay? bring it in line with something else?
are the individual wages still set by the same market forces as now?
That's the contribution as a proportion of the entire company. You'd then multiply that by the total profit of the organisation to find how much of that profit they are responsible for
that seems like it would depend more on company size rather then profits, which is what i think you were originally tying them too.
furthermore, the wage is still a variable. so what sets it? market forces? what would be the end result difference to the current system?
Wage of position / sum of all wages
so where is the explanation for compensation between different positions?
The adjustment coefficient is only for workers that go above and beyond their wage. The equation still easily finds the % contribution of individuals or departments. To answer your first question:
Q: how much value is the assembly? (in%)
(sum of all wages in assembly / sum of all wages in organisation) * 100%
This is the proportion of value created by the department. It uses the labour market value of the worker to determine the value they create.
your equation provides a framework algorithm, but still leaves the question of varying values to a variable coefficient.
how much value is the assembly? (in%)
how much is in marketing?
in investment and risk?
in allocation of resources and supply chain decisions?
in background maintenance and janitorial?
in failed R&D projects?
without defining the variable coefficients, or at least how to determine them, your idea is purely theoretical and not ready for any form of application. your equation rephrases your argument in numbers but doesnt add anything. my question about relative value remains an undefined variable.
How should value be divided? That's what the equation tried to answer:
Worker contribution = wage + profit * adj_coeff * wage / wages of all other workers
I suggested using wage as a proxy for contribution and extrapolating on the leftovers (profit) using relative contribution. Wage is how much they are compensated currently, wage / wage of all workers is a worker's relative contribution, and profit is what's leftover. I'm aware it has weaknesses. It assumes linearity and a fair and knowable adjustment coefficient to use when wage doesn't approximate contribution accurately. But this practically resolves the issues of high vs low skilled workers.
Also, I wouldn't say measuring contribution is subjective, functions are just inextricably linked so isolating how much value an individual creates is difficult. This is because a lot of value comes from synergy, which is greater than the individuals, but they are still responsible for that value and still deserve that value in return.
value is difficult to approximate because its entirely subjective. was it the engeneer who designed the fancy gimmick, or marketing who advertised it? perhaps the perfect assemblyman? how do you assign these values?
as to my "last point", it was actually a "last question". the same question im still asking. who determines the value of the different contributions? how much value did the janitor bring? how about the R&D guy working on that other project that didnt make it to market? how do you divide this?
that shareholder argument is silly. it's like promoting potatoe chips for their protein content. yes it does technically exist, not its minuscule.
money is a tool, and loaning a tool to a business is a benefit to the economy. assuming it isnt just trading trader hands.
If an owner works with the organisation they own then drawing money out is really just a wage with extra steps. I'd say if they draw out more than the value they create (including their risk absorption), then it's unfair profiteering, but that's forgiveable since value is difficult to approximate and they are responsible for the survival of the organisation.
And your last point seems to ignore what I said about relative compensation again. The value added by an organisation comes from every function in the organisation, not just the assembly of a product. Relative contributions can be approximated with wage.
Also there is an argument that shareholders give value to the company they own by creating demand for stock, keeping the price high during new stock issuances. The problem I have with that is its value based on capital ownership and it's doesn't inherently add value to the economy, it just shifts it around. If the equity raised by the company is used to add value then it affects the GDP though. I guess I also don't believe money should beget money. It's not the principle of a meritocracy, although I know it's how the world works and it's unlikely to ever change, I can still criticise it.
i dislike the format of the stock market for many reasons. if we view this in terms of classic ownership, the value becomes apparent. in a classical, small, or new company, the owner plays the part of both executive and shareholder. if we seperate the executive who makes very valuable decision we have the classic shareholder as the one who fronts all the money, and takes on a massive amount of risk. that risk has value.
the stock market shareholder takes value based on that risk, as he could just as easily lose money as he could make money. my problem is that none of that matters to the company since unless this is an IPO or some extra stock offering, none of their investment money actually goes to the company, just trading hands between traders.
so the shareholders take value due to the risk involved. if we fix the system where their purchases actually go to the company (and that is a much more difficult fix then it sounds), then they are adding lots of value in the form of up front capital.
if we look at the value of a finished product, how much of that value comes from the simple assembly of that product? i would say minimal.
Ideally, I believe that if you create X value in your life you deserve X value in return. If a force acts to widen the gap it's a tax*. Profit is one such force that makes workers under-compensated and shareholders over-compensated. I'll try and explain why I think that:
The price of a product or service is a proxy (measurable variable that approximates it) for the value it will create for a customer. Money captures that value and it is distributed among workers according to wage with profit leftover. A wage is a proxy for the value created by a worker. For a company, profit is then distributed among shareholders.
Is profit a proxy for the value created by a shareholder? It can be, especially for small organisations who structure themselves as companies for tax purposes. But I don't believe this is the case for large mature companies. If I buy 3000 Apple shares I'll make almost $10,000 from dividends in a year. Did I create $10,000 worth of value for Apple? No. Why was I paid? Because I partially owned the company. Why does ownership mean I deserve payment?
Capitalism answers I deserve to be paid because workers 'rent' capital (value generating things) from me. But I didn't acquire any capital, that was the company itself, and they put it on their books which I happen to own. Now I'm getting more than it was paid for. Why?
I dislike profit in this scenario because I'm receiving Y value for creating 0 value. That means if a worker creates X value they can only ever receive X-Y value in return.
I'm not saying profit is bad though. It's the oil that keeps the market flexible and constantly growing. It's just also inherently unfair.
* Government tax widens the gap for the upper class--high paid workers pay more, lower paid workers use more public services--and profit widens the gap for the lower class--ownership is less available to the poor.
you are using quite a bit of technical lingo as a common knowledge. if you are proficient in your field, you should be able to explain those concepts in laymans terms. that may be difficult as im suspecting you are explaining WHAT worker compensation should be instead of the WHY. and the why is a much less mathematics heavy question.
forgive me if that reason was missed by me deep in this conversation, but without the why, this answer you are trying to present to me means nothing.
The maths boils down to this:
Worker tax = profit * adj_coeff * wage / wages of all other workers
It uses wage proportion as a proxy for relative contribution and extrapolates linearly into the profit. This is why I downvoted your criticism about high vs low skilled workers because it explicitly took into account relative skill and contribution when dividing profit. I also said a theoretical adjustment is needed as wage is not a perfect proxy. When the adjustment coefficient is 0 or negative then the worker is not taxed, but that's the exception not the rule.
the question of worker compensation requires at least 2 different perspectives (besides the workers own perspective). that of the company, and that of society.
from a social perspective, the American worker is grossly underpaid, and this threatens the entire consumer based economy.
however, from the individual companies perspective, and this is a cold calculation, the min wage worker is overpaid. i understand that this is a cold and harsh assessment, but businesses arent there to take care of workers. thats what we have government and unions for. businesses are just meant to make money for their owners, and theres nothing wrong with that.
obviously i support a living wage at a minimum and strong worker protections as per the societal perspective, but i think this discussion is more focused on the business's perspective, and how much value their work brings to the company. that is a cold calculation, the assessment of which probably earned me the thumbs down by people who think emotionally and are unable to consider an impersonal perspective.
1. i didnt have the opportunity to whip out a pen and paper do to do the presented math. that was based on your discussion with existentialist and im unsure if it relates to my concerns. i dont think the math is needed at this time. im also unsure of how realistic a company that outsources all of its intellectual labor is. im sure there will be a handful of anecdotal examples but im assuming that was a simplification for the sake of discussion, and it seems to be an oversimplification that will make the discussion meaningless.
2. i may have missed the point of the rape and pillage analogy. i was not trying to make a total comparison between war and business, just comparing the effect of marginally inferior leadership vs marginally inferior laborers/troops. to switch from war to film, you can change every cameraman with a marginally inferior equivalent and noone would notice, but a director/star actor can singlehandedly make or break the whole project.
bonuses are an interesting subject, but it has to be considered together with the salary, not separate from it. i need more details of your suggestion in order to respond to it.
In the examples of Company A and Company B it was implicitly assumed that engineering costs, and all other business functions that weren't just production work, were outsourced and a part of "costs". That new example covered how you'd compensate engineers and higher skilled workers with profit broken into bonuses relative to their contribution over the year (their wage). Maybe I wasn't clear enough.
Also, the method that rewards higher skilled workers more also rewards executives more. If an executive decision or negotiation was key to generating organisational growth, then their wage can be adjusted when calculating their productivity proportion. But, it's not only their brilliant decision or skilled negotiation that generates growth. The foot soldiers actualise an executive's orders, they implement it into actual value. As such, Generals didn't receive all the extra rewards when deciding to rape and pillage richer and less-defended areas, everyone was rewarded more.
And I recognise the value shareholders bring to a company. Equity funding is the best source of growth capital. But, just as we are taxed for using public goods, the company we work for taxes us for using their private capital to generate value.
the problem i have with shareholders is the short term and in and out investment mentality facilitated by the stock market as is. i dont have a problem with shareholder conpensation, within reason, because they are the owners in a publicly traded company and owners should profit as well. but because they can easily divest and go elsewhere i feel this is driving corporate culture into a self destructive mentality that will harm workers, consumers, and the economy at large while benefiting only a few owners/shareholders short term.
but to repeat, there is nothing wrong with shareholder dividends within reason.
as far as comparing ordinary workers to executive or highly skilled workers like engenieers from a company perspective is like comparing apples to caviar. I support workers rights due to humanity, this being the richest nation in the world, and because they are the consumers who drive the entiee economy. but to think that executives get their insane salary because shareholders just like them and want to play nice is not realistic.
i like to compare executives as generals as war is much more familiar to.people then boardroom battles. sure a general will not win anything without an army, but that entire army is mostly interchangeable. however if you swap the best general for even the 2nd best, the war will be longer, it will cost more, more soldiers will die, and if the other side gets the best general, theres a chance we lose outright.
same goes for engenieers. worse tech means lost wars. to believe that the workers assembling the products are producing the full value of the products seems very wrong. the plastic and screws are pennies compared to R&D and strategy.
workers should be paid more because that is who we are as a society. because the wealthy are more then secure, and everyone deserves to be able to reach for the american dream. and because it is necessary for a healthy stable economy. but as far as the value of their input, they are not underpaid.
Yeah my idea ignores the value added from branding but your criticism about high margins vs low margins also applies to the current system. With the current system owners are already incentivised to enter high profit industries or strengthen their brands to increase profit margins. It's the owners who are rewarded for owning a strong profitable brand, not the workers who are rewarded for creating the quality/differentiated/niche products that are sold and marketed. Once a company is formed I believe the incentives should lie with the workers (that includes the marketing department), not the shareholders. The fiduciary responsibility means employees are legally responsible for acting on behalf of the shareholder incentives though.
Also, I agree it's difficult to determine how much value is added by a single person or role. All business functions are inextricably linked making it impossible to truly determine how each role contributed.
But you're right, using industry benchmarks to determine worker wages would do well to approximate the value added by each worker. It's how the labour market tends to work already but they don't use it to deliver full compensation. But you can by using those benchmarks to determine bonuses to workers. The benchmark gives a productivity score for each worker. You can then easily find a worker's productivity as a proportion of a company's total productivity to divide leftovers. You could then give workers bonuses based on that instead of the profit withdrawals I listed before.
Job A Industry benchmark = $20k
Job B Industry benchmark = $100k
Job A employees = 100
Job B employees = 10
Total revenue = $4m
Total costs = $0.5m
Value added = $3.5m
Worker compensation = $3m
Leftovers = $0.5m
Job A worker productivity proportion = 20k*100/(20k*100+10*100k) = 2/3 = 0.66
Job B "" = 0.33
Cash reserve fraction = 0.2
Job A bonus = (0.5m * 0.8)*0.66/100 = $2640 x 100
Job B bonus = $13,200 x 10
Reserves = $100k
This equally distributes the leftovers according to worker productivity. If you believed the marketing team was responsible for you could adjust their productivity scores accordingly. I put reserves in because even in profit calculations the company needs reserve cash in case of emergency, investment, etc. A company beholden to themselves sounds better than a company beholden to hidden shareholders.
"I never said workers deserve to be fully compensated for the value they create, the calculations just show they're not"
I agree that labor is generally under compensated. However, I don't know if thinking of "value added" as a tax on labor is valuable. This is because if you accepted this model as a way of adjusting worker wages you would only incentivize high margin (dollar amount not percentage) goods and services. I don't think this is good for the average consumer as large value added (dollar amount) products tend to be more luxury goods. The value added on a BMW compared to a Kia is pretty significant and yet the skills needed to manufacture both (on the assembly line at least) is pretty similar.
It's also unclear how you'd use the concepts to identify where the value was added in complex manufacturing. How much "value" does the engineer who develops the new BMW engine add on a per unit basis vs how much does the assembly line worker add? How much value does the designer add? How much value does branding add?
I believe it's much more useful to look at productivity in an industry expressed as a percentage and adjust wages based on that percentage coupled with a max salary (again expressed as a percentage) for upper management, owners, COO's, CEO's, etc.... So if the assembly line worker becomes 30% more productive due to technology advances, they should be paid 30% more. If an engineer is 30% more productive they should be paid 30% more. The beautiful part is that productivity numbers are already available for most industries. This maintains business models that operate on high volume rather than high margins, it allows for valuing workers over automation, it maintains incentives to become a high skilled worker, it allows small companies to remain competitive in recruiting talent even if their profit margins aren't as high, and it maintains a profit motive for the inventor/owner to grow a business. I fail to see how using the system you're looking at does the same.
"it wasn't clear how you got that number" It was just a hypothetical number to illustrate the point and an easy number to work with. It doesn't matter if it's the equivalent of 16 hours of labor or 2 full time workers working a single shift since the two would be identical in the grand scheme of things.
"In your calculation you make no room for...". I never said workers deserve to be fully compensated for the value they create, the calculations just show they're not. I've personally exploited information asymmetry and international purchasing power disparity to negotiate more profit for myself with workers. I also think public goods (and therefore taxation) is essential. Entrepreneurial motivation is one of the essentials of 'private tax'.
With that said I do think the largest criticism of capitalism is that the ownership of capital drives compensation far far more than productivity itself. I'm going to try and simplify the example you gave in an easier format to so I can better reference and understand it:
X = [Company A, Company B]
Unit cost = $[10, 20] per unit (includes COGS and all operating expenses)
Sale's price = $[30, 60] per unit
Value Added = $[20, 40] per unit (not profit)
Volume = [1000, 100] per month
Total Value added = $[20k, 4k] per month
Required employees* = [2000, 200] if output rate of 0.5
Employee value added = $[10, 20] per month per employee
Correct me if I'm wrong, but your conclusion from this example is full compensation creates the wrong incentives because employees at Company A are compensated far less than employees at company B. That's bad because Company A is creating more overall value.
My conclusion is the market clearly values the product of company B far more so the employees are therefore compensated accordingly. You want incentives to push people to where demand is in the market. This example doesn't show wrong incentives at all. Company A is compensated less because they have a lower value added margin (profit margin includes labour costs, it's not a part of this)
*Unit output rate = 0.5 per month per employee (assuming this output rate was the only way I could arrive at the same employee number you had because it wasn't clear how you got that number)
"I'm calling that $100 a private tax on the worker." Call it what you like, however, it's an impractical way to look at labor and profit relations.
In your calculation you make no room for the inventor of the product to be compensated for their mental labor, no room for equity to be used as collateral for investments, no accounting for the risk of failure and rewarding that risk, no accounting for market correction, no accounting for market value of labor/skill etc....
If we take your position as a given economic model and we have 2 car companies. Company A produces a car at a cost of $10k/unit and company B produces a car at $20k/unit. Company A sells their product for $30k and company B sells their product at $60K. Both have a 100% profit margin. Let's assume that they both have 2 employees they have to pay per unit produced and both cars require similar labor times.
Under your system Company A should pay each employee an additional $5k/unit and company B should pay $15K/unit in order to not "tax" workers. Essentially company B would have to pay their employees 300% more than company A. This means that any business that relies on high volume rather than high margins to turn a profit would automatically be at a competitive disadvantage in terms of the labor market. Let's say company A sells 1k units/month and company B sells 100 units/month. Company A would have a profit margin of $10 mil/month and company B $3mil/month. Company A could employ 2,000 workers under a hourly wage based model while company B could support only 200. So even though company A's model is more profitable, cheaper for the consumer, and better for the country in terms of tax income and number of jobs, workers at company B would make more on a per worker basis and would be at a competitive advantage in terms of labor recruitment (especially at a time of low unemployment). I don't know if we want to create that kind of incentive.
Now, if we extrapolate this further: high skill professions like nursing would also be disincentivised as for profit health care is generally a high volume, low margin model especially in under privileged areas. The same goes for any high skill profession with low profit margins. Essentially your forcing high profit margin products and jobs onto a market that may need low margin, high volume, or high skill business models. You'd create a model where high skill jobs pay less than low skill jobs.
I'd probably vote for this idea.
@Nemiroff. I'm not saying taxation or profit is inherently wrong, I just think profit results in workers being compensated less than the value they produce. In that respect it's like taxation.
@TheExistentialist. In your example the worker's are paid the same at $8 and $15 but they're creating $7 more market value at $15. They're paid the same because they're 'taxed' more at $15. That probably sounds radical but let me try and explain what I mean.
The value added (VA) by an organisation is the sale's price (S) - cost of goods sold (COGS). The COGS and other operating expenses are a direct result of the value added by other organisations to raw inputs + the creation or extraction of the raw inputs. If the sum of compensation for all workers in an organisation (L) is less than S then the value the workers create is not equal to the compensation they receive.
Example (total sales figures for company A for 1901):
COGS = $400
Operating Expenses (OE) = $200 (includes asset depreciation, capital investment costs, marketing costs that are not included in COGS, etc)
Sale's price (S) = $900
Worker Compensation (L) = $200 (includes all employee benefits)
In this example the organisation adds a total value of S-COGS-OE = $900-$400-$200 = $300. If the total compensation for every worker in the organisation is $200 then they are effectively taxed at a rate of (VA-L)/VA = (300-200) /(300) = 33%. They're collectively paid $200 but created $300 worth of value. I'm calling that $100 a private tax on the worker.
Now for the sentiment that I agree with in your claim:
I'd argue that, as an economic function, we're better off if workers have more money since they are the primary consumers in an economy and therefore the primary drivers of it. So I'd say that in order to grow a national economy, it would be in the government's interest to impose a "max" salary for execs, owners, etc... that would limit their salaries to a certain multiple of their lowest paid employee. Let's say we agree on a multiple of 100x. If my lowest paid employee makes $25k per year, my company has a total profit of $100 million, I can only pay myself $2.5 million out of that $100 million. Furthermore, no exec can ever make more than $2.5 million under this model. I then have to either keep the rest of the money on the company balance sheets and pay taxes on it, reinvest it in the company in the form of share buybacks, marketing, equipment, etc.... All of which help the economy overall.
However, if I, as the owner want to make more money from the profits I have to raise the pay of my employees first. This forces a sort of "profit sharing"; addresses income inequality, increases the purchasing power of the working class, maintains a profit motive, etc....
I disagree with your premise, but not necessarily with the sentiment of the point.
Profit is the difference between cost of production and cost of purchase. Labor is part of the cost of production. So if I have a company that produces "x" and the cost per unit is $4 in materials, $2 in labor, and $1 for shipping; I have a product that cost me $7 to produce. If I charge $8 per unit I make a $1 profit per unit. If, however, I charge $15 per unit I have a profit of $8/unit. The workers producing "x" however are still paid the same under either model. So the only "tax" is on consumers, not labor.
Now; let's look at the specific methods of distributing profits that you mentioned. To start let's look at owner payouts. Owner payouts are simply the owner withdrawing profits from a company they own. So if I own company "z" that produces "x" and I sold 10,000 units at a $8 profit/unit, reinvested 30k into upgrades, marketing, etc.. I can now withdraw $50k in profits. This withdraw didn't affect worker compensation since that is built into cost of production which is pre-profit.
Shareholders dividends are similar to owner payouts, since shareholders are just part owners. So if, under the same numbers as above, I have 4 shareholders that each own 20% of available shares, I'd have to pay them each $10k and my owner payout would only be $10k since I'd only own 20% of the company myself. So dividend payout affect the owners profit sharing not the workers.
Executive bonuses are another aspect that is calculated after profits are posted and are generally based on a percentage and general market value of execs in companies of similar size.
None of these activities are a "tax" on workers. they are a "tax" on consumers and a "tax" on the owner.
its not taxation if it's going into private pockets directly. are you stating that those are all wrong in general? or just in excess?
Specifically shareholder dividends, owner payouts, and executive bonuses