This is an incredibly dishonest statement. Employees DO indeed share the downside of business income volatility by being forced to take pay cuts when their company is going through a rough patch. I see it all the time and I've had it happen to me.
Why are we pretending this is not the case?
Downside risk: you signed on to be paid S shares/month or P% of profits. You worked a month and the share price tanked. You already took the loss.
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.
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.
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.)
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?
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.)
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.
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
No, you can't. Government regulations and tax codes were purchased by the companies to eliminate competition and centralize capital, such that there is only one monopoly provider of car factory jobs in your area. The .com and .gov merger made the mess, they should have to clean it up.
If there was a competitive commodity free-ish market, then your plan makes sense. Sometimes that exists. Usually, very intentionally, it is prevented from existing.
Also, to the extent that it's hard to start a business because of government regulation (which is a large extent), the obvious response is to remove the regulations that make it hard to start a business. That would mean more people starting businesses, hence more new jobs available for other people who are currently out of work. Funny how the Reuters article doesn't mention that.
That's circular reasoning where this thread is concerned. People are saying here that corporations should be sharing the upside with employees. You are saying that since they are not, people should start businesses. You're changing the subject and giving the corporations a pass.
>to the extent that it's hard to start a business because of government regulation (which is a large extent), the obvious response is to remove the regulations that make it hard to start a business.
Sorry about the delay. Took me a while to wipe the vomit from keyboard.
Seriously, while these regulatory complaints are something that we tend to hear from people with certain political affiliations, I challenge you to cite references to actual regulations that are to any "large extent" preventing actual small businesses from starting. In fact, the implication in the Reuter's article is that businesses are doing just fine in the current regulatory environment. They are more profitable than ever at the expense of the worker.
And, I think the HN populace exemplifies the actual difficulty in starting successful businesses. I doubt many here will cite regulations as a key challenge. Instead, it's actual business problems, such as product development, finding market-fit, competition, marketing, lack of capital, inability to scale, etc.
Not nice.
That's part of what I'm saying, but not all. Another part of what I'm saying is that, if the premise is that current corporations are not sharing enough upside with employees, then one obvious response is to start a business that does share upside with employees. If that's really as big a deal as people are claiming, employees should flock to such a business. Only some of those who are now dissatisfied would actually have to start such businesses; the rest could simply choose to work for them because they treat employees better.
I challenge you to cite references to actual regulations that are to any "large extent" preventing actual small businesses from starting.
First of all, it's not just starting but growing businesses that should be less impeded by regulation. Sure, start a business with only a few employees and the burden might not be too bad (depending on what kind of business it is--see below); but hit a fairly small threshold number of employees and all of a sudden you have regulations galore that you have to comply with or a dozen government agencies will come after you.
As for regulatory barriers to starting businesses, here are a few off the top of my head: professional licensing, even for professions like hairdressing where any putative benefit to the customer is far outweighed by the costs of the barrier to entry; zoning laws that clearly go way beyond any public benefit; government sweetheart deals for companies like cable providers, which prevent all kinds of competition in the ISP arena. That's just from a few minutes of brainstorming; I'm sure there are plenty more examples.
the implication in the Reuter's article is that businesses are doing just fine in the current regulatory environment.
That's because they (i.e., existing businesses) paid good money for the current regulatory environment. That does not at all imply that said environment is good for potential competitors of those existing businesses; if it were, they'd be complaining to their politicians that they weren't getting their money's worth.
I doubt many here will cite regulations as a key challenge. Instead, it's actual business problems, such as product development, finding market-fit, competition, marketing, lack of capital, inability to scale, etc.
But all of these business problems are also faced by existing businesses. Markets are not static; a product-market fit that worked fine yesterday might not work fine today, and businesses that serve their customers well often have to reinvent themselves. The response of many existing businesses (the music and movie industries being two outstanding examples), instead of reinventing themselves, is to try to outlaw their competition. The fact that those businesses continue to make profits even though there are obvious ways in which they are not serving their customers well (let alone their employees) indicates that their political efforts to get the playing field tilted in their favor have been successful.
That's fine. But, what I'm saying is that's where you're effectively changing the subject. That is, it still doesn't speak to the current treatment of employees at corporations that employ millions of workers right now, and will likely continue to do so for the foreseeable future. So, why let them off the hook? It just comes off as a disingenuous red herring to suggest that the remedy is for folks to go out and start new businesses. We know that it's extremely difficult for any individual business to succeed for a variety of reasons. Yet, what you're saying is that to remedy this problem, many, many new businesses must do so in significant numbers. I'm an idealist, but that's just not realistic--particularly in the near future.
And, I read at least a tinge of disdain for workers implied in your comments, especially given the current environment that has seen more than its share of Ayn Rand talk and hostility aimed at workers. The sentiment comes off as one of "be happy with what you get, and if you don't like the way you're treated, then start your own business".
>it's not just starting but growing businesses that should be less impeded by regulation
Yeah, I was simply responding to what you'd written re: starting a business, but agreed that regulations pose some hurdle at all phases. I run a business. You're not going to hear me cheer-leading in favor of the current regulatory environment. I don't like it either, but it's not my biggest problem by miles. I'm sure it varies by industry type, and I agree with those that you listed. But, the decrying of regulations has generally been overblown, political buzz-wording in an effort to promote a particular agenda.
So, here we have to distinguish between small businesses and major corporations. When you hear the political-speak decrying regulations it's generally a tactic to use small-businesess as cover for large corporations. "There's too much regulation and it's killing our small businesses", which is cover for "abolish environmental protections, consumer protections, financial market protections, etc. so corporations can realize even more profit".
So, the term "over-regulated" comes fully-loaded. And, that's what makes me wretch.
Where we do intersect is in acknowledgment of the tilted playing field and pay-to-play political environment/markets. Whether it's through manipulation of the regulatory environment, ridiculous subsidies, or any multitude of tools, this obviously hurts the market, workers, and everyone--except of course, those who have the deepest pockets.
How does encouraging people to start competing businesses that treat employees better count as letting existing corporations off the hook?
Also, what alternative remedies would you propose? As far as I can tell from other comments in this thread (not yours), the main remedy appears to be to complain really loudly. If it's not realistic to expect lots of people to start new businesses, it's even less realistic, IMO, to expect complaining really loudly to make a significant difference.
I read at least a tinge of disdain for workers implied in your comment
Not disdain, just a reality check. I completely agree that workers at a lot of existing corporations should be dissatisfied with the way they are being treated. But I don't see much potential for change in just complaining about it. What these corporations need is competition.
here we have to distinguish between small businesses and major corporations.
Yes, this is a good point. However, I would offer a slightly different take on it. Small businesses, in my experience (a friend of mine runs one), just want to do business; they don't have the time or the resources or the inclination to expend effort in non-productive activities like playing political games. (That's one reason I think society as a whole would be better off if the average size of a business were considerably smaller than it is now.) The major corporations are the ones buying the regulations. But that means that much of the "protection" that we as consumers are supposedly getting from those regulations is illusory.
For example, lots of people claim that the financial crisis in 2008 was the result of lack of regulation of the financial markets. But if you look at what actually went on, there was plenty of regulation; it was just regulation that the major investment banks had written to favor themselves, rather than regulation that was written to actually protect the average person from having their retirement savings invested in junk securities that were made to look like AAA securities. As far as I can tell, that situation has not improved at all.
So when I say there should be less regulation, part of the reason is that the regulations we have are useless anyway. Small businesses are too busy doing business to engage in the kinds of shenanigans the regulations are supposed to protect us from; and major corporations can manipulate the regulations so someone else pays the price for the shenanigans anyway. If it were possible to have regulations that really did protect us as they're supposed to, I would be in favor of it; but I don't think we can, at least, not the way our political system currently does it.
When a corporation that has cut wages has recovered what benefit do employees receive in relation to the strength of recovery?