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Your Paycheck Is Not Your Value

September 2nd, 2015

Reich is, of course, correct. I remember sitting in on an Econ class and hearing that assertion: remuneration reflects the person’s worth to the company. Which, of course, is baloney.

People are not paid what they are worth, they are paid what they can negotiate. And since unions have been decimated and unemployment is still high, that means businesses are in a powerful position to negotiate, and workers are in a weak position. On the other hand, people high up in the business are in a much more powerful position to negotiate for excessive pay—both the negotiation power and the excessive pay because they either are the ones who decide what pay is, or they hold sway over those people. So the workers are hit hard, and the execs are awash.

But what about the worth of a person to the business? True, a leader can make or break the business much more than could a rank-and-file worker. But then, if a company had mostly rank-and-file and just a handful of executives, they would likely do much better than a firm with mostly executives and only a handful of actual workers. The workers are at least worth what the executives are—and probably much more.

But that’s not how remuneration is decided: it is decided, at least in theory, on who is easier to replace. You can much more easily replace the rank-and-file, so they are valued less. And while you can just as easily replace executives, the illusion is that somehow they are magical in their value and deserve far greater pay.

The pay is certainly not based on what the employee generates. I recall once taking a management position at a conversation school. I was told that my performance for the year would determine if I got the same pay as the person I replaced. Despite having replaced two managers and then innovating a system that saved the school tens of thousands of dollars per year, I was told I would not get the promised pay based on a single mild disagreement I had with someone else in the office some time before, despite the matter never coming up at that time or any other. The idea that you are rewarded in step with what you generate may be true in some places of business, but not, I would wager, in most.

In business, the rule is not “what people are worth,” it’s not “what’s fair,” it’s not “what’s right.” It is, to put it simply, “what you can get away with.”

If businesses are not going to abandon that rule, as is apparent, then why should they expect workers to not begin playing by it?

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  1. Troy
    September 3rd, 2015 at 15:27 | #1

    I bring this up too often, but demographics is the key.

    I think Japan’s fading working-age population is going to be OK as the century goes on.

    People worry about the elderly’s support burden, but all that is just jobs, man. Japanese are going to have a horrific labor shortage, which means underemployment will be over.

    The US on the other hand has way too many people given the reality of globalism and how the US standard of living is still an order of magnitude greater than the developing world.

    It takes $15/hr — $30,000/yr — to survive in this economy — double that in a major city thanks to the higher housing costs; this economy can give most people that opportunity but not everyone, due to the immense amount of money bleeding out of the ‘paycheck economy’ to the rent-seeking rich.

    Money that stays in the paycheck economy enriches workers, money that leaves it impoverishes them

    There’s ~170M people paying FICA taxes this year, 10% are lucky enough to exceed the FICA cap of $117,000, but given the L-curve of incomes, it’s the top 1% doing most of the damage.

    These 1% earners are of course CEOs, but also pro ballers and successful entertainers. To be the 1% you need $400k/yr of income, and they collectively pull $2T out of the economy.

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