Risk vs. Work
Nov 30th, 2007 by Bethany
I was thinking today about income and how to determine pay scales. I think about this occasionally because Colin is a teacher and often feels pressured to join a union, but doesn't want to for various reasons including that unions generate increasing need for unions without necessarily increasing benefit to union members or businesses. Anyway, as a school teacher Colin doesn't make much money, but he always brings up that he's not on stage for more than 5 hours a day and that he has tons of vacation time (i.e. 3 months off in the summer) and infinite security, so there are significant benefits to teaching, too.
I was thinking about how unions are often based on the idea that the "workers" are the ones who should benefit the most from what they produce. That the writers or the baseball players or the people running the machines in the factories should make as much money as the people in the offices because they actually produce the product sold. Kind of like socialism or communism, it's an appealing idea, especially to those who are on the production line. They did the work, they should make the profit. Seems obvious, right?
On the other hand, there are the business owners and leaders. From their perspective, part of the reason they should make more money because they assume more risk. The business owners have more to lose than their jobs if the business goes under. Say I buy an existing grocery store in my city, for example. If the grocery store goes under, I've either lost a lot of cash earned by me previously or I owe someone a lot of cash (which I will have to earn some other way). If the business closes, the cashier has to find another job, but doesn't have any loss of reputation or previous investment. It's not harder for the cashier to get an equivalent job because of time spent at my grocery store, where I as the owner have lost my capital to create future income and have lost status in the community where I might try to geet an equivalent job. The ones with higher risk believe they should have higher compensation in exchange for the risk.
How do you balance this out? I'll go with the possibly naive capitalist libertarian answer: competition. If you have lots of grocery stores and a limited number of cashiers, the grocery stores will compete to hire the cashiers by paying them more in cash and benefits. If you take away the compensation for risk from the owners of the stores, there will be fewer people willing to own stores and therefore fewer stores and therefore less competition and therefore less money for the cashiers. Of course, "limited number of cashiers" is the factor that can mess up my simplistic answer, but I really think the answer is not decreasing the amount of compensation given to the business owners by re-routing it to the workers by force (as unions try to do).
Isn't Economics fun?