In a free economy, the structure of fixed wages for employees is economically vulnerable and unstable. If hyperinflation hits the entire economy, an employee with a fixed wage will lose the power to buy necessities for their family, for example. On the other hand, if hyperdeflation hits, the employee’s wage becomes too expensive for the employer and they lose their job.
I believe that wages should be progressive, changing in amount according to the profits of the entire company.
Let’s use an example.
Bakery A recieves $1000 in revenue and spends $200 in a day. With $800 in profit, the boss takes 40%, so he gets $320 in his pocket. Then his 4 employees evenly divide the remaining $480, so they all get $120.
Bakery B also makes $1000 in revenue and also spends $200 in a day. With $800 in profit, all 4 employees get a solid $50, just as they do everyday, and the boss gets the leftover $600.
Now suppose the price of everything in the economy goes up 10X due to hyperinflation. Now, both bakeries recieve $10000 and spend $2000, making them $8000 in profit. The boss of Bakery A stills gets his 40%, now $3200, and the 4 employees split the last $4800, giving them each $1200. Therefore, their wage still lets them buy the same amount of product.
Bakery B is also left with the same revenue/spending and therefore profit. Sadly for those 4 employees, they’re left with the same $50 a day, so the boss makes a whopping $7800. Not only do the employees struggle to make a living, but the boss is raking in the dough!
I come to you, mises.org, to help me finalize my theory of progressive wages, along with criticism.
ok, lets say we have a free society and some workers are on fixed wages and others arent.
what are you going to do about it?
So you also support workers paying the company’s creditors if the company runs at a loss?
I myself would do absolutely nothing! How an employer pays its employees is not my business unless I’m one of them.
It’s the employees themselves that would have to call for progressive wages. Should the employer not give it to them, they should strike, or ultimately quit, and establish a company that gives them progressive wages.
Making a company change their policies by force is against my free market ideals. It should be done with forward thinking on everyone’s part for maximum success.
That is called being a shareholder, not a worker. You really should learn about time preferences, interest and capital.
What is a strike?
If a company runs at a loss, then the employer should pay his employees out of his own pocket until there is no more unpaid work. The employer should pay because he told his workers to work and didn’t pay for their labor. It’s as simple as that; he took a business gamble and failed.
Sorry about that. Let me rephrase my thesis.
“I believe that wages should be abolished, and employees should be paid with direct shareholding.”
When the employees refuse to work under their employer until their demands are met or at least made in a compromise?
believe what you want, but prepare yourself to be disappointed when large numbers of workers and capitalists disagree with you and keep on in their ways.
perhaps later you will share with us your beliefs on how people should distribute the chores in their homes,
suggest the frequency at which people should clean out their automobiles,
tell us what sports people of different physiques should play
[8-|] some free advice and thoughts to get you started.
In a free-market there is really no such thing as “fixed wages”. Let’s say that there is hyperinflation. Why would an employee want to continue working for a company if he or she is not making a high enough wage to survive? And, if that employee quits, how would the manager employ a new laborer for the old wage? As a result, if the employee is worth keeping then the employer will be interested in raising the wage in accordance with inflation (or, re-write the contract).
Also, in times of economic dispair employers and employees tend to sign short-term employment contracts, not long-term. This is only untrue when the government directly intervenes to disallow short-term contracts.
Historically speaking, during times of less State intervention, worker’s wages did rise at faster rates than employer’s wages. The rich were getting richer, but the poor were doing so at an even greater rate.
That’s exactly what I set out to do, and it’s exactly what I think others should do as well. Just like you, I am a single organism in an ecosystem called civilization. My hopes are to not only sustain the balance in my ecosystem, but I should naturally point out different ways to do economics so my ecosystem can evolve more efficiently.
When you look at it closely, Free-market Economics and Ecology seem to coincide often, don’t they?
maybe the responses you get to your suggestions are affected by the ambiguity in should, which in our language does double duty for hypothetical imperatives and universal ones. and you don’t specify your hypotheticals and so on its face it seems like you are the happy dictator or know-it-all…
But then the wage isn’t really fixed, since it was directly changed by an employer/employee agreement in times of economic despair. If this could be done for any or every economic downturn, then the employee wouldn’t have to worry about a fixed wage, since they can just negotiate a new one.
I would like an example so i could understand that easier.
WHAT?
So the workers should share when the gamble succeeds, but not when it fails? Why do they get a share of the reward if they don’t share in the risk?
So you’re saying that capital serves no purpose anymore?
Big deal. Just fire them all and hire new employees. Skilled workers rarely strike.
Yes, what’s your point? I said that in a free market there is no such thing as wage rigidity. Wage rigidity is caused by government intervention, not free market fundamentals. Usually speaking, there is downward pressure on wages during depressions. Government laws impeded businesses from doing this.
1920s United States.
And all the employees would quit and find work making more. The business owner would go out of business or have to raise his wages.
I apologize for my annoying atmosphere. I meant to sound questioning and intriuging, not controlling
But if you hire new employees under the same conditions, wouldn’t they also grow tired of it as well?
I’m just trying to promote striking/negotiation with the employer so the company’s progression can also benefit each individual employee.