Wealth Distribution in the USA

This all started from Message 83:

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The factory worker earns his pay. The local company he works most likely earns a profit as well, as do the suppliers of the materials used in the shoes.

That's a cop out answer. The factory worker is given his pay which is a small fraction of the value he adds to the materials he starts with. Surely the value he adds is more than 2-3 dollars per day.

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Percy's first post in this thread was a reponse to that with the appropriate question:

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Surely the value he adds is more than 2-3 dollars per day.

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What calculations determine the value he adds? How can you say the value he adds is actually 2-3 dollars per day if someone else can do the same job just as well but for only 1-2 dollars per day?

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And its still the same thing I'm asking you...You say that someone indisputably and demonstrably adds more economic benefit to a company than he is being paid to the point that its unfair to pay them that low.In order to determine that, we need to know how much economic benefit they are adding. And that's something you can't determine.

Yes, you're right, ownership for your company is based on partnerships and that's not the same as stock. I know I said that employees have no ownership except to the extent that they own stock, but for those whose ownership takes other forms the point I was making is exactly the same, which is that employment by itself conveys no ownership in any way, shape or form.--Percy

You don't seem to understand the meaning of your own words. I quoted them, and you just quoted them again, here they are: What I said is exactly what you just said. Tangle and CS think you're saying the same thing I think you're saying. There's no strawman. So do you think that some of this "value measured in terms of utility" should have gone to whoever you purchased the truck from? Or do you think they deserved to get only 20K? You think they should only get 20K, right?I posed the same question for the network engineer but you didn't answer, but let's say you answered that the network engineer has a salary and benefits package of 200K/year, and that his "value measured in terms of utility" is an order of magnitude higher.So do you think that some of this "value measured in terms of utility" should have gone to this new hire whose services you are purchasing? Or do you think they should only get 200K/year? If the answer is any different than for the truck, why?--Percy

No, I agree with everything Tangle said. I've said many times in this thread that I'm just using shorthand when I say market forces, and that I include the effects of regulations, unions, tariffs, etc.--Percy

Apparently no one likes the idea of a minimum income.

If someone is receiving a salary in the millions it is absolutely reasonable and appropriate to question whether the economic benefit that person provides to the business justifies that level of reward. If shareholders are not asking such questions of such people they darn well should be.If the lowest paid workers are being paid so little that it is imposible for them to feed, clothe and house themselves, and thus continue in employment without welfare assistance, then it is absolutely reasonable and appropriate for society to ask whether those employees are providing the businesses that employ them with economic benefit that far outstrips the cost of the measly wages they pay. If government and societies are not asking why they should subsidise the employment costs of huge corporations they bloody well should be.This notion that the economic benefit an employee brings be utterly and completely divorced from the reward they receive is a huge part of the problem at hand. If market forces result in such anomolies then market forces are not the answer, but the problem.But please note - Recognising the need for a link between the economic benefit one brings and the reward one receives in no way equates to this gigantic red herring straw man that everyone's salary need be calcluated on the basis of some fictitious formula. Whoop! Whoop!! Straw man alert. Straw man alert!! If the chairman's son is being paid 10 million dollars do you think it is unreasonable for the shareholders to demand that this salary be justified in terms of the economic benefit being provided by employing this person? Of course we can estimate the degree to which employment of specific roles is economically beneficial to businesses.I have already shown you that businesses do estimate this all the time. No successful business goes around employing people without having any idea as to whether those empoyees will provide the business with any economic benefit or not do they. That would just be idiotic wouldn't it? It doesn't have to be formalised. But somebody is necessarily making such judgements everytime staff are hired or fired. Which is itself involves estimated calculations of exactly the sort I am talking about. If not employing enough box stackers will cause you losses then you need to ensure that you have enough box stackers employed at a cost that doesn't exceed a level which stops your product being sufficiently profitable. This is an estimated calculation of employment cost Vs economic benefit. Well let's remove every single low wage position within McDonalds (for example) and see what effect it has on the profitability of that business. I think we would find that the low wage workforce of McDonalds provides economic benefit to McDonalds Inc that is several orders of magnitude greater than the costs of employing those workers..... Wouldn't you? Then, based on this thinking, it would be in the tax interests of the wealthy to pay their low wage workers a living wage wouldn't it? Then government expenditure on welfare would plummet and they could pay less tax. Already addressed:

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If the entire wealth of the entire nation were in the hands of ten people they would need to pay all the tax to keep the entire population functional. However in this scenario I don't think we can conclude that the problem is that these ten people are being taxed too much. Instead I think we can conclude that the problem is that the wealth of the nation is too concentrated in too few hands. Now put the same argument to the situation as it exists today. Do you get what I'm saying here......?

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Message 304Edited by Straggler, : No reason given.Edited by Straggler, : No reason given.

No. It absolutely is not.If someone is receiving a salary in the millions it is absolutely reasonable and appropriate to question whether the economic benefit that person provides to the business justifies that level of reward. If shareholders are not asking such questions of such people they darn well should be.If the lowest paid workers are being paid so little that it is impossible for them to feed, clothe and house themselves, and thus continue in employment without welfare assistance, then it is absolutely reasonable and appropriate for society to ask whether those employees are providing the businesses that employ them with economic benefit that far outstrips the cost of the measly wages they pay. If government and societies are not asking why they should subsidise the employment costs of huge corporations they bloody well should be.This notion that the economic benefit an employee brings be utterly and completely divorced from the reward they receive is a huge part of the problem at hand. If market forces result in such anomolies then market forces are not the answer but the problem.But please note - Recognising the need for a link between the economic benefit one brings and the reward one receives in no way equates to this gigantic red herring straw man that everyone's salary need be calcluated on the basis of some fictitious formula. See above. But answer me something. Do you think that the economic benefit one brings to a job should be utterly and completely divorced from the reward one receives? Or is it reasonable for shareholders and society to demand the sort of links I describe above? Yes I have. I'll repeat what I said before:

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Network engineers provide considerable economic benefit to businesses and (in London at least) are generally paid a decent wage at market rate for doing so. There is no great anomaly or discrepancy to be addressed.

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It is at the very top and bottom that the anomalies under discussion tend to occur. The minimum wage workforce whose labour is of enormous economic benefit to businesses but whose wages are so low that they have to be subsidised by government at huge public expense. The heads of business who continue to receive stratospheric salaries, fat pensions and vast payoffs no matter how economically disastrous the decisions they make may be. These are the anomalies being talked about when it is suggested that reward in the form of wage should reflect the economic benefit of one’s labour at least to some degree.

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Nobody but you is pursuing this fuckwitted notion that there must be some formula which proves exactly how much each individual position within a business contributes to the profit and loss position. This is entirely a fiction of your own construction.

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Message 294I have answered this one as well:

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But let's make your truck example more relevant to the actual issue at hand.

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If, despite the massive benefit-compared-to-cost trucks bring to the business, that business were only willing to purchase trucks at a price that requires truck manufacturers to go bankrupt unless subsidised by government, whilst simultaneously being willing to pay several times as much as the cost of a truck for Rolls Royce cars which provide little economic benefit to the business — Then I would suggest that the company in question should definitely consider paying more for it’s trucks and less for it's Rolls Royces.

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Message 299More snappily - As long as truck manufacturers aren't subject to the sort of anomolies we are currently seeing in the employment market then paying the market price of the truck poses no problems for anything I have said in this thread.In short - I'm happy to let market forces do their thing for the most part but I am not some sort of freemarket fundamentalist who believes that market forces can do no wrong or that they must prevail come what may. Where market forces fail to deliver acceptable outcomes alternative strategies need to be implemented.Which part of this are you actually disagreeing with?

This is pretty much what market forces dictate. It's also a crude indicator of the economic benefit an individual brings to a company.How else can you explain the pay of the first division footballer compared to the pay of the groundsman? You really haven't. You've just said that businesses only employ people if they think they can add an economic benefit. But they very rarely attempt to quantify that benefit because it's simply not possible in the vast majority of cases. (The 1st division footballer may be an exception and that may be why they're so damn expensive.) Well of course they do it all the time.
But most rational companies do some sort of crude assessment of whether they actually need to employ additional staff before they go ahead and do it but they never do a full cost benefit analysis because it's impossible - it's pretty much all about work load. Your network engineer will be employed when someone notices that their existing network is falling apart or if there's a new project that requires it.The cost of the network engineer is set by the external market and the skills the engineer has. The company will not pay orders of magnitude more for the engineer just because their project is potentially high worth, they'll pay the going rate because it's a market. To do otherwise would not be sensible would it?The market sets the rates that people are paid and the market thinks that a footballer is worth more than a nurse.At the very top of the pay scale, the rates are fixed because the buyers are also those being bought - they set their own rate of pay and it has sod all to do with performance or fair market forces; it's a rigged market.By the way, in those industries where there is no profit motive, like education, health (in the UK) and charities, there can be no attempt to prove an economic benefit of an employee, as an employee is purely a cost. [Good luck with the proving an economic benefit to society argument ;-)]

Please don't adopt Percy's straw man. I have never ever once disputed this. If an employee is paid 10 million dollars say - Do shareholders have a right to ask whether that salary is justified in terms of the economic benefit being provided? If they do ask such questions would you just dismiss them as being idiots asking stupid questions? Or do you accept that their questions are based on a reasonable expectation of reward being associated with economic benefit? Performance is all about the amount of economic benefit one provides. But, if we accept that the economic benefit one brings is completely independent of one's rewards - Why would this matter? Why shouldn't someone be paid millions whilst providing no economic benefit to the business at all? Remove the link and where is the problem? It's the players rather than the groundsmen that make the top sports teams the masive businesses that they are. But I would still say a groundsman provides considerable economic benefit to such clubs and that a living wage unrequiring of goverment subsidy is the least he can expect in return for that. Unless the work they are doing is deemed to be of greater economic benefit to the business than the cost of hiring them why employ them? Obviously no sensible business hires people who it thinks will cost more to hire than the economic benefit they will provide. It's bonkers to suggest otherwise. I.e. when there is a case for the economic benefit that an additional network engineer will bring obviously outstrips the costs of hiring an additional network engineer. Business case. Voila. Why must I keep repeating myself?

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Network engineers provide considerable economic benefit to businesses and (in London at least) are generally paid a decent wage at market rate for doing so. There is no great anomaly or discrepancy to be addressed.

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It is at the very top and bottom that the anomalies under discussion tend to occur. The minimum wage workforce whose labour is of enormous economic benefit to businesses but whose wages are so low that they have to be subsidised by government at huge public expense. The heads of business who continue to receive stratospheric salaries, fat pensions and vast payoffs no matter how economically disastrous the decisions they make may be. These are the anomalies being talked about when it is suggested that reward in the form of wage should reflect the economic benefit of one’s labour at least to some degree.

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This notion that the economic benefit an employee brings be utterly and completely divorced from the reward they receive is a huge part of the problem at hand. If market forces result in such anomolies then market forces are not the answer but the problem.

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But please note - Recognising the need for a link between the economic benefit one brings and the reward one receives in no way equates to this gigantic red herring straw man that everyone's salary need be calcluated on the basis of some fictitious formula.

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Did I say they should? This is the same straw man Percy keeps applying. For the love of God stop it!!!!!!!!!!!! In terms of generating income alone they are probably right as well... I've also worked in the public sector and for an international charity.....Increasingly such organisations use internal charging models and suchlike in order to emulate the sort of thinking that private businesses are required to do when making employment decisions. Because one of the criticisms aimed at many public sector institutions is that they are inefficient in terms of employment, that they don't adequately compare the costs of employing people with the economic benefits they provide.

Then why can't you accept that when I use shorthands like "link" or "reflect" to talk about the relationship between economic benefit provided and the reward one receives that I am not advocating the wholesale abandonment of market rates?Why can you not accept that it is possibe to talk about a salary of 10 million being unjustfied in terms of the minnimal economic benefit provided without wildly extrapolating to come to the straw man position that every salary must be somehow calculated as a direct function of economic benefit?Why can you not accept that it is possibe to talk about a salary that can't even be lived on without government subsidy for a worker who provides economic benfit several orders of magnitude times a living wage as being unjustified without wildly extrapolating that to come to the straw man that every salary must be somehow calculated as a direct function of economic benefit?Why can you not accept that there is more nuanced approach that accepts market rates for the most part but which is able to identify market failings which need addressing?

So, I've lost the plot.There's something you're trying to say that we're missing or that we're misinterpreting.Just to be clear about what I understand.1. All organisation - both for profit and non-profit - make rational decisions about employing people. They will all look at what work needs doing and decide one way or another if it's to the benefit of the company to do it at the cost of adding the employee to the payroll. You call this a business case which is ok and I get the point that employers are trying to make economic decisions when employing new people.But the next step you seem to want to take is to also call it a cost benefit analysis and it just isn't. It isn't because it's impossible to adequately quantify benefit or allocate cost. A cost benefit analysis is quantitative and numeric - you use a number of tools to do it but unless you can properly identify direct revenue and cost streams resulting from the decision it's a waste of time.Now you keep saying that it's a straw man and the above is why we keep saying that you built it.2. Director's pay in large public companies - the type that have shareholders - is set by a pay and remuneration committee and recommended to the main board of the company. Shareholders can object to the awards at the AGM. The problem is that the committees are made up of other directors who's pay is also set by similar committees so that it's in none of their interests to reduce remuneration - in fact exactly the opposite. The all increasingly pay themselves on an upward ratchet.Shareholders rarely object to the top people's pay because the shareholder's of large public companies are other very large companies themselves - pension, funds, corporate finance outfits, insurance companies etc. When they do try to overturn a pay decision it's rare that they can achieve a vote to do it because it essentially means a vote of no confidence in the CEO and board.You will constantly hear the justification for executive high pay to be that the company needs to hire the best and the best is expensive. That's just a lie which we can explore further if you like.3. The fact that most developed countries have some form of low wage protection is pretty strong evidence that without it, market forces would push wages downwards towards poverty levels.The only reason that this can work is if supply exceeds demand. (a scarcity of people prepared to work for low wages would force wages upwards.) But the availability of social benefits work against this because if it is as lucrative not to work as to work, then the rational man choses to stay on the sofa.If you start increasing the minimum wage to counter this, industry takes its factories to low wage economies and unemployment rises.It's a tough equation to juggle.

Except for the fact that its impossible to calculate how much economic benefit they are providing. It may well be a part of the problem, but its a fact nonetheless (except that nobody is saying "utterly and completely" divorced). And you note - realizing the impossibility of the calculation doesn't mean you think there should be absolutely no link whatsoever.When we look at the real world, we see that people who benefit companies more do get paid more. But that's the position you are defending against. If you don't want to defend it then don't. The answer to the very first question I asked you in this thread would have required a calculation like that and you carried on down the path as if we were right on track. No, it really isn't. We don't calculate how much benefit we're going to get from box-stackers and then figure out if we're going to hire some more or not. We figure out how much work it is going to take to fulfil the order and then hire however many box-stackers its going to take to get it done, usually with a couple extra just in case. If they don't have any boxes to stack, they can sweep the floor or something. But there's plenty of margin built into the product to cover the cost of overhead, including labor. There's so much wiggle room that we don't need to worry about having too many box-stackers. There would be a bunch of them standing around not stacking boxes and then we would just tell them to go home if there's no work for them to do. Nope. Let's add up the cost of every single low wage position within McDonalds* and see what portion of their income that is. I doubt their income is several orders of magnitude more than that.*McDonalds is probably a bad choice for these calculations give their sheer sizeOn the other hand, consider how much economic benefit just one low wage position at McDonalds provides. I say its almost none. We can see from the pay they offer that McDonalds thinks its very low.How many more burgers do you think they'll sell that day if they bring in one more min-wage employee?And actually, in food service your whole economic benefit calculation isn't used either. The amount of workers they determine they need is based on how much sales they expect to have, how much work they think will need to be done. The managers keep track of their labor costs per hour. When the amount of sales per hour starts declining and the labor cost begins approaching a pre-determined percentage of sales, then they start sending people home.

Then can you explain what link you think is, or should be, present?Because everytime I try to do this I get inundated with straw man horseshit about calaculating salaries based on fictitious salary formulas and being asked to prove that person X provides economic benefit Y.So maybe you can explain this link which you accept does/should exist better than I.......Edited by Straggler, : No reason given.

Misinterpreting - Absolutely. There seems to be an implicit assumption being made by Percy and yourself (and probably CS too) that if one accepts market rates in one case then one must slavishly accept market rates in all cases and that if one rejects market rates in one case then one must necessarily reject market rates in all cases. Black and white simplistic drivel that has resulted in this relentless straw man accusation about calculating salaries as a function of economic benefit. Something which nobody I have seen in this thread, least of all I, has ever advocated.Of course over here ----> In the real world it is perfectly possible to accept market rates in the majority of cases whilst simultaneously acknowledging that market forces sometimes fail to lead to acceptable outcomes and that in such cases something else needs to be done. If one accepts this notion that reward is utterly divorced from the economic benefit one brings then businesses might as well hire me as their CEO. I can bring little or no economic benefit for a huge salary. Obviously when businesses talk about "the best" they mean those that will bring most economic benefit to the position at hand. Obviously. Then simply call it estimating the economic benefit of filling that position Vs not doing so. Frankly I think you are splitting hairs but whatever..... Gosh are you suggesting that we have in place systems which don't slavishly adhere to market forces but instead try to make businesses pay the people whose labour they profit from something closer to an acceptable wage......? If businesses are willing to take their factories to 3rd world countries where they employ children, place workers in overcrowded sweatshops, base their employees in deathtrap-collapsing buildings and suchlike then any Western wage will always be unable to compete no matter how low we go.But many of the lowest paid jobs cannot be shipped overseas. Try hiring a security guard or a burger flipper who is 3,000 miles away...... The point I am making is that minimum wage legislation will only lead to increased unemployment if it is set at a level such that the costs of hiring low skilled workers exceed the economic benefit businesses gain from hiring such workers.If the minimum wage is set at a level whereby it is still cost effective to hire these low skilled workers (albeit not as profitably as at the pure market value they would otherwise receive) then either profits will just have to take the hit or those further up the pay-chain will have to be paid less in order to maintain profits.This is why setting a minimum wage at the right level is directly relevant to the wealth distribution issue that is the topic here.

I don't know what it should be, and the way it is differs between various types of jobs. For a lot of jobs there is very little link at all: I just explained to you how food service does it, and how manufacturers do it.For jobs where the link is more obvious, like sales, then people usually move to a commission based system. That's because some of your arguments depend on that being the case.