Monday, January 12, 2009

Why is labor different?

The resource that every single individual on the planet has at their disposal is Time. Every single one of us are allotted 24 hours every single day. In a free society, we each get to choose how we allocate this resource. We can use it for resting, recreation, or we can sell our time to another individual (or group of individuals) in exchange for another resource - usually (but not always) currency.

As discussed in Friday's post, labor (or the use of one's time) is economically no different than any other commodity. When the cost of labor increases, the demand for it decreases. When cost of labor goes down (if that were ever permitted to happen), demand increases. But for some reason (probably multiple reasons) we view our time differently than other things.

Most of us would never consider our time to be LESS valuable than what we are currently getting paid - and would take offense to even the suggestion of cuts in pay, benefits or anything else. On top of that, when salary disputes are out in the open, public opinion most often sides with the employees - with the possible exception of sports or entertainment industries.

Taking a look at our national (or local) economy, one would be hard pressed to find a single commodity that they would consider under priced. I rarely hear anyone (outside dairy producers) bemoaning the fact that milk is so cheap. But when it comes to labor, we expect (and often legislate) employers to spare no expense when it comes to their employees.

Unfortunately, regardless the cause - our belief that labor is different than other commodities does not change economic reality - and for an individual - and a nation - can often extend hardship in times of rising unemployment.

Here's a partial list of reasons for this mindset (I'd love to hear your additions):

1) The belief that things we own are inherently more valuable: As indicated above, dairy farmers are the only people that believe the price of milk is low. When it comes to our own labor, we are the sellers in the transaction and so we feel we are being shorted - and can sympathize with others in the same business (of selling their labor). Proverbs 20:14 sums it up nicely "'It is good for nothing', cries the buyer; But when he has gone his way, then he boasts" - This also shows when individuals are the purchasers of labor - people rarely believe that contractors are charging them to little for services.

2) The belief that our salary reflects our intrinsic value as human beings: If my employer were to approach me about a pay cut (or worse - a layoff), in my gut, it would feel as though they were attacking my personal worth. Even though this is not the case at all any more than switching landscapers makes the guy that used to mow your lawn any less valuable as a person - it still feels that way.

3) The belief that businesses exist to employ people: Employment is a side effect of business - one of many transactions that occur in the course of producing and selling goods and services. However, many - consciously or not - believe that employment is a right. Employers OWE them a job - after all, what else is a company good for.

Until we get out of this mindset and accept labor and compensation as simply a business transaction, it will be tough navigating through the coming times. In the face of layoffs, we need to do what people do when they have difficulty moving a product: consider ways to improve it while at the same time, determining the proper price point - even if that price point is below what we're used to.

1 comment:

  1. Not the other anonJanuary 15, 2009 at 8:49 PM

    OK, I’ll bite on this one. I don’t like unions much, I don’t belong to one and I don’t necessarily support them, but here is an idea of how labour can be different:

    Let’s say that someone has dedicated her life to company X to supply them with skill A. Skill A is highly specialized and so she gets a handsome wage W. What’s interesting is that Skill A takes a long time to master at the level that X needs. Another fact about the skill is that it isn’t easily transplantable to another company -- maybe because the skill isn’t needed anywhere else or because of the seniority rules that exist elsewhere.

    Notice that both Company X and the worker have leverage against each other -- they each have something that the other needs. But also notice that both those things aren’t easily replaceable. There is a bind that’s created there. They are in a stand off: One says, “You can’t survive without my Skill A!” The other one says, “You can work here for W or work for one-twentieth of W somewhere else!”

    It seems like cases like these are where unions can form. Here, the union process is the means to determine the worth of the labour, no?

    Obviously, the company is going to try to make W as small as possible and the worker is going to want W to be large. Both have to agree on a W that each side sees as “fair.”

    I see this scenario playing out during pilot strikes, but I see your point, if we’re talking about baggage handlers. . .