The Benefits of Being an Employee

pexels-photo-2041393This article was originally meant for publication in Wilfrid Laurier University’s Newspaper, The Cord in 2019. It was rejected due to its length. I am publishing it here for the first time.

In 2019 an opinion piece by Eliza Moratz was published by The Cord titled, “What to do when you’re worth billions of dollars”. Moratz notes, “Billionaires like Bezos and Gates are not solely responsible for creating their wealth. Often forgotten are the workers in offices and factories, here and around the world, making minimum wage (or less)”. Of course, she is correct. Amazon and Microsoft could not have grown to the size they have today without employing thousands of people across the globe. However, Moratz feels that these employees have been underpaid by the owners of these companies. Moratz explains, “These workers create value for their companies, and by paying them less than their worth, those at the top are able to profit on the value of their labour”. How is it that capitalists are able to profit from the labour of others? If we all knew the secret could we all be as successful at Jeff Bezos?

The truth is, that what Jeff Bezos, and every capitalist for that matter, must do in order to become capitalists is something most of us would not be willing to do ourselves. In fact, very few do, and only a small portion of those who do, succeed. So how is it that one can become a capitalist and why don’t we all do it? The reason we do not all choose to become capitalists is because there are a lot of benefits to being an employee. Among them are; the lack of requirement of saving, the present pay that comes with employment, and the lack of risk associated with employment.

 

Savings

Daniel Dafoe’s classic, Robinson Crusoe, is the story of a man who is shipwrecked on an island where he is forced to live alone. The scenario described by the book has brought to light some interesting questions for economists. In fact, the study of a one-man economy is known as Crusoe Economics. I will use this scenario to shed a little light on how it is that one can become a capitalist.

Crusoe, wishing to eat, must find a way to take nature-given resources and turn them into consumer goods, goods which (as the name suggests) he can consume. Suppose there is a river on the island that has fish in it. Crusoe can attempt to catch fish with his hands and he very well might for the first few nights. Crusoe is able to catch two fish a day with his bare hands. It only takes one fish per day to keep himself alive. Crusoe has been enjoying eating his two fish a day but recognizes that if he were to construct a net, he would be able to catch more fish each day. This net is what is known to economists as a capital good. Capital goods are goods which allow us to produce more than we would with out bare hands. Examples can range from shovels and sewing machines to backhoes and cranes.

Crusoe figures that it will take him about six days to research how to make the net, gather the materials, and put them together to make a net sufficient to catch four fish a day. So, in order to stay alive while he is constructing the net, he must restrict current consumption by eating only one fish a day and saving the other than he catches so consume while he is constructing the net. Crusoe, then, spends six days catching two fish per day with his bare hands, eating one fish, and saving the other. This is known to economists, (and to most people in every day life) as savings. After the first six days, Crusoe is able to live off of saved fish while he spends the next six days constructing a net. Now, Crusoe can enjoy four fish per day while he operates his net to catch fish instead of using his hands.

In the book, Crusoe is eventually greeted by Friday. Now, we have two people on this island. Say Friday, too, is able to catch two fish a day using his bare hands. But he sees Crusoe’s net allowing him to catch four fish a day. Friday wants to catch four fish a day but Crusoe points out that it will take six days of saving and another six days of construction. Friday, however, is not keen on the idea of eating only one fish a day. He prefers to consume now. So, they strike a deal. Friday will operate Crusoe’s net for him. In return, Friday is allowed to keep three of the four fish he catches. Crusoe is paying Friday a wage of three fish a day. Friday, excited at the possibility of having three fish a day instead of the two he would have caught with his bare hands, accepts the offer. Friday can consume all three fish every day, or he is free to save some of the fish and eventually invest in capital himself.

The extra fish that Crusoe receives is now his revenue. Accounting for the original six fish that he spent in order to make the net in the first place, every fish he receives after the first six days is his profit. What should be seen here is that Friday benefitted from being an employee of Crusoe. Friday did not have to spend the original six days of constricted consumption (limiting himself to eating one fish a day) and could consume at greater rate (up to three fish a day) immediately, because someone else, Crusoe, had saved originally.

This is the relationship between all employees and capitalists. The capitalist must first constrict consumption in order to save for the future where they can invest in capital goods, which will make their employees more productive. The reason the owners of Amazon are able to pay workers more than the pennies a day that people make in other places is because they have large machines such as forklifts and trucks which make their employees more productive than if they were organizing and delivering packages with their hands and feet. In the places where people make pennies a day, they have only their hands or maybe some extremely less productive capital goods such as shovels an scythes. If the owners of Amazon did not save, and instead spent the entirety of their profit on consumer goods – yachts, for example – they could never purchase the capital goods required to make the employees so productive.

 

Present Payment

Now suppose one day, after Crusoe has constructed another net for himself, he asks Friday to take his net to a nearby oasis in search of a large tuna which Crusoe believes will get itself caught in the net once approximately every three days. The tuna is so large, Crusoe believes, that it will yield the same amount of food as twenty-four regular fish. Friday is successful in catching the large tuna on the third day. Friday is paid every day during his time fishing. He can consume the fish immediately, whereas Crusoe must wait until the end of the three days in order to consume or save the food that comes from the tuna. Crusoe has profited from Friday’s work, but Friday is happy to accept this pay since he can get it immediately from the savings of Crusoe.

The same is true of capitalists who undertake large projects today. Construction workers, fore example, are paid bi-weekly, while the capitalists who employ them are not paid for months or years, once the project in complete. Again, this can be a great benefit to being an employee instead of the capitalist themselves.

 

Risk

Crusoe will continue to pay Friday three fish a day regardless of whether or not he catches the tuna. But suppose that Crusoe cannot be sure that the tuna will actually bite. Regardless, he is willing to take on the risk since the chance of profit is so large.

Friday then spends the next six days, attempting to catch the tuna, all without success. Crusoe recognizes that he must have incorrectly forecasted the environment. The tuna did not get caught as often as he believed. However, it is only Crusoe who is hurt. He has spent fish which he has saved in order to pay Friday his wages. When the tuna did not bite, Friday still received the same wages he would have made regardless of the success of his efforts.

I was a part of just such a situation a year ago. The once thriving North, producer of the smart-glasses, Focals, now finds itself laying off almost half its workforce. For years, North was, researching, developing, and producing, the smart-glass product. Now, it appears that they had incorrectly forecasted the market and people were not actually ready (to my disappointment) to part with $1,000 for a pair of smart-glasses. It appears that the project was a failure. However, I, as the employee, was still paid a fixed salary for my seven month tenure there. I did not have to pay for the incorrect forecasts. I went into the job knowing that I would be paid regardless of the outcome of my work. This is another benefit which employees gain, and why so many choose the life of employment over the life of a capitalist; they do not bear the risk of entrepreneurial pursuit. The capitalist, interestingly enough, was Jeff Bezos himself. Amazon is one of the largest owners of North. Jeff Bezos agreed to pay me a wage, and he took a loss because of it. But regardless, I benefitted from employment from Jeff Bezos since I did not, myself, have to take on any risk. I knew this and Bezos knew this. We both agreed because while he had the potential to profit from my labour, I was guaranteed to benefit from his employment.

 

Capitalists’ Fair Share

What I hope shed light on here, is that capitalists do not just become capitalists out of thin air and they cannot stay capitalists if they do not take the correct actions. They must suffer through hardships that employees need not suffer through. Moratz is absolutely correct that without employees, Bezos would not be as rich as he is today. But his wealth was derived from voluntary employment arrangements with his employees. These arrangements, as I hope I’ve made clear, were beneficial to the employees who accepted them in many ways.

I leave to the reader the question of what it is that capitalists owe to society. Moratz doesn’t feel that rich capitalists are paying enough. She claims, “In recent years, politicians, such as President Trump, have promised to increase taxes for the richest in society, but that still doesn’t mean they’re paying their fair share”. But what is their fair share?

Think back to the first deal Friday made with Crusoe; to be paid at a greater rate than he would have made had he gone it alone with his bare hands. Friday is welcome to leave and make it on his own, consume less now, and even save for capital goods himself. Or, he can take the deal, benefitting from Crusoe’s previous savings, and consume more now, and save more easily or a net if he should choose.

Now, imagine an island with many Fridays, where Crusoe employs many men, letting them come and go as they please. And imagine, now, that the island has many Crusoes, all of which had previously saved in order to purchase capital goods which makes their employees more productive. We have a large group of Crusoe Capitalists and an even larger group of Friday Employees all working together voluntarily under the arrangements that they all agreed to because they were beneficial to everyone involved. Now imagine that you are one of the Fridays and you are asked, “What is the Crusoes’ fair share?” What would you answer?

One thought on “The Benefits of Being an Employee

  1. Pingback: Some new Bull Shit : “The benefits of being an employee” – How Much Is Your Life Worth

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