Paychecks and Self-Worth: An Introduction to Industry and Economics Part II

1 Aug

The salary offered at most workplaces isn’t a reflection of the worth of the individual performing the task, but the value of the service they offer. Minimum wage is the going rate for grocery baggers… and that is likely to remain the same whether the man performing the task is a High School dropout or a Physicist with two PhD’s. There are plenty of people who are willing and able to perform the task for the pay being offered and, as a result, most employers have no reason to pay an individual more than the going rate.

So is this a reflection on the money-grubbing, power-hungry activities of free market business men and women? In some cases, yes. But in many (if not most), it’s simply a reflection of the labor market’s equilibrium (the price at which, on average, people are willing to sell their labor and at which, on average, employers are willing to purchase it.) Simply put, it’s the free market system at work.

So what about businesses that generate millions in revenue, but don’t pass it on to employees? Is that fair? Well, to begin with, it’s important for those of us seeking higher wages to recognize that the whole point of going into business in the first place is to make a profit. If it weren’t those who currently own companies wouldn’t be risking their own time, money and effort to start a business – they’d let someone else do that while they worked for a regular paycheck like the rest of us. It isn’t unusual for those who take a risk to feel that they deserve the reward for doing so. In business, that reward is profit.

Profit drives business and, indirectly, it also drives pay. It can be easy to take a quick glance at a revenue statement that suggest a company is rolling in dough and then complain that they don’t pay their employees enough. While it’s true that some companies do underpay (and sometimes dramatically), it’s also true that a revenue statement isn’t the whole picture.

Simply put, revenue is just the dollars received in exchange for a good, service or idea. It doesn’t take into account fixed costs like the rent on the building in which the business is housed or variable costs like heating that building during the winter months. Expenses like these are often lumped together as “overhead” and they can make up a huge amount of a company’s expenditures long before labor (a variable cost) is ever factored in.

Start subtracting the cost of cleaning supplies for the bathrooms, those improvements to the company break room, and the updated parking lot security and the difference between revenue and expenses rapidly begins to decrease. The statement that shows this difference (known as “Profit and Loss” or “P&L” for short) can be very telling. It isn’t unheard of for a company to make a few million dollars in revenue, but end up in the red – having spent more money than they made.

When they do end up in the black (having actually made a profit), business owners are faced with choices, each of which is influenced by a variety of factors. While they may choose to award that profit to employees in the form of higher wages, they may also decide to reinvest it in a new computer system, the replacement of aging facilities and equipment, or in new lines of stock or alternate business ventures. The result? Low or unchanging wages – even in the face of increasing profit.

So what’s the bottom line? While there are many factors which influence the wages we make, only a few are tied to us as individuals. And most of those are influenced by the labor market, itself – what skills do we have, how high the demand is for those skills, and whether others with the same skills willing to work for less. None of these factors are tied to our worth as a human being. Our paycheck does not reflect our value.

In the end, there is only One person who was ever willing to pay what we are worth as individuals created in God’s image… and that was God, Himself. Our value is reflected in Christ’s atoning death for us.

 

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