Saturday, May 17, 2014

Labor extracting the max consumers will pay -- versus -- the road to subsistence-plus serfdom

What I call a subsistence-plus labor market exists when employees have no mechanism with which to withhold labor from employers in attempt to extract the maximum price consumers may be willing to pay -- pay levels set to suit employers needs only.

Examples: Fast food pays subsistence (or less).  Starbucks -- pays up a rung -- a couple of dollars an hour more plus benefits for more yuppie-attuned employees (English as a first language).  Starbucks employees may expect they are headed for better things (likely) -- may be why they endure pay too close to bottom money.  Whole Foods -- up another rung -- pays a couple of more bucks plus benefits (to the 80% who turn over) because it needs what Starbucks needs plus some additional industry.

My (un)favorite example of subsistence-plus is regional airline pilots whose pay and benefits may hover around Whole Foods level – with typically $100,000 educations and years of building flight hours – but who hope for much better things (which may be getting less hopeful all the time).

When employees whose wages extract the max consumers will pay have the opportunity to purchase products made by employees whose wage potentials are skinned (skimmed) under subsistence-plus, then, the labor price/value spectrum as assessed by consumers only becomes distorted.  Ditto for any labor-price extraction differential.   

If all employees were paid according to the maximum price their products could command from consumers – instead of too many by how little (how few rungs) above subsistence the boss can skin them – the working rubric would be: from each consumer according to their needs; to each employee according to their abilities.  (You had it all backwards, Vladimir Ilyich. :-])

There is only one modality -- introduced by legal mandate in late 1940s continental Europe, since picked up elsewhere in the world and established 
by the Teamsters Union National Master Freight Agreement in 1964 in the US -- that ownership cannot work its ratcheting-down, subsistence-plus ways around: centralized bargaining – where all employees doing the same category of work in the same locale (nationwide where applicable) work under a single collectively bargained contract with all employers.  (This should eliminate the use of scabs who don’t have a legal contract – I've never heard of scabs in Europe.) 

My old Teamsters local 804 (left in 1970, age 26) recently won (as they like to phrase it) a 30-and-out retirement benefit of $3900 a month.  Which may double what regional pilots earn while still active.

Time is a-waisting.  Not extremely long ago, Northwest Airlines squeezed a billion dollars in givebacks out of its major airline flight crews only to next year award a billion dollars in bonuses to a thousand of its execs.  The pace on the road to serfdom may be speeding up.  Help!  Now!


Denis Drew said...


If you are addressing me, legally mandated, centralized bargaining was instituted to keep labor from going on a race-to-the-top in post WWII continental Europe. It is what the Teamsters Union has won privately here. Stops the race-to-the-bottom just as effectively -- and naturally by balancing the bargaining power in the labor market.

The road to serfdom is getting paid subsistence-plus. That is when employers pay the lowest skilled workers subsistence -- no matter how rich the economy, or how much output per person grows -- and ups pay a rung for every extra rung of ability. Sounds eminently fair?

Imagine an Alaska bush pilot who owns his own plane. He will charge you the max you are willing to pay for his services -- I would call that the price the marginal value of his services compared to everything else he might purchase.

Suppose instead, the pilot works as an employee. As a practical matter the owner may charge you much less -- the max you would be willing minus subsistence-plus and a little (competition, you know) profit -- but he will probably need to own several planes to make a living. This mirrors fast food and convenience store owners, who need to own several.

The customer is getting a better deal for sure -- but only because she may be paying much less than the marginal amount she would have been willing to pay compared to other products or services. Ultimately this does not sort out the best mix of wants for the greatest number -- rather, it deeply discounts the price subsistence-plus workers can charge for their labor.

Leaving aside the moral problem of leaving most worker/consumers behind as an economy gets more and more productive -- is there anything either more productive or more efficient about this setup?

Of course, since most of the workforce ends up living on the short end it must turn out to be extremely inefficient -- in terms of stunted educations, troubled families and crime, etc., etc., among whom could have been much more productive persons.

In any case there are more of us than there are of owners; meaning we have the votes and we are going to make things better for ourselves.

PS. I am just working all of this out.

Denis Drew said...

FWIW: I've emailed around the country 2000-3000 of the above (didn't keep count) mostly to local newspaper journalists with email addresses. E.g., the last of these went out last night: about 90 to Nebraska. Also to university labor economics departments -- one such in Wisconsin had about 200 names. Etc., etc. Any big names with addresses, too, of course -- about 40 to Bloomberg writers and editors.

WIW: If anyone out there wants to start a national conversation about legally mandated, centralized bargaining -- the ground has been well pre-"fertilized." :-)

Denis Drew said...

The latest report (PDF* [100 pages]) shows (see pages 99 and 100) that from 2001 to 2013 the all-in cost of nonunion workers rose 9 percent, but union workers were up 25 percent. All-in cost counts everything – cash pay, fringe benefits, paid time off and payroll taxes paid by the employer.