The Green Gap

In the Cold War, we feared a Missile Gap was a strategic weakness. Nowadays, we must awaken to the fact that the Green Gap is true strategic weakness: the nations whose economies will thrive in the coming years will not be those with the biggest factories, but those with the most sustainable, efficient, and ecological markets. What we require is a Strategic "Green Reserve" of ecological design to weather the coming changes that both climate and resource scarcity will force on the international economy.

Wednesday, 30 March 2011

Fiscal Responsibility - Part 1: Wealth Redistribution, Chapter III: Labour Laws

The Economist noted that:
Wages still account for a much greater slice of income than profits, but labour’s share has been in decline across the OECD since 1980. The gap has been particularly marked in America: productivity rose by 83% between 1973 and 2007, but male median real wages rose by just 5%.

So, why are profits going up and salaries staying flat? I personally don't care. The only question to ask is whether salaries are equitable. I doubt many who read this would disagree. There may be some holdouts, who argue that supply and demand determine what goes on in the market, but supply and demand works with only certain things. Work puts food in kids bellies, and sometimes any work is better than hunger. Sadly, many companies are able to depend on that fact to enlist unskilled labour at bargain prices. As the song goes:
What force leads a man to a life filled with danger,
high on seas or a mile underground?
It's when need is his master and poverty's no stranger,
and there is no other work to be found.
One's ability to eat is a hard limit on one's choices for work. If everyone's needs were somehow fulfilled by fantastic food faeries who fed, clothed, and housed the entire population to a minimum standard, then the value of work would truly be set by supply and demand. Then and only then would the worker's want for greater wealth be a determining factor in whether he or she actually wanted to clean toilets for six bucks an hour. Given the choice, I wouldn't clean toilets. If my kids were hungry, and there was no other work, I might reconsider.

The same people might argue that having children is a choice. Well yes, it is. It's a choice the government has been actively trying to encourage for years because of the need to grow the population to grow the economy. It would seem odd to penalise someone for doing something the government wants him or her to do by not allowing him or her to earn enough to feed his or her family. The hundred bucks a month per child is a help, but it doesn't go far when the household is earning part-time minimum wage.

We've already talked about redistribution of wealth through a more progressive tax regime. Now, I would like to talk about how corporations can contribute to equitable wealth distribution. This will happen in two ways: first, through fairness in staff reductions; second, through fairness in base salaries. What corporations will get in return is more freedom to hire and fire, and they will pay a little less income tax. What some currently low-paid workers get in return is a living wage and the freedom from fear of being let go.

Labour Law: from downsizing to conservation

Corporations are able to find ways to cut costs by cutting people, keeping wages low, and forcing salaried workers to do more for the same pay. Large companies, and by large I mean companies that span more than one province or employ more than 200 people (if some king hires me to write policy, I'd try to get someone to help me figure out what that number should be, but for now I'll just pull something out of the air), should no longer be bound by simple provincial regulations. I propose a set of labour relations laws that kick in once a company crosses the line from small to my above definition of "large". These would be national labour laws, instituting a minimum wage for large companies as well as terms of release for workers. The laws would mandate overtime payments for salaried and hourly workers alike. None of these solutions are elegant, but they are necessary, in my opinion, for low-paid workers to stop getting the short end of the stick. Remember, all of this only applies to "large companies". Everyone else abides by existing regulations when it comes to employment. This will give startups a competitive edge to allow them the leeway to become a large company.

Part one, and the first piece of legislation, is quite simple. Every worker earns a $10k or one month salary payout (whichever is larger) per year of work upon leaving the company. After the initiation of the program, this amount can be scaled to inflation, but inflation would not affect the amounts of previous years' payments. This is for a full-time equivalent year, meaning part-timers will have to work longer. For the sake of argument, a full-time equivalent year will be 52x37.5 hours of work (1950) and paid holiday. If a worker is let go by the company in the first year of work, the worker qualifies for the leaving pay. If the employee leaves in the first year of work, the employee does not qualify for the leaving pay. After the first year, whoever terminates the employment, the pay is the same. The application of the concept is simple, but there would have to be details added to protect both worker and company from either gaming the provisions for first year payouts. Funds for this purpose must be set aside in an escrow on a month-by-month basis to ensure the money is there should the company go under. In the event of bankruptcy, this cash would be completely protected from creditors by bankruptcy protection. The company would not have to pay the escrow's interest to the employees, and may use it as it wishes. As a side benefit, this increases the amount of money invested in the market. Companies would be allowed to hire and fire employees more or less freely in exchange for this simple payment, since every transaction has an opportunity cost. This would also eliminate the need for employment insurance. This benefit would not be subject to income taxes.

The next little piece of legislation would be a regulation setting the "national" minimum wage for hourly workers in large companies. This would be set at $15.39 to begin with, and would be reviewed every year based on inflation. Minimum salary per annum would be set at $30,000. 'Nuff said. Finally, large companies would be forced by law to pay salaried as well as hourly workers 1.5x overtime for work in excess of 9 hours per day or 37.5 hours per week. This would allow for flex time within reason. Salaried overtime would simply be prorated to their salary divided by 1950. These two very basic points are not simply a brute-force solution to wage inequity, they are hopefully an equaliser that will help little companies make a market niche for themselves by being nimble and lower-cost. The playing field has to be levelled so that small companies can compete with large companies, and the way to do that is to force the big boys to pay their employees a living wage. Big businesses that can derive enormous profits can either afford to pay, or they can leave and give back the niches smaller stores once filled. While it seems counterproductive to drive off big businesses, the efficiency and profit maximisation that these big businesses can benefit from actually translates into fewer, lower paid jobs for the regions they move into. Small to mid-size businesses drive the economy, and big businesses will either give their employees enough money to feed a family, or they will vacate the market niche and let small companies re inhabit it.

The reasons why I don't fear driving big, efficient corporations away are going to be covered more in the next part, specifically, in a chapter on equalising the "runaway leader" problem in businesses: big companies make more money and can then choke out competition, which is bad for overall innovation in business. Big companies are also making lots more money, but not passing it on to their workers. This national level labour law is just a brute force solution to that systemic problem that kills two birds with one stone: it forces big companies to put a little more of their profit into their salaries, and allows for leaner small companies to enter niches in the same industries as corporate giants because of their relative salary advantage. Of course, big companies would be rewarded for their adherence to the relevant laws and regulations through lower corporate income taxes. Deadbeat companies would be penalised with standard taxes. If companies come up with a less draconian method to right the wrongs that share-price motive inflicts on workers, I'd love to hear it. For now, however, I think that this is the one thing that strict regulation would solve better than simple incentive measures. 

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