In Chapter 22 of The Prince, Niccolò Machiavelli asserts that "there are three classes of intellects: one which comprehends by itself; another which appreciates what others comprehended; and a third which neither comprehends by itself nor by the showing of others; the first is the most excellent, the second is good, the third is useless." I will explain the usefulness of the distinction between the first two types, and how it relates to honesty.
The concept of signalling in the field of economics is a useful introduction to the underlying problem: the difficulty of measuring capabilities or knowing what to expect in the future from the actions of another person, or even the inaccuracy of expectations in general. Much of society is based on establishing accurate standards of judgement so we know what to expect from a situation, and what to avoid.
Many problems are the result of our collective evaluation being inaccurate. Sometimes this is because no one found a solution that could satisfy the often conflicting requirements and goals of society; but other times it's because the expectations that people have prevented a correct solution from being adopted.
In the context of signalling, you could say that this is because there are too many people attempting to learn the existing signals in society, and not enough people maintaining the quality of existing signals or creating accurate new ones to supplement or replace ones that indicated a certain attribute or correlation with future events.
The reason this happens is simple: creating or verifying a new standard of judgement or 'signal' takes effort in proportion to the complexity of the situation being evaluated. There is no real shortcut to this, so when signals are expected to be accurate the optimal strategy for most people would be to avoid confirming their validity. This habit is the cause of problems when the accuracy of signals shift due to a change in the underlying situation they're meant to indicate, and people refuse to evaluate new evidence until a catastrophic event forces them to see reality.
Two analogies for this: the first is that some materials can be permanently bent from the application of force, while others just shatter. The second is that a bullet only has about 1800 J of energy, which is the same amount absorbed from being in sunlight for three seconds or from eating 1/4 of a Tic Tac®.
The way to prevent these events from occurring is not for everyone to spend all of their time confirming other people's conclusions, but rather to be aware of the possibility that the consensus opinion can be wrong so that when they encounter a situation where this seems to be the case, it doesn't require a major change in world view to support a new type of signal or expectation of future results or changes to an existing signal. (I'm using "signal" in the sense of what people expect the optimal signal to be, although in economics it's generally used it in the sense of a selection from one of several indicators that not everyone is able to possess.)
The widespread ability to recognize and verify these corrections to the frame of society's expectations would mean that people would feel socially rewarded for making positive contributions to doing this. Without this reward, these actions have positive benefits (or "externalities" in the language of economics) to society but no reliable value to the individual.
There are many attempts to formally recognize advances of knowledge, but these are subject to their own criticisms such as the reasons given by Grigori Perelman for his rejection of the Fields Medal in mathematics. Since verifying the accuracy of a given signal requires intimate knowledge of the situation it's meant to predict, formal recognition of improvements to signals or expectations in everyday life is even more problematic because the people who control the award-giving process could be just as incorrect as the general consensus is. Without the ability for every individual in society to recognize inaccurate signals, this sort of central planning approach is just as flawed which is why the Soviet Union, using this centralization of standards of judgement, was unable to create the society free from corruption that it wanted to.
The benefits to society from a widespread ability to evaluate signal accuracy, or "think critically", should now be obvious. However, there is an additional complication I should mention: people who perceive the outline of this problem tend to migrate away from social communities or situations with inaccurate signals, and this can cause people to misevaluate both the possibilities for improving those situations afflicted by inaccurate signals or signal drift, and the possibilities for the world as a whole that are implied by the presence of this variation in signal quality.
As a result it becomes important to maintain a widespread recognition of the varying reliability of signals in all of society, to prevent a catastrophic event from occurring due to accumulation of inaccurate signals in one part of society despite a lack of perception of this growing tension by people who see no indication of this problem in their immediate environment.
The way to cultivate this proficiency is to deliberately introduce conflict in the goals society seems to impose on the individual, to prevent the expectation that signals to indicate competence can always be easily discovered.
With the work concept described on this site, the conflict is between total income and average wage rate.
This relates to honesty because without widespread ability to evaluate signals, someone can support an inaccurate signal that they know to be wrong but benefit from, and use the excuse that they were just "following everyone else" or had not done the effort to determine the accuracy of alternative standards of judgement. Emotions play a role as well but the above explanation should be enough.
Some examples:
1) This report on public perceptions prior to the 2004 US presidential election, as well as a site that references it.
"Despite an abundance of evidence—including polls conducted by Gallup International in 38 countries, and more recently by a consortium of leading newspapers in 10 major countries--only 31% of Bush supporters recognize that the majority of people in the world oppose the US having gone to war with Iraq. Forty-two percent assume that views are evenly divided, and 26% assume that the majority approves. Among Kerry supporters, 74% assume that the majority of the world is opposed."
2) This study on prediction of one's reactions in a certain situation.
"The study is consistent with decades of psychology research pointing to the same thing: People are really bad at predicting their own actions in socially sensitive situations."
3) The importance of income to getting messages on dating sites.
"if you're a young guy and don't make much money, cool. If you're 23 or older and don't make much money, go die in a fire. It's not hard to see where the incentive to exaggerate comes from."
4) The reason economists have not provided advice to decision-makers that would allow them to eliminate undesirable outcomes in the economic framework.
5) A criticism of China's education system that may have been posted by a hacker posing as a student reporter who interviewed the principal of the prestigious Tsinghua University.
So as stated, the concept on this site would make being honest a more rewarding strategy.
Wednesday, March 28, 2012
Sunday, March 25, 2012
Frequently Asked Questions
Q. But I already have plenty of time. All the things I want cost money, and this is all about making less money and doing more work!
Other people do value their time more than what they could buy with more money. See comments on a proposal for a 21-hour work week. If there are people like this at your company, your pay shouldn't really change, but every person who chose to work less would cause a tiny increase in the income and purchasing power of everyone with the same level of education. This would be because of tiny changes to the supply curve for labor and demand curve for high-end goods like iPhones, while making less expensive goods slightly more equal in price by increasing demand.
So you should support this option for everyone who buys the things you want so that they are less willing to pay for those things, driving down the price. If one company does it, it helps people with goals outside of working while just slightly increasing profits for the company. If every company does it, then it helps people who feel like they don't have enough money, who probably outnumber the former type.
This is why you should share this idea with your friends: the most important effects are at the national and global level.
Q. The biggest problem for the company I work at is lack of customers. Hiring more employees won't help, no matter how dedicated they are.
Your company would gain nothing by adopting this work concept. But it could benefit from a federal law that allowed other companies to use this concept, if you sell products or services in the middle range of quality or something that many people are just too busy to benefit from right now. People with more advanced educational degrees have higher income, but they also have the least free time.
Q. If corporate profits go down, how does that create jobs?
Corporate profits would go down because more of the total revenues would go toward wages and salaries. If someone buys from a company which sells a handbag for $34 instead of one that sells them for $3400, it takes roughly the same amount of work to make (which is why fakes are so much cheaper) which means roughly the same number of jobs created (some will also go to marketing, management bonuses, etc.) but much higher corporate profit for the expensive handbag.
This means that whatever your income is, you would need to do $3400 worth of work for your own company to buy the expensive bag, and just $34 worth of work for the cheap one. If you, or someone like you, chose to buy the cheap one that frees up $3366 worth of work for someone else at your company. The person who does that work might still choose to buy the expensive bag, but at least you created jobs at the business making affordable bags and the more people who are able to do the same as you, the greater the percentage of corporate revenues that go to wages instead of profit.
Choosing to work less and make less money doesn't mean you have to buy fewer things.
Q. And I win how by destroying corporate profits? How does that benefit me?
What's important is how it happens. Putting into law mandatory 30-minute rest breaks every hour would also destroy corporate profits and fix unemployment, but this would be a waste both because it forces people to take breaks who don't want to, and those who do want to work less would be vastly constrained in the activities they could do during those short breaks at work.
With the concept described on this site, the benefits would range from "corporations have less money to spend on influencing politics" to "better resource conservation" to "less crimes committed due to being poor" to some other ones which are hard to describe or convincingly argue, like "being honest would be more viable than it is now" and "intelligent people would have less reason to be depressed about the world".
..that second paragraph missed the point, since the first three would also occur in the 30-minute rest break scenario. Which could never become a law since it would be bad for companies that used it, unlike this concept which would be good for companies that use it.
I guess you could say that this way of "destroying corporate profits" is a way, maybe the only way, to do it such that it increases the options for companies and their employees, instead of decreasing options. A difficult point to argue about I guess.
Q. If corporations are less profitable, doesn't this mean that they will stop qualifying for outside investment, less corporations will be created and no innovation will occur?
The decrease in profits would affect all companies selling high-end products equally. Expectations for the possible return on investing in a new company would decrease, so companies would just have a different standard of profitability to qualify for loans. Good products would still exist as well as potential for innovation, although there would be more competition based on price and less on quality due to consumers who made the decision to work less and spend less money.
Q. Making US corporations less profitable means that China wins.
The decrease in profits would occur for all corporations, not just ones in the United States. Although China doesn't really have any famous brands because Chinese businesses tend to try to compete on price (and attempts to establish Chinese brands have generally failed), the rich in China and nearby countries place a high value in brands, especially Western brands.
So as bad as it might sound, the US would continue to buy goods from China at a cheap price, while selling expensive luxury products to China's rich. If people in the US worked less then GDP would go down compared to China, but GDP has never measured the economic value of many types of activities or the utility of free time.
Q. What about jobs that wouldn't work well with this concept, like a security guard?
They would probably remain on the salary system. However, it might be useful to use this system if working less than full time becomes popular enough that jobs that require 40 hours per week don't get enough job applicants. If, for example, security guards at a certain company worked 30 hours per week using this work concept, in an emergency the company could request someone to work 40 hours without being an unreasonable imposition on their lifestyle. It's less likely that someone on a salary for 30 hours per week would be willing to accept more hours without any compensation, and as described in the previous post working any less than the 'reasonable physical limit' of 40 hours per week is just not stable with the normal wage-and-overtime system.
Q. Someone making $50,000 per year currently is getting $50,000 worth of utility when they spend it. Why should they or anyone else expect prices to go down so they can get more value than what the free market dictates?
The reason why this concept can work is that there is an oversupply of labor due to the assumption that by working as much as possible and increasing the nation's GDP, this will eventually lead to a resolution of economic problems such as unemployment, poverty, and inequality. This distorts the demand for goods to the point where spending money is seen as a goal for its own sake, and the question is just one of how to maximize benefit for a given amount that is spent. This leads not only to goods that are meant to signal one's ability to discern quality and social benefit, such as organic foods and most of Apple Inc.'s product line, but also to the pursuit of experiences that cannot be obtained elsewhere, no matter how ephemeral they may be.
These things (signals that indicate competence, and experiences) do not have a value intrinsically related to their cost, and therefore it's very reasonable to expect that someone could gain the same utility if they chose to work and earn less or if the market price of these things decreased, as would happen if people were less willing to supply the work needed to pay for these things at their current prices.
Q. Why not just make performance relate more to compensation, and take advantage of possible efficiency gains that way without anyone working less?
Because society refuses to support those who, due to avoidable or unavoidable circumstances, are not able to get a job either in normal economic circumstances or unusual ones. While it may be possible for anyone in society to survive given the options available, there are other goals which may seem difficult or impossible to accomplish without a reliable monthly income. When society is unwilling to allow government to make up for a jobs deficit from private commerce, higher worker productivity is a direct cause of unemployment.
This effect on a small scale was why the workers at the Hawthorne Works actually had lower productivity when their pay was linked to their individual performance. While older brother linked a case of this being successful with Federal Express, it was the reward of finishing work earlier that eventually lead to the productivity target being reached, not a monetary bonus.
Q. Businesses can just continue to hire and fire people as demand changes, so a system which avoids the need to do this has no additional value.
The first search result for "average cost to hire" says that to replace a $60,000/year employee, it could take up to $49,000 in direct costs and possibly as much as $100,000 in indirect costs.
According to the second search result, the overall average cost-per-hire for the US is around $4000~4500.
According to the third search result, estimates of the turnover cost for an $8/hour employee range from $3500 up to $25,000 for specific occupations.
Q. Would everyone be expected to switch to this system?
No, only jobs with a potential efficiency increase where a business and its employees agree to change the terms of the work arrangement.
Q. If only 5% of the population decided to work less and unemployment is still above 7%, what is the backup plan?
If there are a significant number of jobs where you can work less and still have job security and a reasonable income, this would remove moral validity from the idea that the unemployed or poor are somehow forcing people to work 60 hours per week. Once people recognize this basic fact, the conversation can further evolve and might include increasing taxes if problems in society still exist.
Q. How does paying workers less for working more convince a business to reduce their hours?
Businesses would be perfectly content with most people continuing to work full time with this concept. Any pressure to reduce hours would come from the employees themselves. Working, and earning, as much as possible is currently seen as one way to identify an employee who is dedicated to a business and to having a successful career that benefits the business as much as it does the individual, so this concept functions by introducing an alternative idea of how to show you can achieve your own goals and anything that a business can require of you without working full time. Instead of providing extra value to a business by working unpaid overtime with a monthly salary, you would provide extra value by completing your responsibilities more quickly and saving the business a small, and symbolic—but important—additional wage cost.
Q. If there are people who want to work less, why aren't they just working part time?
Part time jobs have lower average wages compared to full time for the same occupation. Partly because they are intended to be an economical alternative to hiring another worker, but also because of two other factors:
1) part time jobs, the employee takes the risk from low demand in the short term. With full-time jobs, the business takes the risk up until the point where it has to fire someone.
2) full time jobs simplify management because there's less incentive for workers to be inefficient. People still ARE inefficient but my own explanation would be that they see value in "face time" at work and staying for unpaid overtime.
This second provides a theoretical benefit to the business from full time work; the first provides a theoretical benefit to the employee from full-time work. Together they suggest that "effective" people will want to do full-time work, which biases expectations and in turn reinforces the situation (by theoretically causing wages for part-time work to be lower than for full-time work).
The proposed concept changes both of these points; the employee would mind low demand less since they would end up with a higher average wage rate, and they would also have less incentive to be inefficient which could mean those positions would be more eligible for responsibility. Especially if it was someone who had previously been working full time and voluntarily chose to use the new system in the same position and with the same responsibilities.
Q. Can't we just wait for productivity to go up and fix everything?
Productivity has been going up, but wages much less so. The rich continue to capture most of the rise in income. See also sections from previous posts which address this: "Alternative 3: wait for it to fix itself" and "The Wageless, Profitable Recovery - NYTimes.com".
Q. Americans are already working as hard as they can. There is no 'latent potential for efficiency increase' at even the most bureaucracy-ridden corporation, that's silly talk!
However, bureaucracy and inefficiency are well recognized to exist in many government organizations, so this concept should be adopted for that reason alone so that incentives exist to eliminate redundant or inefficient government processes and paperwork.
Assuming that people exist who want more free time without having to give up a competitive wage, this concept would also allow businesses to use those people to compensate for changes in demand without the costs associated with hiring and training new part-time or temporary employees.
Q. Either something (like a worker's strike) helps employees, or it helps the business. How can this concept help both at the same time?
It would help a single company: the company that adopts it, which we'll call Company A, and the employees working there. Other companies would see lower profits if Company A starts using this system, unless they sell things that people would tend to buy with a lower income.
Q. Shouldn't business work together to oppose this then, instead of allowing a single business to profit from something that's detrimental to the capitalist class as a whole?
Businesses are allowed to do things that harm other businesses all the time by lowering their prices, it's called "competition" and "free markets".
Q. Is this an example of class warfare by decreasing income going to rich people, also known as the capitalist class?
Jamie Johnson made a documentary about how meaningless life can occasionally feel when you can't identify with the goals or challenges that most of the population has, and how difficult it is to trust people or make new social connections when income disparity is as high as it is.
There is an important distinction between a reduction in income inequality through free market mechanisms (enabled by changes to government regulations to allow it as an additional option), and wealth transfer through welfare supported by taxes or inflation. There is an inherent sense of conflict when the government forces people to accept a situation or risk imprisonment, but voluntary commercial transactions do not carry this connotation or represent class warfare.
Q. How would businesses pay back their loans if they didn't have any profits?
Profits are what is left after paying for all costs associated with the business, including wages, salaries, bonuses to executives, taxes, interest on loans, paying back loans, and investing in new equipment or resources for the business.
Q. What about businesses that hire unskilled workers in temporary positions, where it costs nothing to hire someone new and no time to train them?
The conditions in places like warehouses for online retailers are a result of supply and demand. Many people are unwilling to work at low pay with no job security, but high unemployment means those employers have enough people applying that there is no need to improve the working environment.
While these businesses would have no reason to adopt the work concept described on this site when it's so easy for them to replace a worker and productivity is already high, the use of this work concept by other companies with higher costs of replacing workers and potential productivity gains would lead to a reduction in the supply of labor and cause job applications to this type of business to eventually dry up unless the business improved the attractiveness of the working environment or compensation, which might include using this work concept if doing so becomes profitable.
Q. Why is the concept described on this site an improvement over paying workers the minimum possible and letting them earn more from overtime?
From the business's point of view, the second system is better which is why Amalgamated Product Giant Shipping Worldwide Inc. requires people to work 55 hour weeks with overtime, and more during holidays. This allows them to use a lower average wage (including overtime) than what people would normally accept, because they are getting paid for at least 55 hours of work and can more easily afford basic costs of living.
However, for job occupations that require more learning or are more difficult to reduce to the most efficient sequence of actions, it's more expensive to replace people and those who apply are less likely to agree to work 55-hour weeks. This concept allows businesses in this more restrictive situation to have the same flexibility in response to changes in demand despite hiring workers that have more alternative employment options in case they dislike being forced to work more than 40 hours per week. Someone who normally worked less than 40 hours per week at a higher average wage rate could be required to work up to 40 hours with the understanding that the arrangement allows them to have a higher average wage rate, with more free time and better job security than what they could obtain at another company.
Q. How does income inequality lead to inefficient distribution of essential goods like housing?
This happens because of the inability to extract maximum profits through targeted pricing. Suppose you have three houses, all of roughly equal quality. You also have three potential buyers of these houses. One person is willing to pay $800,000 (prices compared to income are pretty crazy in some countries, like Singapore and certain cities in China), the other two people are willing to pay $200,000. The houses and land cost the bank that owns them just $100,000.
If the bank sells to the last two people for 200k, then the first person will only pay 200k as well since while they could pay more, they would feel they are being exploited and refuse to out of principle. So the bank sells one house for 800k and leaves the other two empty, maybe pricing them at 500k in case someone else comes along.
With larger numbers of people to make a smooth demand curve as you see in basic economics, the problem is when income becomes so distorted that it's difficult to tell if you would make more money by increasing the price and selling to rich people, or decreasing the price and selling to poor people. While even the concept described on this site would not prevent people from having ridiculous amounts of money, a much larger number of products would have a demand curve such that you could reliably say that you would increase total revenues (the amount before costs of business) by lowering the price of a product by a small amount, due to some number of people switching from other competitors' products to yours that makes up from the loss of gross revenue from existing customers from lower price.
Q. What types of products would not become easier to purchase if this work concept was adopted by society?
Products which require a large amount of work to produce, and are not just expensive because of a monopoly provider of a status good. The large amount of unused labor in both the US and the rest of the world show that rich people don't spend much of their money on products made with unskilled labor—the only example I can think of is Arab countries bringing in construction workers from poorer areas of the world—but it would also apply to purchases by the upper middle class.
So while someone in a low-paying job who buys a typical mix of low-end and high-end products would tend to see an increase in purchasing power if this work concept was adopted by society, someone in a mid-to-high-paying job would tend to see no change or even a decrease in purchasing power even if they continued to work the same amount. Someone in a high-paying job who only buys low-end goods would see the greatest reduction in purchasing power, but high current levels of unemployment throughout the world means that these changes in purchasing power might not necessarily take effect immediately, and depending on which segments of society take advantage of the option to work less the short-term changes in purchasing power might even be the opposite.
In that scenario, people with higher amounts of education would preferentially work less despite the already high demand for their services; this would further raise the wage premium on education and slightly increase the demand for low-end goods, but a significant decrease in unemployment would only occur if businesses start hiring the large number of college graduates working in jobs that don't require a college degree or if the incentives of an even higher wage premium and the option of working less time convinced people to choose college majors with more job openings. But either way, unemployment would go down.
Yes, it's hard to predict what would happen when I don't know who would work less, and it's intended to be hard to predict as well...
Since the premium on some products is based on product attributes specific to a company (having a PhD doesn't mean you are allowed to manufacture iPads and sell them with a 50% profit margin) or other soft 'status-based' characteristics, the general trend of a contraction the price spread between different product qualities would still occur whether it was unskilled workers who decided to work less or those with higher education, even if product types that require higher education move against this trend in the short term.
Q. What if employees of high profitability companies just got more of a share of profit? That would mean income gains go to the top 25% of the population instead of the top 1%, which means 25 times as much consumption.
This would cause them to be less likely to buy low-end goods, meaning that the increase of demand would be for things like $60,000/year in private school and daycare costs. This would lead to further incentives to invest in education, even if just for the sake of having something to put on a job application, and people would spend more of their life in school before being able to do things they want.
Any sudden demand shock, such as from the top 25% making poor investments during a financial bubble and then losing that money and going into debt, would lead to the same situation as now with students stuck with tens of thousands of dollars of student debt in a poor job market, except that it would be hundreds of thousands of dollars in debt.
So in other words, while it would increase 'consumption' including purchases of education, it would not provide the flexibility of the work concept described on this site as a protection against changes in demand. The risk from taking on student debt would also continue to distort college degree attainment rates based on income.
Q. How does creating more poor people lead to employment growth? Economists say that high unemployment is from people not spending enough.
Rich people in the US would still be spending plenty, assuming they are patriotic enough not to move to a country where they can set up their own personal estate with thousands of non-English-speaking servants who will work for $1/hour. Total wealth in the US was $54.2 trillion in 2009, with 34% owned by the top 1% and 85% owned by the top 20%. The top 1% also own 70% of all financial assets.
So I don't think I need to explain more. The flow of money of the rich would simply be diverted so that it actually "trickles down" like it was expected to, meanwhile we buy things from China, those profits are extracted by China's rich and they give it back to us.
Updated 5:44 PM, 31 Mar 2012
Other people do value their time more than what they could buy with more money. See comments on a proposal for a 21-hour work week. If there are people like this at your company, your pay shouldn't really change, but every person who chose to work less would cause a tiny increase in the income and purchasing power of everyone with the same level of education. This would be because of tiny changes to the supply curve for labor and demand curve for high-end goods like iPhones, while making less expensive goods slightly more equal in price by increasing demand.
So you should support this option for everyone who buys the things you want so that they are less willing to pay for those things, driving down the price. If one company does it, it helps people with goals outside of working while just slightly increasing profits for the company. If every company does it, then it helps people who feel like they don't have enough money, who probably outnumber the former type.
This is why you should share this idea with your friends: the most important effects are at the national and global level.
Q. The biggest problem for the company I work at is lack of customers. Hiring more employees won't help, no matter how dedicated they are.
Your company would gain nothing by adopting this work concept. But it could benefit from a federal law that allowed other companies to use this concept, if you sell products or services in the middle range of quality or something that many people are just too busy to benefit from right now. People with more advanced educational degrees have higher income, but they also have the least free time.
Q. If corporate profits go down, how does that create jobs?
Corporate profits would go down because more of the total revenues would go toward wages and salaries. If someone buys from a company which sells a handbag for $34 instead of one that sells them for $3400, it takes roughly the same amount of work to make (which is why fakes are so much cheaper) which means roughly the same number of jobs created (some will also go to marketing, management bonuses, etc.) but much higher corporate profit for the expensive handbag.
This means that whatever your income is, you would need to do $3400 worth of work for your own company to buy the expensive bag, and just $34 worth of work for the cheap one. If you, or someone like you, chose to buy the cheap one that frees up $3366 worth of work for someone else at your company. The person who does that work might still choose to buy the expensive bag, but at least you created jobs at the business making affordable bags and the more people who are able to do the same as you, the greater the percentage of corporate revenues that go to wages instead of profit.
Choosing to work less and make less money doesn't mean you have to buy fewer things.
Q. And I win how by destroying corporate profits? How does that benefit me?
What's important is how it happens. Putting into law mandatory 30-minute rest breaks every hour would also destroy corporate profits and fix unemployment, but this would be a waste both because it forces people to take breaks who don't want to, and those who do want to work less would be vastly constrained in the activities they could do during those short breaks at work.
With the concept described on this site, the benefits would range from "corporations have less money to spend on influencing politics" to "better resource conservation" to "less crimes committed due to being poor" to some other ones which are hard to describe or convincingly argue, like "being honest would be more viable than it is now" and "intelligent people would have less reason to be depressed about the world".
..that second paragraph missed the point, since the first three would also occur in the 30-minute rest break scenario. Which could never become a law since it would be bad for companies that used it, unlike this concept which would be good for companies that use it.
I guess you could say that this way of "destroying corporate profits" is a way, maybe the only way, to do it such that it increases the options for companies and their employees, instead of decreasing options. A difficult point to argue about I guess.
Q. If corporations are less profitable, doesn't this mean that they will stop qualifying for outside investment, less corporations will be created and no innovation will occur?
The decrease in profits would affect all companies selling high-end products equally. Expectations for the possible return on investing in a new company would decrease, so companies would just have a different standard of profitability to qualify for loans. Good products would still exist as well as potential for innovation, although there would be more competition based on price and less on quality due to consumers who made the decision to work less and spend less money.
Q. Making US corporations less profitable means that China wins.
The decrease in profits would occur for all corporations, not just ones in the United States. Although China doesn't really have any famous brands because Chinese businesses tend to try to compete on price (and attempts to establish Chinese brands have generally failed), the rich in China and nearby countries place a high value in brands, especially Western brands.
So as bad as it might sound, the US would continue to buy goods from China at a cheap price, while selling expensive luxury products to China's rich. If people in the US worked less then GDP would go down compared to China, but GDP has never measured the economic value of many types of activities or the utility of free time.
Q. What about jobs that wouldn't work well with this concept, like a security guard?
They would probably remain on the salary system. However, it might be useful to use this system if working less than full time becomes popular enough that jobs that require 40 hours per week don't get enough job applicants. If, for example, security guards at a certain company worked 30 hours per week using this work concept, in an emergency the company could request someone to work 40 hours without being an unreasonable imposition on their lifestyle. It's less likely that someone on a salary for 30 hours per week would be willing to accept more hours without any compensation, and as described in the previous post working any less than the 'reasonable physical limit' of 40 hours per week is just not stable with the normal wage-and-overtime system.
Q. Someone making $50,000 per year currently is getting $50,000 worth of utility when they spend it. Why should they or anyone else expect prices to go down so they can get more value than what the free market dictates?
The reason why this concept can work is that there is an oversupply of labor due to the assumption that by working as much as possible and increasing the nation's GDP, this will eventually lead to a resolution of economic problems such as unemployment, poverty, and inequality. This distorts the demand for goods to the point where spending money is seen as a goal for its own sake, and the question is just one of how to maximize benefit for a given amount that is spent. This leads not only to goods that are meant to signal one's ability to discern quality and social benefit, such as organic foods and most of Apple Inc.'s product line, but also to the pursuit of experiences that cannot be obtained elsewhere, no matter how ephemeral they may be.
These things (signals that indicate competence, and experiences) do not have a value intrinsically related to their cost, and therefore it's very reasonable to expect that someone could gain the same utility if they chose to work and earn less or if the market price of these things decreased, as would happen if people were less willing to supply the work needed to pay for these things at their current prices.
Q. Why not just make performance relate more to compensation, and take advantage of possible efficiency gains that way without anyone working less?
Because society refuses to support those who, due to avoidable or unavoidable circumstances, are not able to get a job either in normal economic circumstances or unusual ones. While it may be possible for anyone in society to survive given the options available, there are other goals which may seem difficult or impossible to accomplish without a reliable monthly income. When society is unwilling to allow government to make up for a jobs deficit from private commerce, higher worker productivity is a direct cause of unemployment.
This effect on a small scale was why the workers at the Hawthorne Works actually had lower productivity when their pay was linked to their individual performance. While older brother linked a case of this being successful with Federal Express, it was the reward of finishing work earlier that eventually lead to the productivity target being reached, not a monetary bonus.
Q. Businesses can just continue to hire and fire people as demand changes, so a system which avoids the need to do this has no additional value.
The first search result for "average cost to hire" says that to replace a $60,000/year employee, it could take up to $49,000 in direct costs and possibly as much as $100,000 in indirect costs.
According to the second search result, the overall average cost-per-hire for the US is around $4000~4500.
According to the third search result, estimates of the turnover cost for an $8/hour employee range from $3500 up to $25,000 for specific occupations.
Q. Would everyone be expected to switch to this system?
No, only jobs with a potential efficiency increase where a business and its employees agree to change the terms of the work arrangement.
Q. If only 5% of the population decided to work less and unemployment is still above 7%, what is the backup plan?
If there are a significant number of jobs where you can work less and still have job security and a reasonable income, this would remove moral validity from the idea that the unemployed or poor are somehow forcing people to work 60 hours per week. Once people recognize this basic fact, the conversation can further evolve and might include increasing taxes if problems in society still exist.
Q. How does paying workers less for working more convince a business to reduce their hours?
Businesses would be perfectly content with most people continuing to work full time with this concept. Any pressure to reduce hours would come from the employees themselves. Working, and earning, as much as possible is currently seen as one way to identify an employee who is dedicated to a business and to having a successful career that benefits the business as much as it does the individual, so this concept functions by introducing an alternative idea of how to show you can achieve your own goals and anything that a business can require of you without working full time. Instead of providing extra value to a business by working unpaid overtime with a monthly salary, you would provide extra value by completing your responsibilities more quickly and saving the business a small, and symbolic—but important—additional wage cost.
Q. If there are people who want to work less, why aren't they just working part time?
Part time jobs have lower average wages compared to full time for the same occupation. Partly because they are intended to be an economical alternative to hiring another worker, but also because of two other factors:
1) part time jobs, the employee takes the risk from low demand in the short term. With full-time jobs, the business takes the risk up until the point where it has to fire someone.
2) full time jobs simplify management because there's less incentive for workers to be inefficient. People still ARE inefficient but my own explanation would be that they see value in "face time" at work and staying for unpaid overtime.
This second provides a theoretical benefit to the business from full time work; the first provides a theoretical benefit to the employee from full-time work. Together they suggest that "effective" people will want to do full-time work, which biases expectations and in turn reinforces the situation (by theoretically causing wages for part-time work to be lower than for full-time work).
The proposed concept changes both of these points; the employee would mind low demand less since they would end up with a higher average wage rate, and they would also have less incentive to be inefficient which could mean those positions would be more eligible for responsibility. Especially if it was someone who had previously been working full time and voluntarily chose to use the new system in the same position and with the same responsibilities.
Q. Can't we just wait for productivity to go up and fix everything?
Productivity has been going up, but wages much less so. The rich continue to capture most of the rise in income. See also sections from previous posts which address this: "Alternative 3: wait for it to fix itself" and "The Wageless, Profitable Recovery - NYTimes.com".
Q. Americans are already working as hard as they can. There is no 'latent potential for efficiency increase' at even the most bureaucracy-ridden corporation, that's silly talk!
However, bureaucracy and inefficiency are well recognized to exist in many government organizations, so this concept should be adopted for that reason alone so that incentives exist to eliminate redundant or inefficient government processes and paperwork.
Assuming that people exist who want more free time without having to give up a competitive wage, this concept would also allow businesses to use those people to compensate for changes in demand without the costs associated with hiring and training new part-time or temporary employees.
Q. Either something (like a worker's strike) helps employees, or it helps the business. How can this concept help both at the same time?
It would help a single company: the company that adopts it, which we'll call Company A, and the employees working there. Other companies would see lower profits if Company A starts using this system, unless they sell things that people would tend to buy with a lower income.
Q. Shouldn't business work together to oppose this then, instead of allowing a single business to profit from something that's detrimental to the capitalist class as a whole?
Businesses are allowed to do things that harm other businesses all the time by lowering their prices, it's called "competition" and "free markets".
Q. Is this an example of class warfare by decreasing income going to rich people, also known as the capitalist class?
Jamie Johnson made a documentary about how meaningless life can occasionally feel when you can't identify with the goals or challenges that most of the population has, and how difficult it is to trust people or make new social connections when income disparity is as high as it is.
There is an important distinction between a reduction in income inequality through free market mechanisms (enabled by changes to government regulations to allow it as an additional option), and wealth transfer through welfare supported by taxes or inflation. There is an inherent sense of conflict when the government forces people to accept a situation or risk imprisonment, but voluntary commercial transactions do not carry this connotation or represent class warfare.
Q. How would businesses pay back their loans if they didn't have any profits?
Profits are what is left after paying for all costs associated with the business, including wages, salaries, bonuses to executives, taxes, interest on loans, paying back loans, and investing in new equipment or resources for the business.
Q. What about businesses that hire unskilled workers in temporary positions, where it costs nothing to hire someone new and no time to train them?
The conditions in places like warehouses for online retailers are a result of supply and demand. Many people are unwilling to work at low pay with no job security, but high unemployment means those employers have enough people applying that there is no need to improve the working environment.
While these businesses would have no reason to adopt the work concept described on this site when it's so easy for them to replace a worker and productivity is already high, the use of this work concept by other companies with higher costs of replacing workers and potential productivity gains would lead to a reduction in the supply of labor and cause job applications to this type of business to eventually dry up unless the business improved the attractiveness of the working environment or compensation, which might include using this work concept if doing so becomes profitable.
Q. Why is the concept described on this site an improvement over paying workers the minimum possible and letting them earn more from overtime?
From the business's point of view, the second system is better which is why Amalgamated Product Giant Shipping Worldwide Inc. requires people to work 55 hour weeks with overtime, and more during holidays. This allows them to use a lower average wage (including overtime) than what people would normally accept, because they are getting paid for at least 55 hours of work and can more easily afford basic costs of living.
However, for job occupations that require more learning or are more difficult to reduce to the most efficient sequence of actions, it's more expensive to replace people and those who apply are less likely to agree to work 55-hour weeks. This concept allows businesses in this more restrictive situation to have the same flexibility in response to changes in demand despite hiring workers that have more alternative employment options in case they dislike being forced to work more than 40 hours per week. Someone who normally worked less than 40 hours per week at a higher average wage rate could be required to work up to 40 hours with the understanding that the arrangement allows them to have a higher average wage rate, with more free time and better job security than what they could obtain at another company.
Q. How does income inequality lead to inefficient distribution of essential goods like housing?
This happens because of the inability to extract maximum profits through targeted pricing. Suppose you have three houses, all of roughly equal quality. You also have three potential buyers of these houses. One person is willing to pay $800,000 (prices compared to income are pretty crazy in some countries, like Singapore and certain cities in China), the other two people are willing to pay $200,000. The houses and land cost the bank that owns them just $100,000.
If the bank sells to the last two people for 200k, then the first person will only pay 200k as well since while they could pay more, they would feel they are being exploited and refuse to out of principle. So the bank sells one house for 800k and leaves the other two empty, maybe pricing them at 500k in case someone else comes along.
With larger numbers of people to make a smooth demand curve as you see in basic economics, the problem is when income becomes so distorted that it's difficult to tell if you would make more money by increasing the price and selling to rich people, or decreasing the price and selling to poor people. While even the concept described on this site would not prevent people from having ridiculous amounts of money, a much larger number of products would have a demand curve such that you could reliably say that you would increase total revenues (the amount before costs of business) by lowering the price of a product by a small amount, due to some number of people switching from other competitors' products to yours that makes up from the loss of gross revenue from existing customers from lower price.
Q. What types of products would not become easier to purchase if this work concept was adopted by society?
Products which require a large amount of work to produce, and are not just expensive because of a monopoly provider of a status good. The large amount of unused labor in both the US and the rest of the world show that rich people don't spend much of their money on products made with unskilled labor—the only example I can think of is Arab countries bringing in construction workers from poorer areas of the world—but it would also apply to purchases by the upper middle class.
So while someone in a low-paying job who buys a typical mix of low-end and high-end products would tend to see an increase in purchasing power if this work concept was adopted by society, someone in a mid-to-high-paying job would tend to see no change or even a decrease in purchasing power even if they continued to work the same amount. Someone in a high-paying job who only buys low-end goods would see the greatest reduction in purchasing power, but high current levels of unemployment throughout the world means that these changes in purchasing power might not necessarily take effect immediately, and depending on which segments of society take advantage of the option to work less the short-term changes in purchasing power might even be the opposite.
In that scenario, people with higher amounts of education would preferentially work less despite the already high demand for their services; this would further raise the wage premium on education and slightly increase the demand for low-end goods, but a significant decrease in unemployment would only occur if businesses start hiring the large number of college graduates working in jobs that don't require a college degree or if the incentives of an even higher wage premium and the option of working less time convinced people to choose college majors with more job openings. But either way, unemployment would go down.
Yes, it's hard to predict what would happen when I don't know who would work less, and it's intended to be hard to predict as well...
Since the premium on some products is based on product attributes specific to a company (having a PhD doesn't mean you are allowed to manufacture iPads and sell them with a 50% profit margin) or other soft 'status-based' characteristics, the general trend of a contraction the price spread between different product qualities would still occur whether it was unskilled workers who decided to work less or those with higher education, even if product types that require higher education move against this trend in the short term.
Q. What if employees of high profitability companies just got more of a share of profit? That would mean income gains go to the top 25% of the population instead of the top 1%, which means 25 times as much consumption.
This would cause them to be less likely to buy low-end goods, meaning that the increase of demand would be for things like $60,000/year in private school and daycare costs. This would lead to further incentives to invest in education, even if just for the sake of having something to put on a job application, and people would spend more of their life in school before being able to do things they want.
Any sudden demand shock, such as from the top 25% making poor investments during a financial bubble and then losing that money and going into debt, would lead to the same situation as now with students stuck with tens of thousands of dollars of student debt in a poor job market, except that it would be hundreds of thousands of dollars in debt.
So in other words, while it would increase 'consumption' including purchases of education, it would not provide the flexibility of the work concept described on this site as a protection against changes in demand. The risk from taking on student debt would also continue to distort college degree attainment rates based on income.
Q. How does creating more poor people lead to employment growth? Economists say that high unemployment is from people not spending enough.
Rich people in the US would still be spending plenty, assuming they are patriotic enough not to move to a country where they can set up their own personal estate with thousands of non-English-speaking servants who will work for $1/hour. Total wealth in the US was $54.2 trillion in 2009, with 34% owned by the top 1% and 85% owned by the top 20%. The top 1% also own 70% of all financial assets.
So I don't think I need to explain more. The flow of money of the rich would simply be diverted so that it actually "trickles down" like it was expected to, meanwhile we buy things from China, those profits are extracted by China's rich and they give it back to us.
Updated 5:44 PM, 31 Mar 2012
Why you should help
This part, of whether anyone will support this, is what I'm not sure on. I was trying to avoid pointing out the inefficiencies that almost every organization has (especially since inefficiency currently reduces income inequality), or how economists have completely failed to identify why the average work week hasn't gone down and how this affects unemployment, or the way in which despite good intentions the rich are completely unable to effectively spend or even give away most of their money.
But without mentioning these things I just get comments about "manipulative leeches" wanting to get more money while working less, and very little constructive feedback. People just don't see a reduction of unemployment by itself as a convincing argument, it sounds too Communist or socialist I guess and we all know how that turned out. They lost, badly.
So I'll put it simply: it is not Communist to expect people to do a fair share of work to support themselves, instead of being supported by the government.
This support can come in many forms: unemployment insurance. Funding for military bases that politicians refuse to close because they are essential to the local economy. Inefficient and redundant government organizations. A lack of concern for health costs which causes the United States to spend twice as much on health care as other developed countries for the same effect, with many of the resulting jobs in health care being indirectly subsidized by the US government and taxpayers.
Many of these problems, and others, would go away if there were more jobs available. The SOPA and PIPA, which were only prevented from being passed by a massive protest? Due to not enough crimes being committed and lawyers burdened with law school debt were afraid of being forced to switch occupations in the current depressed job market. (No srsly)
But you might be wondering, having read the descriptions on this site of how to fix the economy, why this is any better than the other available solutions for resolving this, or any other social or economic problem. Since no matter how much people like to argue, the Congressional Budget Office and the well-known Moody's both agree that giving money to rich people results in less consumer spending than giving money to poor people, and consequently that the only reason we aren't raising taxes is an idealistic one. Why is the solution described on this site more ideal that others that will accomplish the same economic goal?
This requires looking at the specific drawbacks with other solutions, and the unique benefits from this one. What I think are the major alternatives...
Alternative 1: shorter work week.
France has tried this with a 35-hour work week, although it's slightly more complicated than that since it's based off the entire year as well. The problem with this solution is simple: if you want an intermediate level of income, somewhere between full-time work and doing nothing, the most efficient way to get it is to work as hard as possible for a while so you can get as much overtime pay as you can, and then to quit working. On a shorter timescale this is difficult because you lose work skills if you take a few months off from work, so people have the idea of spending several years working as hard as possible and then going into retirement.
But not only do you not know if that the day when you can retire will ever come, the government actively makes it more difficult with its policies meant to lead to full employment without sufficient taxation to avoid inflation. People are forced to entrust their money with specialists in the financial markets, which can lead to drastic losses from pension funds when these specialists incorrectly evaluate risks such as the recent financial crisis. Reducing the work week would just make these problems worse.
Alternative 2: government spending.
The majority of the population in the US doesn't want this to be the solution to the poor job market, because it's inefficient and the government tends to give money to people who either don't need it or don't deserve it.
Alternative 3: wait for it to fix itself.
There are still something like 4 job seekers for every job opening, and that's not counting other countries. The amount of new products that can be invented is somewhat limited by the time people have to enjoy those products, or the desire to avoid carrying more than one electronic device in your pocket, etc.
Other reasons why you shouldn't expect this to happen anytime soon: rich people had an increasing share of income before the financial crisis and are returning to that level of relative income without much improvement in the job market; youth unemployment is at the lowest point in over half a century despite being the most likely to accept a low-paying entry job; and the drop in employment for those with college degrees as well shows ([2], [3], [4]) that "more education" won't boost anything except tuition costs.
So why is the solution described on this site so special? It's simple:
...maybe not that simple.
It seems unlikely that any change will happen without the support of a large number of people; sort of like the Occupy movement but more effective? And without treating corporations as inherently bad, since after all 50% of employees in the US work for a business with more than 500 workers.
But if you want unemployment to be fixed; if you want the poor, struggling workers making iPhones in Communist China to have an example of how to feel like you're making progress in your life without working 12 hours every day; if you want to remove 'an ignorant, overworked, overtaxed population' as an excuse for the US government to randomly invade whatever country it feels like invading, then please spread the word and support this proposal on fixing the economy.
I don't know everything that needs to be done, the best way to go about doing it or even if change is realistically possible. But you have to start somewhere, right? Any suggestions are welcome. I don't own any of these ideas or explanations, so if someone important feels like they can do something (like create a better website!) there's no need to ask me.
But without mentioning these things I just get comments about "manipulative leeches" wanting to get more money while working less, and very little constructive feedback. People just don't see a reduction of unemployment by itself as a convincing argument, it sounds too Communist or socialist I guess and we all know how that turned out. They lost, badly.
So I'll put it simply: it is not Communist to expect people to do a fair share of work to support themselves, instead of being supported by the government.
This support can come in many forms: unemployment insurance. Funding for military bases that politicians refuse to close because they are essential to the local economy. Inefficient and redundant government organizations. A lack of concern for health costs which causes the United States to spend twice as much on health care as other developed countries for the same effect, with many of the resulting jobs in health care being indirectly subsidized by the US government and taxpayers.
Many of these problems, and others, would go away if there were more jobs available. The SOPA and PIPA, which were only prevented from being passed by a massive protest? Due to not enough crimes being committed and lawyers burdened with law school debt were afraid of being forced to switch occupations in the current depressed job market. (No srsly)
But you might be wondering, having read the descriptions on this site of how to fix the economy, why this is any better than the other available solutions for resolving this, or any other social or economic problem. Since no matter how much people like to argue, the Congressional Budget Office and the well-known Moody's both agree that giving money to rich people results in less consumer spending than giving money to poor people, and consequently that the only reason we aren't raising taxes is an idealistic one. Why is the solution described on this site more ideal that others that will accomplish the same economic goal?
This requires looking at the specific drawbacks with other solutions, and the unique benefits from this one. What I think are the major alternatives...
Alternative 1: shorter work week.
France has tried this with a 35-hour work week, although it's slightly more complicated than that since it's based off the entire year as well. The problem with this solution is simple: if you want an intermediate level of income, somewhere between full-time work and doing nothing, the most efficient way to get it is to work as hard as possible for a while so you can get as much overtime pay as you can, and then to quit working. On a shorter timescale this is difficult because you lose work skills if you take a few months off from work, so people have the idea of spending several years working as hard as possible and then going into retirement.
But not only do you not know if that the day when you can retire will ever come, the government actively makes it more difficult with its policies meant to lead to full employment without sufficient taxation to avoid inflation. People are forced to entrust their money with specialists in the financial markets, which can lead to drastic losses from pension funds when these specialists incorrectly evaluate risks such as the recent financial crisis. Reducing the work week would just make these problems worse.
Alternative 2: government spending.
The majority of the population in the US doesn't want this to be the solution to the poor job market, because it's inefficient and the government tends to give money to people who either don't need it or don't deserve it.
Alternative 3: wait for it to fix itself.
There are still something like 4 job seekers for every job opening, and that's not counting other countries. The amount of new products that can be invented is somewhat limited by the time people have to enjoy those products, or the desire to avoid carrying more than one electronic device in your pocket, etc.
Other reasons why you shouldn't expect this to happen anytime soon: rich people had an increasing share of income before the financial crisis and are returning to that level of relative income without much improvement in the job market; youth unemployment is at the lowest point in over half a century despite being the most likely to accept a low-paying entry job; and the drop in employment for those with college degrees as well shows ([2], [3], [4]) that "more education" won't boost anything except tuition costs.
So why is the solution described on this site so special? It's simple:
- By working more efficiently and finishing sooner, the individual ends up with more free time (which they might not value) and a higher wage rate.
- The company benefits because they paid less total wages for the same amount of work (efficiency went up), or can avoid having to having to hire someone for a month being firing them with associated costs on both ends.
- The management benefits when people are motivated to take more responsibility because they can benefit from efficiency, even if it means correcting a stupid proposal by management (depends on trust).
- Every other worker able to do the same job benefits when the motivation to work more efficiently means that a company lets an individual who feels they don't need money to do less total work.
- Everyone who isn't rich benefits when someone chooses to do less work and have a lower income, because it makes status-based products like iPads more competitive on price and boosts profits for people making lower-end goods.
- Everyone who pays taxes benefits when there is less need for welfare because the market provides a fair wage without government interference, which means tax money can go where it's needed more and a reduction in all the problems that income inequality in a society causes.
- Everyone in society benefits when people have options to work the way they want, can feel challenged without it hurting other people, and is able to feel like they and other people can be trusted.
...maybe not that simple.
It seems unlikely that any change will happen without the support of a large number of people; sort of like the Occupy movement but more effective? And without treating corporations as inherently bad, since after all 50% of employees in the US work for a business with more than 500 workers.
But if you want unemployment to be fixed; if you want the poor, struggling workers making iPhones in Communist China to have an example of how to feel like you're making progress in your life without working 12 hours every day; if you want to remove 'an ignorant, overworked, overtaxed population' as an excuse for the US government to randomly invade whatever country it feels like invading, then please spread the word and support this proposal on fixing the economy.
I don't know everything that needs to be done, the best way to go about doing it or even if change is realistically possible. But you have to start somewhere, right? Any suggestions are welcome. I don't own any of these ideas or explanations, so if someone important feels like they can do something (like create a better website!) there's no need to ask me.
Saturday, March 24, 2012
Proposed law to fix unemployment in the United States
The problem facing the US economy is simple: too many people feel obligated to work full time. Other than this, corporate profits and productivity are fine.
All that needs to be done is to give businesses a standardized way to employ skilled workers at less than full time and clear benefits from doing this, so that those who wish to work less than 40 hours per week can.
Work concept
A third major way to determine employee compensation, in addition to a monthly salary or hourly wages:
The first 20 hours are paid at 1.2 times the normal hourly rate for full-time work.
Work beyond 20 hours in a single week is paid at 0.8 times the normal hourly rate.
Legislative changes
This system depends on the employee and employer trusting each other. If they can, flexible hours are better. If there is no mutual trust, then a monthly salary would be better. Part of trust is having additional options in case that trust was misplaced, whether it was trust in intentions or in capabilities. While options are available to everyone, it can feel like the cost associated with some options prevents them from being used in normal circumstances.
The widespread adoption of this work concept would reduce unemployment and therefore increase the options available to an employee who was dissatisfied with their current workplace, but several additional legislative changes would be needed to increase trust between the employee and employer.
The first is that while a business using this method could require employees to work the minimum of 20 hours per week, neither party would be penalized if that employee refused to work more than that and was separated from their position as a result. The employee could not be made to accept any unusual penalties in their employment contract for refusing to work more than the minimum of 20 hours, and the business would not have any of the usual obligations or fees from firing an employee for this reason.
The second change would be to the overtime law, so that similar to salaried workers, employees who used this work concept would be exempt from receiving higher overtime pay.
The third, for government employees, would be that additional hiring would be required within a certain time frame in any case where someone was forced to work more than 40 hours per week.
Profit motive
Businesses who used this work concept instead standard wages or salaries would benefit for a simple reason: increased efficiency and productivity in the workplace. While the understanding of how to address inefficient practices by both workers and management has been continuously evolving, there is a concise description of the problem in the ideas of scientific management of the early 20th century:
[Wikipedia] "Taylor observed that some workers were more talented than others, and that even smart ones were often unmotivated. He observed that most workers who are forced to perform repetitive tasks tend to work at the slowest rate that goes unpunished. . . . when paid the same amount, workers will tend to do the amount of work that the slowest among them does."
http://en.wikipedia.org/wiki/Scientific_management#Soldiering
The unexpected ways that workers will change their productivity was noted in experiments at the Hawthorne Works conducted from 1924-1932. In particular, shortening the work day actually resulted in an increase in total output, and one experiment that linked pay to the individual productivity of workers in a group resulted in a decrease in productivity due to the effect that higher productivity would have had on other members of the group.
http://en.wikipedia.org/wiki/Hawthorne_effect
While financial incentives linked to performance are successful in some industries and occupations, experiments have shown that for mental tasks higher compensation can sometimes decrease performance.
RSA Animate - Drive: The surprising truth about what motivates us - YouTube
Furthermore, even physical work suffers a significant decrease in productivity for periods of scheduled overtime that last for several weeks. According to a review of the existing data on the use of overtime in construction work, "there is about a 10% increase in efficiency losses for each additional 10 hours per week added to the schedule beyond 40 hours."
Effects of Scheduled Overtime on Labor Productivity
A recent survey has shown the importance of social media to college graduates in the younger generation, with one in three saying that being able to use social media such as Facebook at work was more important than financial compensation and more than half saying that "if they were offered a job at a company that banned social media use, they would either turn it down, or find a way to flout the policy."
Facebook at work more important than a large salary to college graduates
Healthy productivity
This collection of evidence shows the potential benefit for businesses that compensate employees with both time and a higher average wage for increasing their productivity and accepting a variable schedule.
While the necessary amount of work would be continuously negotiated based on the needs of the employee and the business, trust from having options available in the case of a disagreement would prevent either side from feeling like they are being exploited in the arrangement. Involuntary unemployment in the United States would no longer be a problem.
All that needs to be done is to give businesses a standardized way to employ skilled workers at less than full time and clear benefits from doing this, so that those who wish to work less than 40 hours per week can.
Work concept
A third major way to determine employee compensation, in addition to a monthly salary or hourly wages:
The first 20 hours are paid at 1.2 times the normal hourly rate for full-time work.
Work beyond 20 hours in a single week is paid at 0.8 times the normal hourly rate.
Legislative changes
This system depends on the employee and employer trusting each other. If they can, flexible hours are better. If there is no mutual trust, then a monthly salary would be better. Part of trust is having additional options in case that trust was misplaced, whether it was trust in intentions or in capabilities. While options are available to everyone, it can feel like the cost associated with some options prevents them from being used in normal circumstances.
The widespread adoption of this work concept would reduce unemployment and therefore increase the options available to an employee who was dissatisfied with their current workplace, but several additional legislative changes would be needed to increase trust between the employee and employer.
The first is that while a business using this method could require employees to work the minimum of 20 hours per week, neither party would be penalized if that employee refused to work more than that and was separated from their position as a result. The employee could not be made to accept any unusual penalties in their employment contract for refusing to work more than the minimum of 20 hours, and the business would not have any of the usual obligations or fees from firing an employee for this reason.
The second change would be to the overtime law, so that similar to salaried workers, employees who used this work concept would be exempt from receiving higher overtime pay.
The third, for government employees, would be that additional hiring would be required within a certain time frame in any case where someone was forced to work more than 40 hours per week.
Profit motive
Businesses who used this work concept instead standard wages or salaries would benefit for a simple reason: increased efficiency and productivity in the workplace. While the understanding of how to address inefficient practices by both workers and management has been continuously evolving, there is a concise description of the problem in the ideas of scientific management of the early 20th century:
[Wikipedia] "Taylor observed that some workers were more talented than others, and that even smart ones were often unmotivated. He observed that most workers who are forced to perform repetitive tasks tend to work at the slowest rate that goes unpunished. . . . when paid the same amount, workers will tend to do the amount of work that the slowest among them does."
http://en.wikipedia.org/wiki/Scientific_management#Soldiering
The unexpected ways that workers will change their productivity was noted in experiments at the Hawthorne Works conducted from 1924-1932. In particular, shortening the work day actually resulted in an increase in total output, and one experiment that linked pay to the individual productivity of workers in a group resulted in a decrease in productivity due to the effect that higher productivity would have had on other members of the group.
http://en.wikipedia.org/wiki/Hawthorne_effect
While financial incentives linked to performance are successful in some industries and occupations, experiments have shown that for mental tasks higher compensation can sometimes decrease performance.
RSA Animate - Drive: The surprising truth about what motivates us - YouTube
Furthermore, even physical work suffers a significant decrease in productivity for periods of scheduled overtime that last for several weeks. According to a review of the existing data on the use of overtime in construction work, "there is about a 10% increase in efficiency losses for each additional 10 hours per week added to the schedule beyond 40 hours."
Effects of Scheduled Overtime on Labor Productivity
A recent survey has shown the importance of social media to college graduates in the younger generation, with one in three saying that being able to use social media such as Facebook at work was more important than financial compensation and more than half saying that "if they were offered a job at a company that banned social media use, they would either turn it down, or find a way to flout the policy."
Facebook at work more important than a large salary to college graduates
Healthy productivity
This collection of evidence shows the potential benefit for businesses that compensate employees with both time and a higher average wage for increasing their productivity and accepting a variable schedule.
While the necessary amount of work would be continuously negotiated based on the needs of the employee and the business, trust from having options available in the case of a disagreement would prevent either side from feeling like they are being exploited in the arrangement. Involuntary unemployment in the United States would no longer be a problem.
Evidence of lack of trust
"Since the recovery began in June 2009 following a deep 18-month recession, 'corporate profits captured 88 percent of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1 percent' of that growth."
The Wageless, Profitable Recovery - NYTimes.com
"18. Which comes closer to your own view? 1) The federal government should spend money to create jobs, even if it means it has to borrow the money to do so, OR 2) The federal government should not spend money to create jobs and should instead focus on lowering the country’s debt."
6/24-28/11
Gov’t should spend money - 42%
Gov’t should not spend money - 52%
Don't know/no answer - 6%
NYT/CBS opinion poll - NYTimes.com
"Most employees, about 76 percent, said they are willing to take a pay cut . . . And among those who are out of work, 88 percent said they would take less in salary in order to land a job."
Most workers willing to take a pay cut: poll - msnbc.com
The Wageless, Profitable Recovery - NYTimes.com
"18. Which comes closer to your own view? 1) The federal government should spend money to create jobs, even if it means it has to borrow the money to do so, OR 2) The federal government should not spend money to create jobs and should instead focus on lowering the country’s debt."
6/24-28/11
Gov’t should spend money - 42%
Gov’t should not spend money - 52%
Don't know/no answer - 6%
NYT/CBS opinion poll - NYTimes.com
"Most employees, about 76 percent, said they are willing to take a pay cut . . . And among those who are out of work, 88 percent said they would take less in salary in order to land a job."
Most workers willing to take a pay cut: poll - msnbc.com
Why spending money is not always effective
"The most precious asset ... is time."
—Warren Buffett
Most fields of knowledge do not have immediate relevance to us. One example is higher mathematics, and in particular the study of prime numbers, which prior to digital cryptanalysis was considered a pure form of knowledge with no practical applications. In most cases, the conversion of knowledge into a technology or other development happens without the need for a comprehensive understanding of the underlying field of knowledge by most of us in contact with that development.
But according to the school of philosophy that led to the revolution in Western society on the basis of self-governance and free markets which has marked the past several hundred years, there is one thing that no one has knowledge of more than any other individual: our own goals, values and ideals. While our policymakers may attempt to guide towards progress, the conflicting desires of individuals, patterns of morality used to evaluate the limited information we come in contact with, and lack of willingness to accept or work toward compromise mean that the best course of action for the society as a whole is often unclear. The lack of expression of opinion by every one of us, as experts on our own desires, on unusual or unanticipated policy suggestions with limited precedent in political thought limits the progress our policymakers can make to resolve social conflict. One of the most important of these conflicts, with relevance to all of us, is the sharp contrast between the global financial elite and the world's poor, the lack of job opportunities and the best way to resolve these problems.
In contrast to this debate, it may be surprising that many of the world's richest do not see any benefit from their accumulated wealth. According to Warren Buffett, at one point the world's wealthiest person, "The most precious asset... is time." The divergence of wealth in the modern world can best be understood as a misunderstanding both of this basic principle and of the effect of individual decisions within the scope of an economic framework on the system as a whole.
There are three, interrelated assumptions of importance to an industrialized world, where economies of scale put high-quality products within financial reach of the average individual:
‣ Additional labour by an employee will always provide benefit to other individuals in a society, by decreasing the cost of that good or service or increasing access at a given price
‣ Wasteful spending by wealthy individuals decreases the amount of that good or service available to the rest of society and the total amount of economic output other individuals have access to
‣ Refraining from wasteful spending, thus reducing the utility of money, will lead to a reduction in the source of income allowing that money to be spent by other people
Adhering to all three of these principles causes a society to experience increasing accumulation of wealth in the owners of factors of production, but the reason becomes more complex for a subset of conditions. When the outflow of wealth as a result of wasteful spending happens due to disproportionate value of higher qualities of a certain good with no increase in the quantity purchased, instead of wasteful spending as a larger quantity of the most cost-effective version of that good, then combined with the first of the above assumptions the resulting currency flow effectively forms a loop or eddy in the higher socioeconomic tiers of a society, as a result of insensitivity to prices due to the lack of alternative uses for the same money which prevents other sellers from competing in that market by driving down the price.
Those of us who have 'too much money' tend to buy from other individuals or firms who also have 'too much money', and the cycle continues. In the absence of more information on market demand, will a given firm that has already achieved profitability be more likely to increase their benefit to society by lowering prices and allowing more people access to their product, or alternately should they raise prices, allowing their competitors more access to the market while decreasing the work needed to obtain a certain revenue? The above three assumptions on society benefit do not provide a clear answer to this question, which is just as relevant to the market for employment as it is to the market for finished goods due exactly to the ubiquity of high-quality, low-cost products in the modern world and the lack of the concept of time as a form of compensation for work.
A simplified economic simulation demonstrates the effect of the above-mentioned eddies of spending on unemployment.
Cast:
Sophia, wealthy individual
Her husband, Yuto
Isabella, jewelry producer
Dmitriy, quality banana maker
Александр, average banana maker
Each banana maker is capable of making enough bananas for four people. Dmitriy attended banana school for four years, and is capable of making bananas that are 10% less squishy than normal, which he sells for three times the price of normal bananas. Александр has not attended banana school. Isabella attended jewelry school for four years and sells at a price making her income equivalent to that of Dmitriy. The bananas are eaten uncooked as in the United States.
Dmitriy makes bananas and sells them to Sophia, Yuto, and Isabella, and consumes the remainder. Sophia buys jewelry for her husband from Isabella, and Dmitriy buys lower-priced jewelry which makes up for the rest of Isabella's production. No one buys bananas from Александр.
Александр cannot afford loans to attend banana school or jewelry school for four years, and is considering moving to a different country which would interrupt his education. Because no one will accept his bananas even for free Александр is considering becoming a mime artist but is uncertain about the market potential or whether it is worth the loss of self-esteem. The government gives him money to keep from dying, with much of the money from his purchases eventually reaching Sophia.
As this simple simulation has demonstrated, due to Dmitriy's insistence on making high-quality bananas to his full capacity and his desire to purchase jewelry which takes no time to enjoy instead of supporting mime artists who could take substantial time to complete a performance, Александр is left unemployed and the market will not fix this until a change in the basic assumptions about lack of need to question the benefit to the employee and to society from working beyond what is necessary to satisfy the employee's goals given the prices of other goods and the recognition of the value of time as its own reward during employment by a firm.
If Dmitriy or, in a more realistic scenario his employer were to hire Александр using Dmitriy's expertise and guidance, Dmitriy or his employer would gain profit of 200% of a normal banana for each high-quality banana that Александр made, resulting in a more equal distribution of both free time and wealth. In order to achieve this result on a wider scale, it is necessary to communicate to both individuals and firms that all levels of society would benefit from the reduced unemployment that would result from less individuals working at full-time employment and the reduction of the eddies of spending in high socioeconomic tiers.
For those of us selling our employment to firms and owners of capital, this requires knowing both that we will benefit from accepting a reduction of hours and also that other individuals will benefit, at the most basic financial level without having to understand the entire economic system or the interactions of the three mentioned assumptions on economic impact. This means, simply, that the marginal wage for smaller amounts of work should be higher than the marginal wage for full-time work, whether this is measured per day or per year or a combination of both. This means that by requesting a reduction of work hours due to personal needs or accepting one due to an economic downturn and lower demand for the firm's goods, the total wage would decrease but the hourly wage would increase. Similarly, the approval of a reduction of work by one valued and skilled employee gives the firm an opportunity to lift another worker out of unemployment, which due to the higher marginal wage for initial work would increase the total income available to and increase demand for goods at that socioeconomic tier.
For firms, the issue is as much benefit to the global standing of the society it is located in and competitiveness with other firms, and not just loyalty to specific individuals employed by the company. In many cases, international competitiveness is more important to decisions made by a firm than worker compensation. This is as much the perception of benefit to the local economy by continuing to grow and avoiding relocation to a more profitable region as it is the actual profitability of the firm, and as such an additional metric comprehensive of the flaws of the previous three assumptions would allow pressure on firms that threaten relocation on the basis of competitiveness. Contribution to gross domestic product in the form of company revenue and number of jobs are the main points looked at for a company at present, but this ignores the problems that inevitably result when too much of society is working full-time without the opportunity to spend that income on additional goods, whether the income goes to employees or to major executives and the owners of capital.
In contrast to flat contribution to GDP, the metric that more accurately takes the full economic effect of a firm into account, while also encouraging the adoption of the above compensation scheme that allows employees to work according to their own needs, is to incorporate the free time of employees into society's judgement of the firm.
revenues * ([number of workers * 40 hours per week] - total number of hours worked per week) / number of workers = wellness number for positive contribution to society
This number goes up as both the size of the firm and its willingness to allow employees to control their work hours increase. A firm that forcibly reduces hours without a higher marginal wage rate is more likely to have workers quit for a different company due to the cost of living, and a multinational company that achieves high profits without giving its employees the flexibility required for individual needs and positive economic impact should not be seen as more desirable to the local economy than one which may have lower profitability, but does give this flexibility.
If you desire the adoption of these metrics of social benefit and the economic changes which will result, distribute this message to where it will have the greatest effect. If this describes something which is contrary to your desires, do not do so.
爽子 - 挂念
http://www.youtube.com/watch?v=dKTG8f1fzQo
___
"Measuring systems will include a variety of transferable and non-transferable progression in the measurement, depending on the expectation of the target audience and assumption of goals
Competency within a restricted context is more efficiently measured by a minimum of progression which is more useful to the receiver of the signal represented by the measurement, while in an expanded context a more precise measurement gives more information to and is more useful to the sender of the signal
Disagreement over expected situational complexity and responsibilities means that measuring systems encountered in different aspects of life have different amounts of utility as a primary signal of capabilities or estimation of competence
A system which reminds or teaches that an accurate measure of competence is often based on personal knowledge of a situation and cannot be reliably communicated, has value to an individual and society
Situations which involve conflicting goals, where progress in one direction causes a reduction of expected progress in another direction, promotes the self-measurement of a hidden competence metric and is therefore more useful than a single variable measurement for individuals who are not accustomed to attempting to keep track of progress outside of what is measured by the previously developed system, even if a single variable can accurately measure competence within a constrained set of assumptions
A broad awareness of the varying reliability of primary signals increases overall efficiency of society by increasing the demand for reliable signals"
—Warren Buffett
Most fields of knowledge do not have immediate relevance to us. One example is higher mathematics, and in particular the study of prime numbers, which prior to digital cryptanalysis was considered a pure form of knowledge with no practical applications. In most cases, the conversion of knowledge into a technology or other development happens without the need for a comprehensive understanding of the underlying field of knowledge by most of us in contact with that development.
But according to the school of philosophy that led to the revolution in Western society on the basis of self-governance and free markets which has marked the past several hundred years, there is one thing that no one has knowledge of more than any other individual: our own goals, values and ideals. While our policymakers may attempt to guide towards progress, the conflicting desires of individuals, patterns of morality used to evaluate the limited information we come in contact with, and lack of willingness to accept or work toward compromise mean that the best course of action for the society as a whole is often unclear. The lack of expression of opinion by every one of us, as experts on our own desires, on unusual or unanticipated policy suggestions with limited precedent in political thought limits the progress our policymakers can make to resolve social conflict. One of the most important of these conflicts, with relevance to all of us, is the sharp contrast between the global financial elite and the world's poor, the lack of job opportunities and the best way to resolve these problems.
In contrast to this debate, it may be surprising that many of the world's richest do not see any benefit from their accumulated wealth. According to Warren Buffett, at one point the world's wealthiest person, "The most precious asset... is time." The divergence of wealth in the modern world can best be understood as a misunderstanding both of this basic principle and of the effect of individual decisions within the scope of an economic framework on the system as a whole.
There are three, interrelated assumptions of importance to an industrialized world, where economies of scale put high-quality products within financial reach of the average individual:
‣ Additional labour by an employee will always provide benefit to other individuals in a society, by decreasing the cost of that good or service or increasing access at a given price
‣ Wasteful spending by wealthy individuals decreases the amount of that good or service available to the rest of society and the total amount of economic output other individuals have access to
‣ Refraining from wasteful spending, thus reducing the utility of money, will lead to a reduction in the source of income allowing that money to be spent by other people
Adhering to all three of these principles causes a society to experience increasing accumulation of wealth in the owners of factors of production, but the reason becomes more complex for a subset of conditions. When the outflow of wealth as a result of wasteful spending happens due to disproportionate value of higher qualities of a certain good with no increase in the quantity purchased, instead of wasteful spending as a larger quantity of the most cost-effective version of that good, then combined with the first of the above assumptions the resulting currency flow effectively forms a loop or eddy in the higher socioeconomic tiers of a society, as a result of insensitivity to prices due to the lack of alternative uses for the same money which prevents other sellers from competing in that market by driving down the price.
Those of us who have 'too much money' tend to buy from other individuals or firms who also have 'too much money', and the cycle continues. In the absence of more information on market demand, will a given firm that has already achieved profitability be more likely to increase their benefit to society by lowering prices and allowing more people access to their product, or alternately should they raise prices, allowing their competitors more access to the market while decreasing the work needed to obtain a certain revenue? The above three assumptions on society benefit do not provide a clear answer to this question, which is just as relevant to the market for employment as it is to the market for finished goods due exactly to the ubiquity of high-quality, low-cost products in the modern world and the lack of the concept of time as a form of compensation for work.
A simplified economic simulation demonstrates the effect of the above-mentioned eddies of spending on unemployment.
Cast:
Sophia, wealthy individual
Her husband, Yuto
Isabella, jewelry producer
Dmitriy, quality banana maker
Александр, average banana maker
Each banana maker is capable of making enough bananas for four people. Dmitriy attended banana school for four years, and is capable of making bananas that are 10% less squishy than normal, which he sells for three times the price of normal bananas. Александр has not attended banana school. Isabella attended jewelry school for four years and sells at a price making her income equivalent to that of Dmitriy. The bananas are eaten uncooked as in the United States.
Dmitriy makes bananas and sells them to Sophia, Yuto, and Isabella, and consumes the remainder. Sophia buys jewelry for her husband from Isabella, and Dmitriy buys lower-priced jewelry which makes up for the rest of Isabella's production. No one buys bananas from Александр.
Александр cannot afford loans to attend banana school or jewelry school for four years, and is considering moving to a different country which would interrupt his education. Because no one will accept his bananas even for free Александр is considering becoming a mime artist but is uncertain about the market potential or whether it is worth the loss of self-esteem. The government gives him money to keep from dying, with much of the money from his purchases eventually reaching Sophia.
As this simple simulation has demonstrated, due to Dmitriy's insistence on making high-quality bananas to his full capacity and his desire to purchase jewelry which takes no time to enjoy instead of supporting mime artists who could take substantial time to complete a performance, Александр is left unemployed and the market will not fix this until a change in the basic assumptions about lack of need to question the benefit to the employee and to society from working beyond what is necessary to satisfy the employee's goals given the prices of other goods and the recognition of the value of time as its own reward during employment by a firm.
If Dmitriy or, in a more realistic scenario his employer were to hire Александр using Dmitriy's expertise and guidance, Dmitriy or his employer would gain profit of 200% of a normal banana for each high-quality banana that Александр made, resulting in a more equal distribution of both free time and wealth. In order to achieve this result on a wider scale, it is necessary to communicate to both individuals and firms that all levels of society would benefit from the reduced unemployment that would result from less individuals working at full-time employment and the reduction of the eddies of spending in high socioeconomic tiers.
For those of us selling our employment to firms and owners of capital, this requires knowing both that we will benefit from accepting a reduction of hours and also that other individuals will benefit, at the most basic financial level without having to understand the entire economic system or the interactions of the three mentioned assumptions on economic impact. This means, simply, that the marginal wage for smaller amounts of work should be higher than the marginal wage for full-time work, whether this is measured per day or per year or a combination of both. This means that by requesting a reduction of work hours due to personal needs or accepting one due to an economic downturn and lower demand for the firm's goods, the total wage would decrease but the hourly wage would increase. Similarly, the approval of a reduction of work by one valued and skilled employee gives the firm an opportunity to lift another worker out of unemployment, which due to the higher marginal wage for initial work would increase the total income available to and increase demand for goods at that socioeconomic tier.
For firms, the issue is as much benefit to the global standing of the society it is located in and competitiveness with other firms, and not just loyalty to specific individuals employed by the company. In many cases, international competitiveness is more important to decisions made by a firm than worker compensation. This is as much the perception of benefit to the local economy by continuing to grow and avoiding relocation to a more profitable region as it is the actual profitability of the firm, and as such an additional metric comprehensive of the flaws of the previous three assumptions would allow pressure on firms that threaten relocation on the basis of competitiveness. Contribution to gross domestic product in the form of company revenue and number of jobs are the main points looked at for a company at present, but this ignores the problems that inevitably result when too much of society is working full-time without the opportunity to spend that income on additional goods, whether the income goes to employees or to major executives and the owners of capital.
In contrast to flat contribution to GDP, the metric that more accurately takes the full economic effect of a firm into account, while also encouraging the adoption of the above compensation scheme that allows employees to work according to their own needs, is to incorporate the free time of employees into society's judgement of the firm.
revenues * ([number of workers * 40 hours per week] - total number of hours worked per week) / number of workers = wellness number for positive contribution to society
This number goes up as both the size of the firm and its willingness to allow employees to control their work hours increase. A firm that forcibly reduces hours without a higher marginal wage rate is more likely to have workers quit for a different company due to the cost of living, and a multinational company that achieves high profits without giving its employees the flexibility required for individual needs and positive economic impact should not be seen as more desirable to the local economy than one which may have lower profitability, but does give this flexibility.
If you desire the adoption of these metrics of social benefit and the economic changes which will result, distribute this message to where it will have the greatest effect. If this describes something which is contrary to your desires, do not do so.
爽子 - 挂念
http://www.youtube.com/watch?v=dKTG8f1fzQo
___
"Measuring systems will include a variety of transferable and non-transferable progression in the measurement, depending on the expectation of the target audience and assumption of goals
Competency within a restricted context is more efficiently measured by a minimum of progression which is more useful to the receiver of the signal represented by the measurement, while in an expanded context a more precise measurement gives more information to and is more useful to the sender of the signal
Disagreement over expected situational complexity and responsibilities means that measuring systems encountered in different aspects of life have different amounts of utility as a primary signal of capabilities or estimation of competence
A system which reminds or teaches that an accurate measure of competence is often based on personal knowledge of a situation and cannot be reliably communicated, has value to an individual and society
Situations which involve conflicting goals, where progress in one direction causes a reduction of expected progress in another direction, promotes the self-measurement of a hidden competence metric and is therefore more useful than a single variable measurement for individuals who are not accustomed to attempting to keep track of progress outside of what is measured by the previously developed system, even if a single variable can accurately measure competence within a constrained set of assumptions
A broad awareness of the varying reliability of primary signals increases overall efficiency of society by increasing the demand for reliable signals"
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