Wages

Letter | Note to CEOs: When it comes to wages, you get what you pay for

February 5, 2014 

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I had to question the limited focus by Walter Williams in his Jan. 9 essay on low-wage workers, “The politics of the minimum wage.”

He points out that low wages workers do not add value equivalent to their wages. I find that hard to believe and challenge such studies. If that is the case, then companies are losing money and stupid to hire them in the first place and try to operate a business. Businesses need to design business plans that survivable wages to their workers and make them committed productive participants.

I am sure Williams would agree investment bankers are among the highest paid workers in the country. They routinely are paid huge salaries and huge bonuses.

Some of these same highly paid workers have destroyed value.

MF Global, Peregrine Financial, Lehman Brothers, Solomon Brothers, Madoff and Company are among numerous financial casualties that drove company and customer investment down to zero as these highly compensated managers destroyed their companies.

How do economists explain that? That excessively compensated managers aren’t worth it and can have a highly correlative negative factor?

Goldman Sachs – which now houses the bankrupt U.S. Treasury Department within its offices – is routinely sought out for management talent for government. And yet I looked them up and over a recent 10-year period the value of Goldman Sachs stock rose 30 percent. In comparison, several clunky railroads such as CSX and Norfolk Southern saw their stock value rise 300 percent – 10 times as much – in the same period. Goldman Sachs did not add nearly as much value to its enterprise value in which outsiders had invested.

A major problem is that top managers now command compensation in way too high multiples of the base-line workers doing their jobs.

Costco pays its workers $15 an hour and does fine. People who possess capital have been very clever about importing cheap wage workers and then dumping the costs of keeping them alive onto the broader population and government, which has to subsidize the housing, health care and food for low-wage workers through federal subsidies that are billed to everyone else.

If a business model plan cannot pay its workers a livable wage then it should not be in business. It is time to engineer a national economy in which every job sustains the overhead and provides a profit – without managers and owners of low wage business draining from the rest of the economy.

A few years ago a study showed 70 hospitals went bankrupt along the U.S. border, casualties of having clever employers dump the cost of keeping its workers alive onto everyone else, including native workers who were displaced.

Costco workers – because they are paid well above minimum wage – seem motivated to make their employer’s business plan work. A low-wage, low-skill worker who is treated like a worthless slave of no value understandably will not be motivated to make their employer’s business plan work.

A major fast food business plan is to hire part time low-wage workers and tell them they need another low wage job with someone else to stay alive.

If fast food has to raise prices 50 cents a burger so it can employ full time workers with a livable wage, then so be it. If that results in Americans packing their own lunches to save money, so be it.

The social contract is broken. And it is not a question of race. It is a question of morality and economics, no matter who is in the labor pool. If low-wage unskilled workers cannot be trained to be productive full-time workers who do not require government food, housing and health subsidies, then that is a failure of management, the schools and society.

The writer lives in Myrtle Beach.

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