Why 'Paid-What-You're-Worth' Is a Toxic Myth

Subject: Re: Why 'Paid-What-You're-Worth' Is a Toxic Myth


So why don't we get "paid what you're worth" out of the way? No more pay.
No more raises. No bonuses. No co-payments for medical assistance.
Instead, we set about providing decent housing, education, food, health and
other services such as police and fire protection.
Let's say that you are an auto worker. You are married with 2.4 children, a
dog, a cat and a parrot.
You select a home from those homes within easy reach of your place of work,
and you move your family in. Working, you are allowed to pick up food and
household supplies from the nearby All Purpose Store.
Of course folks are not going to buy in on such a plan. How can we expect
people to work extra hard if they can do the bare minimum and live just as
well?
How can a person show off their cleverness if they can't move into a gated
community and drive a flashy car and float a small yacht? And wear diamonds
the size of baseballs to set off their mink coats?
Well, maybe we have been so sold on what is and is not important in life
that we will never get things right. I guess there's no pleasure in
thinking of the day when every single man, woman and child live in comfort
and security. I guess that's not a worthy enough goal for this species to
strive for.
Well, don't get all bent out of shape when someone drills a hole in your
yard and starts fracking. After all, they want to get what's coming to
them.

Carl Jarvis

----- Original Message -----
From: "S. Kashdan" <skashdan@scn.org>
To: "Blind Democracy List" <blind-democracy@octothorp.org>
Sent: Tuesday, March 18, 2014 9:06 AM
Subject: Why 'Paid-What-You're-Worth' Is a Toxic Myth


Why 'Paid-What-You're-Worth' Is a Toxic Myth



By Robert Reich [2]



RobertReich.org [1], March 17, 2014 |



http://www.alternet.org/print/news-amp-politics/why-paid-what-youre-worth-toxic-myth



It's often assumed that people are paid what they're worth. According to
this logic, minimum wage workers aren't worth more than the $7.25 an hour
they now receive. If they were worth more, they'd earn more. Any attempt to
force employers to pay them more will only kill jobs.



According to this same logic, CEOs of big companies are worth their giant
compensation packages, now averaging 300 times pay of the typical American
worker. They must be worth it or they wouldn't be paid this much. Any
attempt to limit their pay is fruitless because their pay will only take
some other form.



"Paid-what-you're-worth" is a dangerous myth.



Fifty years ago, when General Motors was the largest employer in America,
the typical GM worker got paid $35 an hour in today's dollars. Today,
America's largest employer is Walmart, and the typical Walmart workers earns
$8.80 an hour.



Does this mean the typical GM employee a half-century ago was worth four
times what today's typical Walmart employee is worth? Not at all. Yes, that
GM worker helped produce cars rather than retail sales. But he wasn't much
better educated or even that much more productive. He often hadn't graduated
from high school. And he worked on a slow-moving assembly line. Today's
Walmart worker is surrounded by digital gadgets--mobile inventory controls,
instant checkout devices, retail search engines--making him or her quite
productive.



The real difference is the GM worker a half-century ago had a strong union
behind him that summoned the collective bargaining power of all autoworkers
to get a substantial share of company revenues for its members. And because
more than a third of workers across America belonged to a labor union, the
bargains those unions struck with employers raised the wages and benefits of
non-unionized workers as well. Non-union firms knew they'd be unionized if
they didn't come close to matching the union contracts.



Today's Walmart workers don't have a union to negotiate a better deal. They're
on their own. And because fewer than 7 percent of today's private-sector
workers are unionized, non-union employers across America don't have to
match union contracts. This puts unionized firms at a competitive
disadvantage. The result has been a race to the bottom.



By the same token, today's CEOs don't rake in 300 times the pay of average
workers because they're "worth" it. They get these humongous pay packages
because they appoint the compensation committees on their boards that decide
executive pay. Or their boards don't want to be seen by investors as having
hired a "second-string" CEO who's paid less than the CEOs of their major
competitors. Either way, the result has been a race to the top.



If you still believe people are paid what they're worth, take a look at Wall
Street bonuses. Last year's average bonus was up 15 percent over the year
before, to more than $164,000. It was the largest average Wall Street bonus
since the 2008 financial crisis and the third highest on record, according
to [3]New York's state comptroller. Remember, we're talking bonuses, above
and beyond salaries.



All told, the Street paid out a whopping $26.7 billion in bonuses last year.



Are Wall Street bankers really worth it? Not if you figure in the hidden
subsidy flowing to the big Wall Street banks that ever since the bailout of
2008 have been considered too big to fail.



People who park their savings in these banks accept a lower interest rate on
deposits or loans than they require from America's smaller banks. That's
because smaller banks are riskier places to park money. Unlike the big
banks, the smaller ones won't be bailed out if they get into trouble.



This hidden subsidy gives Wall Street banks a competitive advantage over the
smaller banks, which means Wall Street makes more money. And as their
profits grow, the big banks keep getting bigger.



How large is this hidden subsidy? Two researchers, Kenichi Ueda of the
International Monetary Fund and Beatrice Weder di Mauro of the University of
Mainz, have calculated [4] it's about eight tenths of a percentage point.



This may not sound like much but multiply it by the total amount of money
parked in the ten biggest Wall Street banks and you get a huge
amount--roughly $83 billion [5] a year.



Recall that the Street paid out $26.7 billion in bonuses last year. You don't
have to be a rocket scientist or even a Wall Street banker to see that the
hidden subsidy the Wall Street banks enjoy because they're too big to fail
is about three times what Wall Street paid out in bonuses.



Without the subsidy, no bonus pool.



By the way, the lion's share of that subsidy ($64 billion a year) goes to
the top five banks--JPMorgan, Bank of America, Citigroup, Wells Fargo. and
Goldman Sachs. This amount just about equals these banks' typical annual
profits. In other words, take away the subsidy and not only does the bonus
pool disappear, but so do all the profits.



The reason Wall Street bankers got fat paychecks plus a total of $26.7
billion in bonuses last year wasn't because they worked so much harder or
were so much more clever or insightful than most other Americans. They
cleaned up because they happen to work in institutions--big Wall Street
banks--that hold a privileged place in the American political economy.



And why, exactly, do these institutions continue to have such privileges?
Why hasn't Congress used the antitrust laws to cut them down to size so they're
not too big to fail, or at least taxed away their hidden subsidy (which,
after all, results from their taxpayer-financed bailout)?



Perhaps it's because Wall Street also accounts for a large proportion of
campaign donations to major candidates for Congress and the presidency of
both parties.



America's low-wage workers don't have privileged positions. They work very
hard--many holding down two or more jobs. But they can't afford to make
major campaign contributions and they have no political clout.



According to the Institute for Policy Studies [6], the $26.7 billion of
bonuses Wall Street banks paid out last year would be enough to more than
double the pay of every one of America's 1,085,000 full-time minimum wage
workers.



The remainder of the $83 billion of hidden subsidy going to those same banks
would almost be enough to double what the government now provides low-wage
workers in the form of wage subsidies under the Earned Income Tax Credit.



But I don't expect Congress to make these sorts of adjustments any time
soon.



The "paid-what-your-worth" argument is fundamentally misleading because it
ignores power, overlooks institutions, and disregards politics. As such, it
lures the unsuspecting into thinking nothing whatever should be done to
change what people are paid, because nothing can be done.



Don't buy it.



See more stories tagged with:



paid-what-you're-worth [7],



myth [8],



wage parity [9],



wall street bonuses [10]



Source URL:
http://www.alternet.org/news-amp-politics/why-paid-what-youre-worth-toxic-myth



Links:



[1] http://robertreich.org/



[2] http://www.alternet.org/authors/robert-reich-0



[3]
http://www.washingtonpost.com/business/ny-comptroller-average-wall-st-bonus-over-164k/2014/03/12/3b1c7f8a-a9e7-11e3-8a7b-c1c684e2671f_story.html



[4] http://www.imf.org/external/pubs/ft/wp/2012/wp12128.pdf



[5]
http://www.bloombergview.com/articles/2013-02-20/why-should-taxpayers-give-big-banks-83-billion-a-year-



[6] http://www.ips-dc.org/reports/wall_street_bonuses_and_the_minimum_wage



[7] http://www.alternet.org/tags/paid-what-youre-worth-0



[8] http://www.alternet.org/tags/myth



[9] http://www.alternet.org/tags/wage-parity



[10] http://www.alternet.org/tags/wall-street-bonuses-0



[11] http://www.alternet.org/%2Bnew_src%2B







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