1.5.17

MARKET TESTS HAVE STEEP GRADING CURVES.

To the Young Bolsheviks at Vox, the attempt by American Airlines to compete for talent becomes yet another manifestation of Class Struggle. American Airlines gave its workers a raise. Wall Street freaked out.
Any given company obviously benefits when it’s able to get away with paying its workforce less. But one company’s workers are another company’s customers. A world in which labor never gets paid is ultimately one in which nobody has much of anything but leftovers.
Yes, until the subsistence upon leftovers becomes incompatible with its capitalist integument.  But there are market tests, and even business gurus and securities analysts are subject to them.
It’s less quantifiable, and thus not-beloved by academic economists, but my personal view is that what amounts to a management fad for treating workers poorly is an underrated factor here. The beating American took in the stock market — and the outraged tone of the analyst letters — is a clear sign of the constant pressure that modern companies are under to be as stingy as possible with their workforce.

Combine that pressure with what amounts to a 16-year span of objective labor market weakness and you have a whole cohort of corporate executives who’ve probably never even considered the possible merits of a different approach. And as we’re seeing, those who do are smacked down immediately.
Yes, although the false equivalence of short-term stock appreciation with long-term wealth increases is an error, and airlines are not exempt from the discipline of seeing their going concern value evaporate over time as maintenance is deferred and the institutional memory is dismissed to early retirement.  Sometimes, though, the corrective is simpler.  All it takes is a corporation or two taking seriously the idea that the employees are the most valuable asset.
Profitable companies could pay workers more and shareholders less, leading to more spending on the products made by other companies. Those companies would then see their revenue, profits, and wages rise and people might find themselves buying more plane tickets. That’s how functioning market economies used to work, and in the end even executives and shareholders ended up just fine.

With the unemployment rate finally down to a reasonably low level after years of painfully slow improvement, there’s a chance we just may get it. But for it to happen, economic elites will have to learn to live with a world where labor really does get paid first.
Strictly speaking, capital is the residual claimant, although capital has incentives to increase its claim by paying as little as it can get away with to vendors and employees.  And profitable companies can provide workers more and shareholders more by, well, committing acts of allocative efficiency.  And perhaps, those acts of allocative efficiency turn out more favorably for people who have the opportunity to say no to the received diet of on-the-hamster-wheel employment contracts.

1 comment:

David Foster said...

Hal Rosenbluth of Rosenbluth Travel was fond of the phrase "The Customer Comes Second", reflecting his belief that the way employees are treated will drive the way they treat customers.

Evidently, the analysts quoted share the belief that a pilot or a dispatcher or a flight attendant is a commodity, an undifferentiated unit of production. I have to wonder how many of these analysts have ever run an organization of any kind, especially a complex one involving people with a mix of skill sets who need to interact intensively.