This thought came to me one Saturday morning as I was standing in line waiting to order a coffee from a local Dunkin’ Donuts. Unsurprisingly, the establishment was bustling and although most other customers failed to notice this, the employees appeared to be working at an impressive almost mechanical speed. Well trained in the tedium I’m sure, but more importantly it dawned on me that it’s unlikely the increase in their productivity was garnering any complimentary increase in compensation. As I too often do, this prompted me to strike up a conversation with the cashier as she frantically prepared the coffee. As it turns out, my hunch was correct. They may add some additional staff during peak hours, though not as much as one would think, but their hourly wage remains equivalent. This is of course in stark contrast to tipped service sector workers whom generally do see an increase in pay with increases in productivity.
The natural subsequent question is of course, why? As an entrepreneur I’ve felt first hand the fundamental free-market argument of the self-proprietor, “risk and reward”. In this situation however, it would appear these employees share much of the same risk without benefiting proportionally from the reward. In a downturn or slow period, the share holders’ earnings are reduced or perhaps eroded. At the same time employees earnings are likewise reduced or eroded by either a decrease in work hours or by losing their job, respectively. The few who remain to work during the downturn retain some earnings but only for so long as the share holders can cover cash flow.
During an economic upturn however, the share holders’ profits increase with high demand or increases in worker productivity, while workers’ earnings in this establishment increase only marginally in comparison with longer, although often more strenuous, work hours.
With today’s debate over increasing minimum wage, I propose we shift the debate from the confrontational to the cooperative. If we generally hold true some homo economicus assumptions about individuals largely acting in their own self interest, then both sides of the debate are justified in their positions. Share holders by definition of ownership, do in fact share disproportionately in the risk of the business, even if that distribution is often statistically exaggerated. Workers likewise have valid arguments about the widening wealth gap and minimum costs of living. Perhaps the better solution is to marginalize the emphasis of “paying by the hour” so much as a more consistently proportional distribution of risks and rewards.
Under this type of pay scheme one can imagine and interesting mix of capping minimum wage, whiles increasing an emphasis of merit based bonuses and profit sharing. At larger firms, a cap on the pay multiplier between top earning employees and the lowest paid employees could be a complimentary practice.
Much research remains to be conducted about where to set the new bar or bars, and the mere mention of this topic is likely to spark intense political debate. That however is a distraction from the premise of this article which is more to emphasize the point that debates of this nature may often have more optimal solutions when the core issues are highlighted and unconventional solutions are considered. The rational solution using the above mix of pay incentives is very likely to be overlooked in heated factional debates. If each side is to take a broader perspective however and consider the legitimate merits of these types of pay schemes, the resulting structure opens up far more room for compromise than do currently proposed solutions. That fact, in and of itself, should legitimize such proposals as the potential to find acceptable commonplace alone is unfortunately in today’s world, a valuable rarity.