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From: eder@ssc-vax.UUCP (Dani Eder)
Newsgroups: net.politics.theory
Subject: Re: Risk vs. Reward
Message-ID: <531@ssc-vax.UUCP>
Date: Tue, 19-Mar-85 16:58:52 EST
Article-I.D.: ssc-vax.531
Posted: Tue Mar 19 16:58:52 1985
Date-Received: Thu, 21-Mar-85 01:39:07 EST
References: <792@utcsri.UUCP> <1184@amdahl.UUCP> <458@ssc-vax.UUCP> <118@ubvax.UUCP> <507@ssc-vax.UUCP> <129@ubvax.UUCP>
Organization: Boeing Aerospace Co., Seattle, WA
Lines: 95

> 
> The opinion of most Marxists who judge "values" in an honest way, that is,
> by evaluating labor output and effort, is that the differential that managers
> receive above their per employee value plus skill benefits is not value,
> but surplus, of the same sort as shareholders receive.  Put that
> differential on the shareholder side of the ledger and employees end up
> with much less than full value.
> 
     But aren't managers employees too?  They are here at Boeing.
Perhaps your company is different.  The value of a manager at the
first level (i.e supervisor, foreman) is supposed to be the increased
output of the employees he manages.  This improvement can be from
motivation, training, skill in scheduling, or ability to get the
higher level managers to release funds to buy new equipment.  In order
to attract the best people to these management positions, the
compensation is set higher than that of the shop-floor operative.
If this were not the case, then you would preferentially attract
people who like to boss others.
     When you get to the higher levels of management, a factor in
the compensation level is the reduction of employee theft.  High
level managers can steal large amounts from the shareholders, and a
sufficiently high salary deters this by reducing the need.  At the
higher levels of management, compensation in the form of stock and
bonuses helps secure the shareholders return by tying the managers
return to it.  These incentives would not be as necessary in a
smaller company with a single major shareholder who has direct
contact with management.  In the case of large corporations with
dispersed ownership, control is vested in high ranking employees,
and 'perks' are required to reduce abuse of this power.
     When you look at the amount of these perks, beyond the value
of managers in the form of increased output, it is not significant.
Let us make the simplifying assumption that managers are only 'worth'
as much as average employees, and that anything above that is
perks.  Using data from my company, perks amount to less than 4%
of total compensation.  

> > > A laborer's investment strategy, I'd suggest, involves heavy fixed
> > > investment (in housing, education, accumulated community ties [friends,
> > > counselors, etc.]), and high overhead (fixed and regular maintenance
> > > costs), relative to income received.  In situations of high unemployment
> > 
> >      On a discounted present value basis, my current job is worth
> > hundreds of thousands of dollars.  The years I put in to be able to
> > acquire such a job were well spent.  Even a minimum wage, minimal skill
> > job has a present value of $80,000.
> 
> Discounted present value is a standard for judging long term investments,
> under the assumption that money obtained in interest is added to the
> initial capital invested over the period under consideration, and not
> withdrawn (i.e. spent on any thing else) over that period.  Since most
     That is not how I understand the term.  The assumption behind
discounting is that a dollar now is worth more to me than a dollar in
the future.  The discounted present value is the dollar amount today
that equals the sum of all future benefits when they are adjusted for
their distance in the future.  Usually this is acheived by assigning
a 'discount rate'.  For example, if the discount rate is 10%, then a
ten dollar return next year has a present value of nine dollars.
Another example is my job. Using a 10% discount rate, and a 5% probability
per year of getting fired, and a 3% per year real salary growth, I
get a present value for my job for the next seven years of $147K.  

> wages must be withdrawn in order to subsist, interest and interest on
> interest cannot accumulate.  Hence discounted present value is not valid
> for computing the worker's return.  Her return is additive -- only the sum
> of wages -- whereas the capitalist's return keeps accruing interest.  The
> difference between the additive and discounted present value all goes to
> the capitalist as a higher return on investment.
  The capitalist may spend the interest as it comes in, and the frugal
worker may save much of her income.  As an example, we (my wife and I)
save 42% of our after-tax wages.  When I was single I was at about 30%,
and when I was a minimum-wage college student, neglecting tuition I was
at 40%.  It is a matter of whether you want to spend all your income
or adjust your lifestyle so as to save money.  I am therefore a counterexample
to the first case.  As for the other, consider a retired person with
$150,000 in utility stocks, but who lives on the dividend checks.
Where is the capital accumulation?
> 
> > And what do you call a two wage earner family?  I call it diversification.
> > At one point a few years ago, my brother and I, and both my parents were
> > all working simultaneously(not all full time, though).  That was serious
> > diversification. 
> >
> 
> Yes it was.  But there is still a world of difference between a 2 and 1/2
> eggs investment (say, two parents full time and two children one quarter
> time) and the n eggs investment a capitalist can make precisely to reduce
> his risk.  A workers family can only reduce their risk so much.  A
> capitalist can reduce his risk to zero.
   Someone with lots of money can make her risk small, but not zero.
A two wage-earner couple who work in different industries have about
a 1% chance of being simultaneously unemployed.

> 
> Tony Wuersch
> {amd,amdcad}!cae780!ubvax!tonyw