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Originally Posted by smooth
But don't get hung up on that very glib example, please. Refuting those specific figures isn't the point, but to use it heuristically. For example, to further flesh this out. We might wonder about the plight of each worker who now only earns half as much ($45 income rather than a single worker making $100). But two responses to this: a) higher productivity would increase profits. It might be that you would actually have $200 to spend on labor, so you could have the workers produce for 6 hours. b) two workers in a family could conceivably work for 3 hours each (6 total is still less than 10) and be able to reap the same total financial reward, while allowing each member to be productive work force (satisfying and healthful for economy) and family time (satisfying and healthful for society).
You might be in the perfect position to try an experiment. You could, for example, strike a deal with one of your laborers that essentially states: I increase pay, reduce your hours, but your productivity needs to increase X amount (to be determined so the overall equation remains basically static). Try that for a month or two with your employee. If the productivity doesn't increase, back to the American model of driving wages down and increasing hours. I personally think that model produces downward pressure on producivity.
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Sorry, I have to use numbers, it makes more sense to me.
Scenario: SERVICE TYPE INDUSTRY
Let's say I charge my customers $25.00/hr for the labor my employees provide (negate taxes, etc.)
Worker "A" is an average producer and gets paid $12.50/hr for an eight-hour day (no overtime). If I can keep at least seven of his working hours billable, I will gross $175.00 for Worker "A". My net profit would be $75.00/hr.
Worker "B" is an above-average producer and gets paid more an hour than Worker "B" (let's say $17.00/hr). I can only charge my customers $25.00/hr. I can't say that the price would be $25.00 an hour if you get my average tech or $35.00/hr if you want my above average tech (even if I try and tell them that the time on site would be less so their bill would probably be less--nobody is going to believe me anyway).
The law of averages says that of my techs, some will be average, some below-average and some above-average. There is no way for me to only keep "above-average" techs. There just aren't enough people out there to fill this role. When I was running crews in this type of situation, one out of five techs was "above-average", the one "above average" tech did get paid more, but our hourly rate was the same, regardless of which tech showed up on site. (plus they were union, so there was nothing I could do there--ever try and get a union worker to voluntarily be more productive, regardless of the pay? I was on a site in Mass. where the union stipulated what the techs made, that they got at least XX hours of overtime and nobody could set requirements for them--i.e. pull 1500 ft of wire a day, they could only be told to pull 1500 ft of wire, time limits were not allowed)
In other words, this idea could not work in a service-type industry. The first step would require that American unions be abolished, which will never happen.
Scenario: Manufacturing Plant
Worker "A" is an average worker and gets paid $10.00/hr. His average output is 5 units an hour and I sell the units for $75.00 a piece. Each piece costs me $50.00 in parts to make. On an eight-hour day (again, I don't want to pay overtime, it kills my profit) I will make a net profit of $920.00 on Worker "A" for one work day (taxes, variable costs excluded). My per unit net profit is $23.00.
Worker "B" is far more productive and gets paid $15.00/hr. His average output is 8 units/hr. and works for 3 hours (that is an increase in productivity of more than 50% which would be pretty fantastic). For Worker "B"'s workday, I make a gross profit of $1,800.00. After paying costs and paying labor, my net profit is $550.00. My per unit net profit is $23.13
An increase of $0.13? Statistically, paying either worker in either of the above fashions means the same thing to me. I make the same amount of profit either way.
However, our average guy, Worker "A", brings home $100.00 per day gross.
Mr. Above Average, the guy who increased his productivity over 50%, brings home less than half-that.
Let's say both guys are single.
It pays better to be average, huh?
What are the chances that I could average a 50% increase in productivity for every worker that the plan is offered to? Every percent point drop in productivity means a similar drop in profit to me as the owner.
What would be an acceptable increase in productivity?
As the owner of the plant, I don't care, my per unit profit stays the same regardless and the money I will make each year stays the same (as long as the increased productivity of the workers getting higher pay/less hours never falls below 50%)
/sorry, it sounds nice, but I don't see the numbers working. Unless, of course, I am wrong with my numerical assumptions (which I thought were on the optimistic side).