The Value of Labor

In 1931, Pope Pius XI, in his encyclical Quadragesimo Anno, while declining to pronounce as unjust the system of working for wages and salaries, wrote that it is “more advisable, however, in the present condition of human society that, so far as is possible, the work-contract be somewhat modified by a partnership-contract, as is already being done in various ways and with no small advantage to workers and owners. Workers and other employees thus become sharers in ownership or management or participate in some fashion in the profits received.” [1]

What is to be commended in this idea is that it, to a great extent, resolves the contradiction inherent in capitalist enterprise. On the one hand there are business owners who are benefited by obtaining as much work from their employees as possible at the lowest possible cost. On the other hand there are the employees who benefit from the highest possible wages or salaries for the least amount of work expended.

This is not to ignore the human aspect of employer-employee relations. Certainly, there are ethics on the part of business owners, and there is pride in a job well done on the part of employees. But there are those raw economic interests that cannot be ignored, which often enough raise their heads to create conflicts; and the idea of employees who are also owners unify those interests, thus making such conflicts far less likely to emerge.

While the idea is easy to talk about in the abstract, the manner of implementation promises some complications. First of all, there is the question of how profits and ownership are to be shared. The sharing could take different forms, and there are already models available. But if employee ownership is to become a goal and policy of government, there needs to be an assessment of what system would be the most fair to all interests concerned. Secondly, a means must be found to encourage the practice without resorting to heavy-handed governmental tactics that would discourage investment and diminish productivity.

To arrive at a plan it is necessary to look at profits, and how they arise. Very simply, a business is profitable when it makes more money than it spends. A major part of what it spends is usually in the form of compensation for its employees. It is not difficult to see that the amount that a business realizes over what it pays in wages and salaries is value added to the business by its employees. It is the investment that the employees make in the business through their work.

From an objective standpoint untainted by bias it can be seen how employees are not compensated completely for the value that they add to a business. Still, it is clear that the entirety of this amount cannot be distributed to the employees as compensation. If that was done, there could be no profit.

The best way, then, for employees to realize the value they add to a business is to treat that value as investments. Just as the money invested in a business by its owners is considered for purposes of determining the percentage of ownership, so should the amount invested by the employees in the manner described through their work. So that those who invest money only would not bear the entirety of the risk, a method for reducing employee ownership percentages would be devised to be used in the event of losses. Employees would, of course, continue to receive salaries and wages as they do now.

How could businesses be encouraged to adopt such a plan? Generous tax incentives seem to be the best way to do so. This would justify the implementation of certain safeguards to ensure that the program operated as planned. For example, exorbitant executive salaries would have to be curbed so as to avoid unjustifiably reducing profits. It is to be hoped that the profitable exemplars of businesses adopting such a plan, arising from the additional employee incentive, would provide further encouragement.

Jack Quirk