The aim of Employment law is to regulate the voluntary exchange made between employer and employee. Voluntary? Why should a voluntary exchange require any form of regulation? There are two main reasons.
The modern market economy depends upon voluntary exchange between people selling what they have to offer and buying what they need. Workers sell their problem-solving skills and ability to get things done, and employers pay them a wage in return. That’s the beauty of the market. Alas, markets are not very effective in ensuring that everybody ends up with the same amount of stuff.
Income inequality is widely considered to be one of the most pressing social problems of our time. There is an intuitive sense that the economic pie ought to be carved up in a fairer way, coupled with the assumption that less for some will result in more for others. This post introduces my conference paper on the tension between such distributive concerns on the one hand, and the productivity goals of corporate law on the other.
I wrote yesterday about the Toronto conference paper. The aim of that paper (as currently conceived) is to situate concerns about executive pay within the broader debate about redistribution of corporate profit between capital and labour. The law currently gives shareholders a key role in monitoring executive pay; the paper therefore takes the philosophical ideas underpinning ‘shareholder ownership’ as a useful starting point in explaining the link between productivity, profitability and pay in regulating corporate enterprise. The central concern is with the tension between pay and profit, where pay covers the proportion of corporate income allocated to rank and file workers while profit encompasses the residual income after pay and all other liabilities have been satisfied. With the current setup of executive pay, managerial workers are often entitled to a share of the ‘pay’ plus a share of the ‘profit’.
To whom, workers or managers, is corporate productivity largely attributed? How does this translate to a claim to a share of the profit? Do all workers ‘deserve’ to share too in the profit? How do we evaluate their respective claims? What is to be said about workers who are in lucrative positions owing largely to luck or chance, or those in low-waged jobs owing largely to their underprivileged backgrounds? Does the manager produce work of greater value than the labourer, or did he just get ‘lucky’ to be selected for the managerial role? The paper links these questions to the productivity side of the equation, in order to take account of the labour product that the employer is paying for and how that affects the value of that product as reflected in wages and wage distribution.
Hard at work preparing a paper for the Labour Law Research Network conference to be held at the University of Toronto in June. The paper is provisionally titled 'Production, Pay and Profit'. It's all about why some people are paid 'too much' and whether that is 'fair', whatever that means.
June update: here's how that turned out, under the title 'Large firms, wages and productivity'.