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November 27, 2012

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McKinney:

1. I for one don't, but I'm not sure why you think this is relevant.

Certainly I think any relevant insights from someone who *has* walked in those shoes would be welcomed to the discussion. However, in general I don't see why we should continue to give the likes of Isbister the benefit of the doubt when we have good reason to, well, doubt them. There's plenty of reason to believe that lots of people who operate businesses are doing so somewhat stupidly and shortsightedly, or, alternatively, have various business goals they don't cover in textbooks (like maintaining power over others and enforcing class structures).

And the experience of a small business owner is not even really part of the discussion for large firms, where those responsibilities are heavily divided up and delegated, and occur within a pretty rigid framework. (I'd say one of the key characteristics of the problems under discussion is the fact that it's very difficult, in general, to align the personal concerns and incentives of mid level managers with the notional priorities of the organization itself. Large firms are basically chock full of sub-units and individuals acting at cross purposes to one another, ham-handedly implementing under- or over-specified directives from above, etc.)

2. Seriously? One of the primary topics of this thread has been the mountains of evidence that (1) American workers in the aggregate (particularly "low-skill" ones) are systematically *under-compensated* (they are receiving a smaller and smaller portion of the value they provide to their employers/economy), and (2) many firms may in fact be, for whatever reason, leaving money on the table by crippling their operations with poorly motivated employees (and too few of them at that). This is all the exact opposite of the risk that wages will exceed revenue.

3. I'm not even sure what this means.

In the hope that it's relevant to you, I'd observe that exactly what "the least you can pay" actually is in any given situation depends on the relative bargaining positions of the parties. And it's certainly true that America's corporate employers have arrogated to themselves quite a bit of power over employment conditions. However, since this arrangement appears to be generating a lot of unfairness, misery, and economic disfunction, it seems to me that it's a compelling argument for why we as a society might want to work to rebalance that balance of power a little.

Hey McK, good to hear from you on this issue.

1. How many people commenting on this thread have personal financial responsibility for payroll, rent, getting customers and the whole range of other obligations that go with owning and running a business, including hiring, compensating and managing employees?

My personal experience here is management at a very minor level, and making recommendations for how my employer's money should be spent on some capital investments (i.e., software).

I've also done some work pitching the feds for R&D money, again at a fairly minor level (~$500K research grant proposals). Won some, too.

In no case has my own personal money been on the table. My @ss, maybe, but not my money.

All of that said, I am not a stranger to the pressures that small owner/operators live with.

3. We all pay, I assume, the least we can for the best product or service we desire. Can we all agree that this enlightened self interest creates market effects back up the supply chain that militate against a product or service provider unilaterally increasing costs?

Actually, I fairly often pay more than the lowest available price for goods or services of a given type and quality.

Sometimes I do so because I simply think what's on offer is actually worth more than what's being asked. More commonly, I do so because I prefer to patronize folks whose business models I like better than the alternative.

It's actually not uncommon for people to do this, in my experience.

I don't think the avg worker bee truly appreciates what it takes. They assume it's much easier than it is. Thus they can be overly critical of the large salaries that business owners pay themselves.

I don't think many people are concerned with what business owners pay themselves. Maybe C-level management in large corporations, who generally aren't owners in the traditional sense. Yes, they get stock options, but lots of people own stock in almost any given publicly traded company.

For me personally, the idea of owning my own business seems like something of a living hell. If I were a one-man show or damned close to it, maybe I would consider it. In any case, the point is that I don't think it's easy to run your own business, even though I've never done it, and I generally don't even think about what business owners pay themselves as it concerns income disparities.

"For me personally, the idea of owning my own business seems like something of a living hell."

More often than not, your idea is how it ends up.

I do see top level exec.s and members of the board as quasi-owners because of the amount of stock/stock options they own, the amount offered as incentive and because they make the *daily* decisions that directly impact stock value - as opposed to the typical share holder who is just along for the ride. We could call them de facto owners.

However, I also do recognize that their role is not exactly similar to a single individual that owns and hands-on operates a business.

In no case has my own personal money been on the table. My @ss, maybe, but not my money.

But that's fairly typical of even "business owners" and many entrepreneurs: the money comes from outside investors, bank loans using capital bought with the loans as collateral, etc.

Of course, I'm not sure how much "job creators", as they fancy themselves, understand what life is like for the people they dismiss as "worker bees", who have enormous debts in the form of mortgages and other expenses, which could all come crashing down if they lose their job.

I've noticed that most business owners simply don't understand the concepts of writing a resume, applying for jobs, having an interview, etc., or have at least not done so in decades. As a consequence, they're completely out of touch with the experiences of normal people and in many cases have little sympathy for their position, if not regard them with outright hostility, since every dollar of their salaries is an expense that the business owner would rather not pay.

HSH,

"even though I've never done it"

Everyone runs their own business. It is called "Family, Inc." There is little difference between running a house hold and running a business, especially with kids.

You have to pay bills, hire help or coordinate consultants/contractors, coordinate and pay for childcare, ensure you are not spending more than you are earning, invest in the future (children), invest in retirement and healthcare, comply with regulations and taxes, choose your business partner (spouse), Ensure preventative checks and services are performed on equipment (cars, heaters, fireplaces, water heaters), maintain capital investments, etc. And failure means bankruptcy or worse.

And you have to ensure you are providing a service to your customer (employer/s) that ensures you keep getting paid.

There is no magic here. The primary difference is that you don't always get to deduct your expenses from "Family, Inc." But the process is the same.

"Everyone runs their own business. It is called "Family, Inc."

I understand what you are saying, having raised a family myself. However, there is an important difference between Family,inc and really running a business.

With family, inc the primary source of income comes from (usually) a 9-5 gig. The CEO of family, inc has a well defined role at the 9 -5 gig and, as long as he/she performs satisfactorily in that role, the money keeps coming in (or at least it used to before the economy went to hell).

The owner of a real company has to live by his/her wits and guts constantly. There's no leaving work at the office. Social life becomes all about maintaining and establishing new connections. Business problems come up in the middle of the night. The role is multi-faceted AND the owner probably has to manage family, inc as well.

with 1/2 of marriages ending in divorce and personal bankruptcy on the rise, it seems that a lot of people aren't good managers, even of family, inc.

The thing that strikes me in all of this is that the market model for matching worker to job has failed.

There are thousands and thousands of jobs that are going unfilled. That means thousands and thousands of businesses have demand they could meet, and revenue they could generate, that they are leaving on the table.

The median personal wage income in the US is just above $26K. In many if not most areas of the US, that's not enough money to live on without some kind of public assistance. It sure as hell is not enough if you have any dependents.

And "median" means that *half the people in the country make less than that*.

Market dynamics offer a simple solution: pay people more.

But we won't do that, so the jobs go unfilled, and the economy suffers, and both the people who aren't working and the people who are end up on some kind of dole so they can freaking eat.

And everybody b*tches because their hard earned dollars are going to pay for public assistance, but they don't recognize that they're *just making up for the wages they don't pay up front*. Either as an employer, or as a consumer buying stuff at a big box that pays crap wages and sources everything from overseas.

US GDP per worker is almost four times median income. I don't know how that compares to any other country. What does occur to me is that there is headroom to *freaking pay people more* without bankrupting every small business in the country.

We don't do it, because we're in love with idea of "free markets", and getting things as cheaply as we can on an out-of-pocket basis.

Out of pocket costs are not the only damned costs.

A guy like Isbister wants to pay a skilled machine operator $10/hour to start.

Does he take a similarly low-ball approach to the machines? Does he tool up from the cheapest thing he can find on ebay in any given week? Does he scout garage sales for CNC routers?

Does he set up his shop in some crappy barn on the side of some god-forsaken hill, and run an extension cord from a nearby utility pole?

My guess is that he makes investments in his capital goods. He just doesn't seem to see the sense of investing in human capital - in the human beings who can actually make something he can sell come out the other end of the damned machine.

So he won't fill the slots, and he'll leave revenue on the table, and his tax bill will go up so that the folks he refuses to hire for $20/hour don't starve to death.

And eventually, he will be able to stop b*tching about his tax bill, because he will become poor enough to have little or no tax liability, and perhaps will find himself on the receiving end of uncle's largesse.

It's just stupid. Stupid, stupid, stupid.

I'm not trying to pick on Isbister in particular, he's just today's bog standard dude b*tching about how tough it is to make a small business work.

And he's right, it is tough. Times are tough, and they're tough on a hell of a lot of people.

Low-balling his hires is not going to solve his problem.

Blackhawk,

I don't think that the vast majority of families operate on a 9-5 gig for employment. Most of us work in "at-will" states which means you can be fired for any reason or no reason, but not an illegal reason. And you can be fired because your boss sucks at being a "businessman."

I can't think of anyone who is not working thier own contacts, whether in the company they are in, or outside. We are all selling our wares.

We all live by our guts and wits. No one leaves thier "business" at the office. They leave their employers "business" at the office, just as every business leaves their customers business at the office.

You may think your hourly employees are not concerned about "Family, Inc." 24/7, but you are wrong.

I love the "middle of the night" thing. I know you are a parent. Doesn't that comment embarrass you? Have you never had a household emergency in the middle of the night?

And more businesses fail than marriages.

"Doesn't that comment embarrass you? "
No. Why shoud it?

"Have you never had a household emergency in the middle of the night?"

Yes. Of course I have.

My point was that business owners (not to over-glorify them) have to respond to business matters as well as family matters 24/7. The 9-5 worker, unless overly ambitious or overly obsessive, only has family to worry about during off hours. Though I recognize that the times are a changin' and, given the current employment climate, Joe/Jane 9-5 has plenty to worry about on both fronts as well. I suppose that is why this recent election was all about "fixing" the economy. The 9-5 worker does not want that extra worry (and i don't blame them).

"The thing that strikes me in all of this is that the market model for matching worker to job has failed."

yes.

I am wondering about another angle.

Is it possible that the employers with open positions and potential employees with the desired skill sets are simply in different geographic locations and *that* is the problem?

Totally made up silly hypothetical: A machine shop in Wyoming can't find skilled machinists. Only expert horse riding cowboys apply. Somewhere in Detroit several dozen unemployed skilled machinists are wondering why no one is hiring.

I know businesses have made moves based on tax incentives offered by states.

With family, inc the primary source of income comes from (usually) a 9-5 gig.

What jrudkis said, on all counts.

I know damned few people whose jobs are 9-5, who leave the job on their desk when they go home, and/or who aren't called on to jump in for any of a variety of emergencies.

In my industry, it's normal to have cycles in any year, lasting weeks to months, where 60 or 70 hour weeks are the norm. And no, I don't get extra $$$$ or more than trivial comp time for it.

The "Leave it to Beaver" days of one income households where dad's home for dinner by 6:00 are over and done.

The whole thought process whereby owners have all the risk, and 'worker bees' wander in, cash their paychecks, and live lives happily untroubled by the health or success of the enterprise as a whole, is divorced from reality.

The 9-5 worker doesn't exist (except in government).

When I had a problem at my company (as part owner and vice president) I called everyone I needed in. I may have had to pay them (depending on status) but I got the people I needed to help. When we had a problem in the production area, I did not call the admins, but I sure did call in the useful people. They could refuse, but we are in an at-will state, and I would certainly have weighed that against them if it would be costly to the company, and I could replace them.


So, I honestly don't know what you are talking about. Sure, the people who could not be helpful were not involved, but those who could be helpful came in or risked thier jobs...just like every business out there risks customers by not responding to need or requirements.

Do you disagree?

Everyone is a contractor. We are all working our skills. Some may have more job protections, but it is still sales of work.

Re:byomtov on the question of handling forklifts.

The left hand is for the steering wheel (by now there are also joystick-driven ones), the right hand for the controls. A driver taking his hands from either while in motion (and putting both hands on the wheel means leaving the controls unattended) violates basic safety rules. Particularly when going backwards (almost half of the time) the driver cannot see either wheel or controls and has to handle them blindly. If you move a hand away under these circumstances, the risk is far too high that you cannot move it back in time in a critical situation (or worse: that you grab the wrong one).
The accident statistics for forklifts and related vehicles are pretty shocking and in a high percentage of cases the driver underestimated his machine or overestimated his own abilities. Violation of basic safety precautions ranks high too. And at least over here the trend is worsening because there are too many formally qualified drivers that lack the practical training and experience and get hired at low wages over actual pros. I myself did the course (and acquired the driving licence) because I had applied for a job that required it as additional qualification*. I think in hindsight that it was a good thing that I did not get the job because it would have been very likely that it would have ended in a fatal accident. I have the licence but I would lie, if I claimed that I could safely handle a forklift under actual work conditions.

*They were looking for someone with a PhD in chemistry for a hazardous waste storage facility in an old underground salt mine. I assume that all movement underground would have been done by forklift and hauler. Definitely nothing for amateurs

First of all, as to McKinney's first question, I have had an ownership stake in an enterprise, and I have been in charge of setting salaries. When the going has been good, people were compensated above market. When tough times came, the principals took the hit. Not to brag - my business isn't a huge profit-maker, and nobody makes a lot of money. But everyone makes a living wage (well over minimum wage). My experience (as a principal) is not with a high-stress business, and I have no problem with people who have stressful businesses being well-compensated. But that's not the issue. The issue is with the range of compensation. People on top perhaps deserve a lot of money if they're highly skilled and stressed, but people on the bottom deserve a living wage. And their stress should be recognized too.

jack lecou, and jrudkis, you're both right on.

As to family as economic enterprise, it is. People who hire otehr people to take care of children or the elderly, or who hire housekeepers or others, have to decide whether to pay a living wage, bonuses, vacation pay, sick pay, etc. It's the same question a business owner faces: I might have to give up something in order that my employee has a decent quality of life.

Obviously, an enterprise has to bring in revenue, McKinney. That's not the issue. The issue is how equitably the money is distributed.

(The whole "call in sick" aspect of things is worth an entire post. People call in sick for a variety of reasons: 1) they are sick, 2) they have to take personal time for a family matter or something else, 3) they need to do some errands that aren't possible after work hours, 4) a million other things. Highly compensated people can manage some of these issues by hiring other people to do stuff for them, or by taking a flexible attitude towards office hours, putting an emphasis on "getting things done". Minimum wage people cannot afford to hire other people, and often are denied work flexibility. Not to mention the fact that minimum wage workers don't necessarily feel an investment in the enterprise, since they are treated as fungible commodities.)

A guy like Isbister wants to pay a skilled machine operator $10/hour to start.

Does he take a similarly low-ball approach to the machines? Does he tool up from the cheapest thing he can find on ebay in any given week? Does he scout garage sales for CNC routers?

Again, I refer to my experience from the forklift driving course. The instructor (who was also a chartered surveyor and ran a specialist company dealing with forklifts and similar machinery) had quite a few first-hand horror stories to tell. Use of run-down equipment often including forging the mandatory paperwork to cover it up seems to be rampant. Add to that the above mentioned cheapskating in hiring and one would expect the statistics to look even worse. In some areas (where foreign temporary workers get employed on a shaky legal basis) many non-fatal accidents probably never get reported in the first place. Yes, there is a gray market in used forklifts that should not be operated anymore at all. As I said far above, even a small forklift is a significant investment and companies want to recover at least parts of that by selling the written-off ones down the line.

How many people commenting on this thread have personal financial responsibility for payroll, rent, getting customers and the whole range of other obligations that go with owning and running a business, including hiring, compensating and managing employees?

I have personally had management responsibility, and been a part-owner, in more than one situation where failure was going to cost me personally a lot of money, one way or another, and where I had very nice upside as well. That didn't encompass all the tasks you list - in particular I don't do sales - but did include dealing with payroll and personnel decisions, among other activities.

Next question?

Blackhawk: The 9-5 worker, unless overly ambitious or overly obsessive, only has family to worry about during off hours.

Except that, if he is making the median wage, a) he probably is working a second job, and b) if he is not, he is worrying about where he can find a second job to get himself up to where he can provide some minimal standard of living for his family. Not to mention worrying about what he will do if the business that he works for cuts staff (i.e. him).

I suppose you can consider that "only worrying about his family," but it comes down to worrying about the business he works for. Even though he doesn't own it. Even though he therefore has minimal control over how well the business does. At least the owner has some control over his own fate; the employee, not so much.

Hartmut,

My decades old experience (1990-1993) in Germany is that you have way more controls over workers than in America. Even a driver's license is way more difficult, and expensive.

Recently, my company could buy a small forklift and operate it for $5,000 ish/annum, with no regulation or training.

I have personally driven a car behind that forklift (forklift "in reverse" which was faster) on the highway at 2 am (as the 'safety vehicle') getting a small forklift to our work site when we needed it. Which we did because our prior forklift faied.

My point being that super efficient fork lift operators are not always necessary: I like the guy who drives it backward on the highway at 2am.

But the efficient guy probably would not have required my participation at all, because the first one would not have broke.

At least the owner has some control over his own fate; the employee, not so much.

I think I disagree with this. The employee has the same control. He is selling his work to this boss Just as the boss is selling the company skills), but could sell elsewhere. He could move, learn a new skill, or start a competitive business.

That we are all businesses does not mean that we have less control. It means we have more control.

jrudkis, driving the forklift on the road is not the problem, not even regulation-wise. What you need over here to do that is a standard driving licence and a licence plate for the vehicle. If the thing does not exceed certain criteria not even the standard weight limit for cars applies (it is treated essentially like farming equipment). The tricky part are quick maneuvers in confinded spaces. On the road the main danger are too narrow turns at too high a speed with no load. These things simply don't pass the moose test ;-)

Hartmut, our forklift was not road legal. I followed in the car at 2 am because it had no lights.

Its purpose was very technical, involving very high pressure, and experimental systems. But it worked, no tickets, and a fun story to tell about my time in a tech-start up.

McKinney, I'm sorry you had a bad day. To answer your question, after 18 years as a consultant (and president of a small consulting company, yes, with a payroll and all) I am back to being an employee. As with the reasons you cite, it's something of a relief.

I heartily agree with russell. Writing a business plan is a great exercise and incorporating it in a high school curriculum is a fine idea.

russell: Actually, I fairly often pay more than the lowest available price for goods or services of a given type and quality.

I'd much rather have good quality than the lowest possible price. Of course, paying more doesn't guarantee good quality, but searching for the lowest price usually includes sacrificing quality.

Russell, I also agree with you about investing in people. It does seem like the pendulum has swung far away from that. I'm hoping it has reached its maximum and is starting to return. But this is nothing new. See "a Christmas Carol" (a seasonal reference) or Oscar Wilde's definition of a cynic.

sapient: When tough times came, the principals took the hit. Not to brag...

Yeah, I've been there too. It's very unpleasant.

And, Blackhawk, yes, if expenses exceed income, ruin! (another Dickens reference)

Much of my opinion on these matters was captured by Bertolt Brecht in "A Worker Reads History"


Who built the seven gates of Thebes?
The books are filled with names of kings.
Was it the kings who hauled the craggy blocks of stone?
And Babylon, so many times destroyed.
Who built the city up each time? In which of Lima's houses,
That city glittering with gold, lived those who built it?
In the evening when the Chinese wall was finished
Where did the masons go? Imperial Rome
Is full of arcs of triumph. Who reared them up? Over whom
Did the Caesars triumph? Byzantium lives in song.
Were all her dwellings palaces? And even in Atlantis of the legend
The night the seas rushed in,
The drowning men still bellowed for their slaves.

Young Alexander conquered India.
He alone?
Caesar beat the Gauls.
Was there not even a cook in his army?
Phillip of Spain wept as his fleet
was sunk and destroyed. Were there no other tears?
Frederick the Great triumphed in the Seven Years War.
Who triumphed with him?

Each page a victory
At whose expense the victory ball?
Every ten years a great man,
Who paid the piper?

So many particulars.
So many questions.

And then there is of course the Supply&Demand Song (Song von der Ware)
http://www.youtube.com/watch?v=4DgJZADHsyg
(Brecht, Eisler)

I'd much rather have good quality than the lowest possible price.

Just to clarify:

I will frequently pay more for *the exact same good*. Not more for better quality, more for the same quality.

I'll do so if and when doing so supports or encourages things (or, sometimes, people) I value more than getting the cheapest price.

Out of pocket costs *are not the only costs*. Where and how you spend your money makes a difference.

"So many questions."

That'll be enough of that! Now pick up that craggy block of stone and stand there while I decide where it goes.

Don't you understand the pressures and responsibilities that Caesar, Alexander, Philip of Spain, and Frederick the Great had to put up with?

You try being born with the last name "Great" and see if you can live up to it! You'll see!

If I have the leadership abilities and discipline to stand in line at 3:00 am on Thanksgiving morning to get the cheapest possible price on a three-pack of T-shirts, then by God the rest of you can do without proper fire precautions in your gol-darned shirt factories.

And wipe that look off of yer face!

You want questions? I've got some for you:


"Courage! What makes a king out of a slave? Courage! What makes the flag on the mast to wave? Courage! What makes the elephant charge his tusk in the misty mist, or the dusky dusk? What makes the muskrat guard his musk? Courage! What makes the sphinx the seventh wonder? Courage! What makes the dawn come up like thunder? Courage! What makes the Hottentot so hot? What puts the "ape" in apricot? What have they got that I ain't got?
DOROTHY, SCARECROW, TIN WOODSMAN
Courage!"

In response to the notion that the poor old owner or manager should get gazillions of dollars because they take all the risks and resposnisbily...

I have quite a bit of empathy for the SMALL business owner who has to take a lot of risk and respsonsiblity and who probably cannot afford to pay employees much or provide benefits.

But that
s not the subject of this thread, is it? We've been talking about Walmart and Costco and businesses of that size. My perception is once businesses achieve a certain size tha thte CEOs take none of the risks or responsibilities and, when they fuckup a la Carly Fiornino or a la Twinkie, they take the money and run.

Meanwhile the Walmart employee who "only" has a famikly to manage spends his/her life in a constant struggle to make it from one check to the next, focused on survival while every ordinary event (like Christmas, a new school year, a toothache) is a crisis. That person takes all of the risks and all of the responsibility.

Business problems come up in the middle of the night.

Keep your sex life out of it, Blackhawk.

*rimshot*

"Keep your sex life out of it, Blackhawk."

yeah yeah yeah....that's what the IRS told me too.

"We've been talking about Walmart and Costco and businesses of that size. My perception is once businesses achieve a certain size tha thte CEOs take none of the risks or responsibilities and, when they fuckup a la Carly Fiornino or a la Twinkie, they take the money and run."

Well, we've been talking about machine shops too.

Any how, I agree with your point. It's part of the cultural change - since the 80s - we discussed as well up thread.

Well, we've been talking about machine shops too.

But we haven't been talking about how much the owner or CEO makes at the machine shop. We've been talking about how little they were willing to pay machinists, despite not having enough of them. Those are two separate, though not completely unrelated, topics.

They may come together when we note that a CEO at company X makes 300 times what the average staffer makes, but that's also primarily about larger corporations.

Well, we've been talking about machine shops too.

... machine shops that try to find employees by paying them the same wages as fast food workers.

The power dynamic radically shifts when your business relies on skilled labor vs. unskilled labor. As you say, there is a certain "mindset" of a small business owner whose motivations go beyond simple "return on investment." Part of that mindset seems to revolve around a desire for control and dominance, and that's pretty much incompatible with a business that relies on a highly skilled labor force.

Mr. Isbister would probably feel more at ease, given his temperament, if he sold the assets of his machining business and instead invested in a McDonald's franchise.

Everyone runs their own business. It is called "Family, Inc."

In that case, I might be good at running a circus.

"They may come together when we note that a CEO at company X makes 300 times what the average staffer makes, but that's also primarily about larger corporations."

Are we just worried about the "fairness" of that situation - 'cause you know, life isn't fair - or are we arguing that if the CEO "only" made 150 times what the avg staffer makes, the company could hire an additional 150 staffers and still have the same balance sheet as before?

I'll wager that the machine shop owner isn't making 300, or even 150, times what the machinist makes. It probably closer to 10 times and, IMO, that seems fair.

I don't have anything to add, but this is an excellent symposium on this subject (see also this article about whether college educations are necessary).

Are we just worried about the "fairness" of that situation - 'cause you know, life isn't fair

Well, it's not "fair" for the CEO to only make 150X the workers' salaries when the "market clearing" rate is 300X. But the CEOs may just have to learn to deal with life's unfairness.

JustMe: there is a certain "mindset" of a small business owner whose motivations go beyond simple "return on investment." Part of that mindset seems to revolve around a desire for control and dominance, and that's pretty much incompatible with a business that relies on a highly skilled labor force.

You seem to have rather different experience with small business owners than I do. Sure, that is true of some of them. But most of those who empoly skilled labor are very aware of how hard it is to find good people. And how critical they are to growing the business; or even just to maintaining it.

As a result, they are generally willing to pay what they can afford (i.e. not the least they can get away with) to hire and retain them. Even when it means that they themselves are not making vastly more than their staff. More, but more in the 5-10 times range, not the vastly more 100+ times range that CEOs of big companies get. (And as Blackhawk notes, without the golden parachutes if they mess up.)

Are we just worried about the "fairness" of that situation - 'cause you know, life isn't fair - or are we arguing that if the CEO "only" made 150 times what the avg staffer makes, the company could hire an additional 150 staffers and still have the same balance sheet as before?

Life isn't fair. I remember adults saying that to me when I was a kid when I complained that they weren't treating me fairly. Maybe I was wrong about whether or not the treatment was fair, but I do recall thinking, "Does that mean you have to be unfair? Can't you still try to make life as fair as possible?"

I note that because we're not talking about earthquakes or tornadoes, which have no agency. We're talking about what human beings do and how it affects other human beings, something people can organize themselves together in an effort to improve - a situation over which they might have some degree of control.

That aside, it's not just about fairness or offsetting the pay of additional workers. It's about crappy long-term business models and overall economic health.

Are we just worried about the "fairness" of that situation

Personally, no, not really.

We have a guy who wants to hire skilled machinists. He wants to pay them $10/hour.

Who the hell is going to invest in training themselves to operate sophisticated machine equipment in the hopes of scoring a $10/hour job?

So, the job goes unfilled. Everybody loses.

"Who the hell is going to invest in training themselves to operate sophisticated machine equipment in the hopes of scoring a $10/hour job?"

No one.

This points to the sinister (conspiratory?) aspect of the situation. The employers' position is, "Hey, you want a job or not? You have to accept that this is an employers' market and take what we offer"

The skilled employee pushes back and say,"Hell no! I ain't working for peanuts. I'm worth more"

At some point, something has to give. It looks like right now employers and skilled prospective employees are still in the entrenched negotiating stage. This in itself is a drag on the economy, but I think employers have an edge in that they are not yet losing enough contracts to be forced to compromise.

It's about crappy long-term business models and overall economic health.

But crappy business models can endure for a long time. Especially if everybody has the same crappy model, which they learned in MBA school. Like, for example, maximizing short-term returns by cutting everything possible, including pay for quality staff and training to keep that staff excellent at their jobs. Sound familiar?

But crappy business models can endure for a long time.

Yeah, that's a real problem. I'm not sure these abusive are actually unsustainable business models. It seems like they occupy some kind of stable local equilibrium on the landscape of economic institutions. It's just that, if you zoom out, you realize it's a really crappy one - especially from a bigger social perspective.

It's hard to get out of that trap and try to jump over to some other, fairer more productive stable point. Unions and regulations, are part of the answer. The NYT piece in the OP also mentions trying to (re)build a new social contract. But the very idea of a social contract between employers and employees means recognizing that functional businesses and economies depend on relationships that are a lot deeper and more fragile than just simple exchanges of cash for goods and services at the lowest possible price.

Seems like that recognition is anathema to a lot of people though, or at least to the simple models of the world they've built up to justify their actions and beliefs.

I think the model is sustainable . . . as long as it isn't challenged. But that's exactly what imports allow: other models, from other management traditions, which out-compete that bad models. The more imports are available, the sooner the bad business models get hit.

One of the things that we have seen in the last decade or so is that, in addition to trade in goods businesses also face trade in services. In the short run, this has been good for Western businesses, which happen to have more experienced workers in (for example) IT. But as those experience workers retire, we are discovering that, Oops, we haven't been training anyone to replace them!

So out-sourcing becomes more viable, but not because the experience is available elsewhere. Rather just because, when expertise and experience is not available anywhere, cheaper becomes the best short-term choice. Unless you have the wisdom to start training up your own expertise, even if it is somewhat more expensive in the short run.

I just had a sad, yet synchronistic experience.

I have been working on a project for the past year+. The funding is coming from a different department. It's all related to a fed. mandate that will impact that may impact that department's operations. In the course of the project I have come to know and appreciate a woman who has been acting as a liason form that dept. We've been meeting (professionaly!) once or twice a week. She's always been helpful, knowledgeable and pleasant. Admittedly I don't know how effective she is in her regular job description, but it's hard to imagine her being other than satisfactory.

This is a white collar position.

This morning she told me that after 14 years with the company, she just received notice that her position has been eliminated, effective next week and that there is a hiring freeze (so no opprtunity to find another position). All of the sudden, with the holidays upon us, she is out of a job. Happy holidays!

So, an hour later, I am meeting with my boss and I tell him what happened to K. The compnay's stock has been performing well. What's going on?

So he tells me that, while the company is in very good shape, it has been noticed that our admin costs to revenue ratio is above industry standard. Even though our profit margins and revenue growth are also above industry standard, the admin costs are seen as problematic. Positions will be eliminated and hiring will cease until admin costs are brought in line with competitors.

I seems that someone(s) way up there are managing by simple metrics. I wonder if they considered that the admin (staff) that is costing is also why we are excelling.

You seem to have rather different experience with small business owners than I do.

I'm just playing off Blackhawk's assertion that being a business owner isn't really "worth it" for most people. Clearly there are psychic benefits to leaving those jobs unfilled rather than offering to pay more.

There are also psychic costs to difficult work. Why make $10/hr with no benefits at a machine shop when I can make $10/hr WITH benefits at Starbucks or Trader Joe's? Same pay, but more benefits, less danger, and less proximity to a control-freak CEO.

Looks like working stiffs require certainty too.

This 'we must adjust to the standard/average, if we are on the one side of it but not, if we are on the other' attitude is a classic trigger for a death spiral because the adjustment move shifts the average as well.

An example from over here: The public transport system in the city where I live has lower ticket fees than the average of all the big cities in the country. This got used as an excuse for a fat fee hike in order to get the prices to at least that average (and maybe a bit more). But that lifted the average price for the country as a whole giving those cities that now were below the new value the excuse to hike their prices too. What do you think was the reaction of the local public transport company in the next round of price talks?
This is especially telling because those local companies did by their very nature not compete with each other (I cannot just take a bus in city B if I find the tickets in city A too expensive because I am in A not B).
Btw, the very different prices in different cities usually had quite solid reasons behind them and were not just arbitrary, so blindly comparing prices was silly in the first place.

One thing to note in the whole dynamic here is that the small manufacturing businesses who're paying their people $10 an hour to start are having to pay those prices because Big Box Store Corporation is treating the small business exactly the same way that the small business ends up treating its workers. "Give me x thousand widgets at my lowball price or I'll buy from China and screw that Made in the USA sign."

Everything south of the Big Store gets squeezed for profit margin and when the price point has to come lower because the people they are selling to are the very people that they are lowballing on the other end, well, just squeeze harder.

It's not just the Big Retailers either. Just ask anyone who drinks an AB InBev global brand beer like Bud or Becks.

Vampire capitalism.

Death spiral.

Blackhawk: At some point, something has to give. It looks like right now employers and skilled prospective employees are still in the entrenched negotiating stage.

Does this remind you of anything?

when you can fire someone and hire someone else cheaper, why pay a living wage. pay what you can get by with. the American way for a long time now. gutting the social contract has its' own consequences. the value of having workers compete against each other for what few jobs there are is how we got into the downward spiral.

hiring illegals or undercutting higher wages allows for cheaper lower wages. the business may boom and the owners/somebody makes more money, but not the worker. stress for the "expendable" human. throwaway people in a throwaway society.

watching business hire illegals to undercut existing wages is the end all and be all of business for a long time. to watch business hire cheaper "cogs" and then offshore jobs, well. that kind of says what matters most.

money over people. and i always thought it was people who bought the things business made. silly me.

Folks, machinists are probably a bad example to use here, being a skilled trade which is genuinely in short supply, and from my experience having oodles of negotiating leverage as a result. I'm a tooling engineer with 30 years experience, and I wish I got paid like a machinist.

If you want your kids to be well off, and able to quit their job any time they want to take a long vacation, confident they can get another job when it's over, encourage them to become machinists.

Salary.com puts the national average salary for a CNC operator at $36k.

$18 an hour, $3K a month.

Not bad, but unless you live in a tent and have no kids, no long vacations, either.

One of our CNC operators was the highest paid person (salary) in the company at $90k. More than the CEO, more than the attorney. But he was an artist (and was not getting any equity). And he absolutely could write his own ticket. We either treated him well or he walked.

But we didn't find others that could compete with his ability/attitude, and they got less, but still hit about $70k.

Our shop was making one-off high pressure vessels and machine parts for presses we were designing, so each piece required individual programming, rather than setting a standard program to churn out identical items. Your typical operator would not have the skills to do that efficiently.

I think a lot of skilled labor like machinists or pipe fitters have to deal with boom/bust demand cycles though. I know people who were building power plants near Boston during the Big Dig and their big problems was that they couldn't get skilled tradespeople for love or money; the Dig sucked up everyone. During that time, skilled tradepeople could charge a lot of money, but when the boom ends...

This might matter more for folks whose skills are primarily useful for large capital intensive projects.

"If you want your kids to be well off, and able to quit their job any time they want to take a long vacation, confident they can get another job when it's over, encourage them to become machinists work to promote public policies that do not act to redistribute wealth upward."

bobbyp,

You overlook the wingnut welfare complex. What you REALLY mean is:

"If you want your kids to be well off, and able to quit their job any time they want to take a long vacation, confident they can get another job when it's over, encourage them to become machinists work to promote public policies that do not act to redistribute wealth upward."
The Grovers and Dineshs of the world, not to mention the Coulters and Limbaughs, do pretty damn well for themselves, don't they?

--TP

Yes.

They man the bullsh*t machines.

You overlook the wingnut welfare complex.

Possibly, but doesn't welfare destroy incentive? :)

Russell, I said "machinist", not "CNC operator". I guess you don't know the difference, but trust me, it's about as big as the difference between a butcher and a surgeon. (They both cut meat...)

I'm a pretty firm believer in the notion that you really can't know how hard other jobs are until you try them. My university has an attached pre-school, junior high school and high school, and both my daughters went to the pre-school, and my oldest is at the junior high school, and all the teachers (especially at the pre-school) make me look like a piker. (I have a theory that society would be much better if pre-school teachers were paid like university profs and vice versa)

With that thought in mind, Brett, I'd really appreciate your thoughts on what is the difference between a machinist and a CNC operator. I have only done the minimal shop classes and some wood working, so any explanation should be pitched at an absolute beginner for all this.

LJ, a CNC operator is essentially just a production line worker, who tends a CNC milling center, instead of a riveter or whatever. They're generally employed doing repetitive machining tasks, or at best dealing with a limited range of tools and jobs. It's not an unskilled trade, but the work requirements are somewhat limited.

A machinist is a skilled tradesman capable of taking a drawing of a part, determining how to make it, and carrying through the process on manual or CNC tools. They are mostly employed making one off parts, such as fabricating urgently needed repair parts for machines, or new tooling for the production line. Often working to micron or tighter tolerances.

They'll be familiar enough with metallurgy to do heat treating, understand the function of the tools enough to get the maximum accuracy out of them, and often do some of the design work themselves.

http://www.jobpath.com/CSH/Details.aspx?csh=CSH_rexam&pubjobs=true&privjobs=true&int=false&did=JHN2WY6LFY84TQNW149>Here's an example of a job posting for a machinist.

Actual machinists are in very short supply right now, and have been for some time.

I should note that, while I can find my way around a tool room, handle a milling machine, late or grinder, and have done some CNC programing, I wouldn't begin to qualify as a machinist. Just as our machinist couldn't design the tools I design; We both have extensive job related knowledge the other lacks.

The difference is, HE gets overtime, darn it!

Thanks Brett, that's helpful. I read the job posting, and I'm pretty amazed that the person starts at $25 to $27 an hour, it sounds like an incredibly demanding job. Assuming 22 work days a month, that's $4,400 to $4,752 a month at that wage.

I was curious what the equivalent for Japan would be, and I found this page, which suggests (at the current exchange rate) $1,440 to $3,150 a month, though my dictionary says that the kanji I think is machinist can also be mechanic, so I'm not sure if this is correct.

Anyway, thanks for the info, I appreciate it.

LJ, an (auto) mechanic can do pretty well also these days. In case anyone hasn't heard, a new car typically has dozens of computer chips in it, and the first thing an auto mechanic gets to do is run disgnostics on all those little computers and the software that links them all together. The physical work on mechanical parts is still part of the job, but computers have infiltrated their workplace even more than they have impacted most of us.

How much more? A friend of a friend was at Thanksgiving dinner. She has an IT degress, and is working (for Tesla, as I recall) as a systems architect on the network of computer systems in their new car. Something approaching 100 different systems, all of whichg have to not only function correctly, but talk to lots of other systems. And eventually, some "auto mechanic" will have to know how to diagnose those systems when something goes wrong.

Yes, you can still be a relatively low-skill guy and make so-so money as an auto mechanic. But mostly, if you are good, the only limit on you is how many different car manufacturers' systems you are familiar with. (The SAE hasn't, yet, done for auto computer systems what they did for auto mechanical parts a century ago.) Good auto mechanics -- even harder to find than they used to be.

Yes, that's the tragedy of the decline in high school shop classes and vo-tech; The jobs those represented a path to are actually very well paid, better paid than a lot of the work a college degree qualifies you for. (Especially some of the degrees people foolishly go into debt for.)

The skilled trades have been under-promoted as a career choice in K-12, much to our nation's detriment, and to the disadvantage of a lot of people who'd have enjoyed good pay for doing interesting work. You might end up a little greasy, but you can afford the soap...

Sorry, didn't mean to diss mechanics, just wasn't absolutely sure if the salary figures were comparable to machinist.

Russell, I said "machinist", not "CNC operator". I guess you don't know the difference...

Sure, but the point was that the guy who does work related to that of a machinist, who you describe as being less skilled and less knowledgeable than a machinist, was the highest salaried guy at the company. So how does the fact that the guy is less than a machinist lessen the point?

That aside, there are a few particulars that you seem to have missed, given that they seem to speak directly to your later points about what makes a machinist different from a CNC operator:

Our shop was making one-off high pressure vessels and machine parts for presses we were designing, so each piece required individual programming, rather than setting a standard program to churn out identical items. Your typical operator would not have the skills to do that efficiently.

And machinists are and excellent example for this post, which was about companies not offering wages sufficient to attract people with the requisite skills to fill open positions. They're offering machinists $10/hr - machinists! - the very people you say are so worthy of good pay because they are highly skilled and hard to find.

That's exactly where the "WTF?" comes from here. It's ridiculous, no?

HSH,

I was comingling CNC operator and machinist. You can be either or both. Some machinists cannot operate a CNC,(though they are getting far less useful today), and many CNC operators have no idea how to use manual tooling. I think we are referring to a machinist level knowledge of CNC operation.

Where I was discussing our highest paid guy, he is definitely a machinist level CNC guy, able to make things with manual tools as well as CNCs, program the system, and keep the tools from crashing into the piece. A CNC operator would most likely take someone else's programming, set the material in the machine (which is a precision skill, and we are talking about metal pieces that often weighed hundreds of pounds), and run the system. But he did not do the artist part, which is making the program work efficiently with the tools at hand. He mostly just watches in case there is an error. For example, I would sometimes take the midnight shift to baby sit the machine as it was cranking away on a block of steel. I was not even an operator, but I could hit the big red button if a tool crashed the part, or it ran out of fluid.

This kept us from burning out the machinist so he could work his magic the following day, and we could keep the machine running as close to 24-7 as possible. But watching the machine was probably worth about $10/hour (but I was salary, so it was free).

I guess you don't know the difference, but trust me, it's about as big as the difference between a butcher and a surgeon.

You are correct, I am not that knowledgable about the differences between different job responsibilities and roles in a manufacturing shop. I appreciate the explanation in your 7:52.

What I note is that the job description you cite pays about $25.00 / hour. That's about $50K a year excluding OT.

It's great that there's solid demand for skilled manufacturing folks, but IMO $50K, while a good and solid wage, doesn't really rise to the "take a long vacation" level.

I'm glad to hear from jrudkis that skilled guys in his shop are making closer to $100K. That seems right on, to me.

Also, I agree *100 percent* with this:

The skilled trades have been under-promoted as a career choice in K-12, much to our nation's detriment, and to the disadvantage of a lot of people who'd have enjoyed good pay for doing interesting work.

Absolutely.

And, IMO, the fact that vocational or technical training is seen (when it's even available in the first place) as the place to send the "dumb" kids - the kids who "can't make it" academically - is part of the problem.

Trade work and manufacturing work can be extremely interesting and challenging work. It creates a lot of value, and can be very demanding in terms of the skill level it requires.

It deserves respect and solid compensation.

My two cents.

We always offer a penny for your thoughts, Russell, and you consistently give double the effort and value.

You're under-compensated.

I'm recommending you for a raise.

Don't tell the others.

We don't want them organizing.

I'd just like to add that I misread Brett's comment, which was in response to russell and not jrudkis. I missed the "I" part of "I said", so I thought Brett was telling jrudkis what russell said, which totally screws up whatever point I might have thought I had.

"What I note is that the job description you cite pays about $25.00 / hour. That's about $50K a year excluding OT."

Please keep in mind that is starting pay. In Alabama. Pretty darn good for a high school graduate, in a job where the apprentices get paid while learning their trade, instead of having to spend 4-5 years paying enormous sums for their educations.

What struck me in the job ad Brett linked to is this:
Base Pay:$25.90 - $27.19 /Hour
Not $27.20, mind you, because that would be a penny per hour too much, apparently.

I guess the Invisible Hand really values labor with machinist-like precision in The Free Market. An extra 40 cents a week would be out of tolerance, as it were. An extra $20 per year would be more than the job is worth. On the flip side, $25.89/hr is evidently too low to attract sufficiently qualified applicants, so $25.90 it is!

--TP

That's what happens when people use calculators, and don't bother rounding. ;)

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