Thursday, April 3, 2014

Double Tailed Coin

The “heads or tails” game of flipping a coin is generally fair – there’s an equal probability of one side of the coin coming up versus the other. Only when the game is fixed – say with the double-headed-coin, does it become unfair. The idiom “two sides of the same coin” is applied to things that are essentially the same. In the case of American wages – a couple of recent news events from what seem like opposite ends of the economic spectrum are, in fact, more closely aligned than they are different.

Silicon Valley CEO’s of tech giants like Apple, Microsoft, Facebook and others allegedly had agreements amongst themselves not to recruit, hire or lure engineers away from each other based on a class action lawsuit that is currently being tried, according to the New York Times.  “The case involves 64,000 programmers and seeks billions of dollars in damages.”  The companies previously settled with the Justice Department and agreed to stop the no-poaching practice. Individual engineers, however, have formed a class claiming that the companies undervalued their services by taking away the element of competition that would have impacted their wages. According to average salaries in the area – the base starting wage for this position is in the $115 to $125,000 range.

On the other side of the spectrum President Obama has made increasing the minimum wage a signature issue for 2014.  According to the Huffington Post  he wants the minimum to be $10.10 an hour, well above the current $7.25. In fact he issued an Executive Order requiring Federal Contractors to pay the $10.10 an hour to their employees.

In August 2013 I wrote back-to-back blogs about the issue – Minimum Fairness and The Union Label.  The posts addressed how a minimum wage can’t address the essential inequalities that exist geographically and culturally. What a family needs to earn in a rural town will be quite different than what a family need needs to earn in a large metropolitan city. Eliminating the minimum wage should be a boon to Unions as they would then step into the role of protecting workers rights and negotiating wages – increasing their rolls, dues, and influence. 

The President’s unilateral action put Federal Contractors at a competitive disadvantage. If a company does business both in the private sector and in the government sector – they now carry a higher cost burden that other businesses in their industry. To be able to offer goods and services to the same customer base the company will either have to eliminate jobs or reduce costs and quality elsewhere. Passing the additional cost to its customers with higher prices will result in the competition winning more business.

In Silicon Valley Steve Jobs in death continues to wield influence. He apparently came up with the no-poaching scheme, ensuring that no other tech company could just pay more for the best engineers. That kept turnover low, base wages steady and the companies colluding to manage costs. It also likely lowered innovation. While the wages earned by highly skilled engineers are eight to ten times higher than workers on the President’s minimum wage – they weren’t in control of their earning ability.

Capitalism thrives and economies blossom when the market is able to determine wages, benefits and employee value. The minimum wage issue and the engineering collusion lawsuit seem to be quite different because of the people impacted and the vast gulf between $10.10 and hour and $60 an hour engineers make –but it really is two sides of the same coin. Somebody other than the worker and their employer are determining their value individually and in the marketplace.  In one case it’s companies colluding, in another its Government.  It’s just not what America’s supposed to be about…it’s unnatural, like a double-tailed coin.

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