THE ECONOMICS OF EMPLOYEE WAGES AND WHY EQUAL HOURS GIVE UNEQUAL SALARIES
By converting responsibilities into compartmentalized tasks, the corporates enable themselves to extract the lowest price for the most valuable of services — Human engagement
Had an interview lately? Those who had will testify that the focus of the employer is “core-competency” of the interviewee. The tools acquired to develop this particular domain is a welcome credential.
However, expertise in an additional domain is mostly considered as a redundant credential -and sometimes even acts as a demerit point for the applicant.
It is a cardinal rule of remuneration calculation that the extra skills, which were not advertised for, shall not be taken for screening of candidate’s profile; in most cases, the candidate is asked to jettison the number of years ‘wasted’ doing anything apart from the advertised job vacancy. It essentially means that he will not be paid for either the extra expertise or the years spent perfecting it.
This additional expertise, which should have been an asset for the candidate, often presents itself as a liability. Why is it so?
The question is as frequent as it is boggling.
THE FAULTY WAGE DISTRIBUTION
An area of the job is manned for a more-or-less equal number of hours by each hierarchy of staff i.e. if the average work hours in an organization is 10 hours, then the average daily engagement by an employee in the particular organizational setup would range between 8 and 12 hours. Even this range is expected to be distributed unevenly towards the bottom hierarchy i.e. lower the hierarchy, higher the hours.
Further, each employee in a corporate set up is held responsible for his area of job and is the declared owner of the job. Therefore, common reasoning allows to conclude that the sum of ‘efforts and ownerships’ all employees result in the profit of the organization.
In an honest setup, such equalized efforts (equal manhours) and uniform degree of responsibility (100% ownership of defined job-role) must result in even distribution of wages, among the working owners — called employees.
However, the pay gap is as absurd as it can get — whereas, a typical CEO in a multi-billion dollar Indian organization may be compensated in the range of Rs 10 -20 crs ($ 1.5–3 Million), an entry-level executive has to satisfy himself in Rs 4–5 lakhs ($ 5k — 6k).
The difference can easily be 500x between the 2 owners. It is impossible for a fellow employee to engage 500 times more than his co-employee within the same organization.
Therefore, when the distribution of wages is so unequal among the employees, it is an obvious conclusion that most of the working owners — employees are underselling their services.
So, what allows the corporates to get the most valuable of services at dirt cheap prices?
ECONOMICS OF VALUE AND PRICE
Every skill set which a person perfects is a highly valuable asset as it has taken an effort to learn.
Taken independently, all hours of a man must command the same price — as the utility of the person's effort is basically the hours devoted to the organization. The barter system, if applied, will give further clarification — an hour spent for an organization can be exchanged for another hour spent for the same organization.
However, there is only one way to reduce the price of any valuable commodity — the supply must be in excess of the demand. The higher the supply-demand gap, the greater the reduction in prices.
COMPARTMENTALISATION — BREAKDOWN OF RESPONSIBILITIES TO TASKS
So, if the corporates manage to define their job roles in a manner that the skills are easily acquired by a large mass, they can set and purchase the services at the prices commanded by the lowest seeker.
This breakdown of responsibilities into task-performing roles is achieved by an optimization technique called ‘compartmentalization’.
Compartmentalization as the term suggests means converting a multi-disciplinary task into separate compartments — each compartment requiring single domain expertise. These compartments are then coordinated using coordinators — human or mechanized.
There are various examples of such definitions of job roles in the contemporary era. Take an example of an Amazon warehouse, there are roles called ‘pickers’ — where humans are made to walk robotically from point A to point B guided by a machine strapped to his/her arm. Several such independent human-robotic tasks have been compartmentalized which are coordinated by machines to achieve ‘optimization’ in supply chain costs.
The human responsibilities have been converted to such low-mind application tasks that it requires just ‘walking’ or ‘sorting’ as an ability. Therefore, the number of applicants willing to offer their engagement will be very high. This allows for downward competition to set the wages at rock-bottom prices.
The same example can be extrapolated to Business Process Outsourcing — wherein the MNCs scout the globe for the lowest price seeker of specific business processes like telemarketing, debugging, or even coding.
Taken individually, the business processes demand a singular skillset making the conceptual overarching study of college education seem futile. A 4-year IT degree may even be at a lesser footing as a 2- month certificate-bearer in such job applications.
This lowest price sought by the competing masses then becomes the market salary for the defined job role.
Once the prices have been lowered by market mechanisms, the top tiers can enjoy the portion of wages left unclaimed by the bottom tier employees.
The ‘Problem’ with Multiple Skills
It is in the interest to define roles in one particular domain as combinations of skillset will reduce the supply of candidates and the salary has to be set at a higher price. The ‘extra cost’ for the combination of skillsets is, therefore, an undesirable quality for an employer — and the same opinion is projected to multi-skilled job seekers. This is the reason why a multiple-assets holding candidate is often embarrassed about his additional assets.
FALLIBLE ARGUMENT OF GREATER RISK
The most common argument against this reality — which the corporates enforce is — that the higher management has been given more responsibility and is at more risk.
This cannot be more counterintuitive. The risk of all employees, in terms of loss of employment, is equal i.e. all employees can lose maximum up-to their own jobs. On the contrary, a top-tier manager can cause greater collateral damage by getting the entire sacked due to his inefficiencies. The bottom tier is, therefore, at risk not only for their inefficiencies but inefficiency in every higher tier.
To add to this, the accumulated wealth, in general, is lower for lower hierarchy staff, and therefore they have lesser staying capacity without salary.
This higher risk and higher insecurity are not only left unacknowledged but also exploited to devoid remuneration benefits, periodic raises, etc.
CONCLUSION
Wages are inefficient indicators of the utilities of skills of individuals. The skills attained by an individual carry absolute utility and therefore have value in them. Simply because someone is not willing to pay for that valuable skillset currently should never be a reason for the individual to treat their skills as worthless, when they are actually priceless.
