by Matthew J. Geiger

Created on: May 05, 2010

It is important to recognize the fundamental value of an employee’s labor is the profit his or her firm can make on that labor while the employee’s salary is a share of the average expected revenue.  Unfortunately, industrial sectors like manufacturing have seen their labor values undercut by outsourcing and shifts away from some product lines as well as the realization of expenses like environmental costs through tougher regulations, health issues, and the ensuing fallout of climate shift while other also industries see these same trends during economic slums.  On the other hand, undervaluing a new employee’s labor is not a wise move in the long run.

Corporations and small businesses alone should not be allowed to value the labor they consume, because they will tend to undermine labor and create imbalance in the broader economy.  This can contribute to instability like any situation where an essential product is undervalued and over consumed, i.e. employees can be overworked and paid too little to support a healthy lifestyle.  As such, employers must look at salaries and wages as the long-term value of an individual’s labor in order to retain new employees.  On the other hand, businesses also have interests in cutting payroll costs.

Human resources are pricey and, more often than not, consume a large portion of a company’s budget.  For employers, ensuring the company can keep the doors open in the face of economic decline or budgetary issues will likely mean reducing the number of employees or slashing pay by replacing seasoned employees with new hires.  Unfortunately, a new employee’s starting wage can follow that individual in terms of raises for life.  Although this may be good for employers if an employee is content with his or her wage, it can also cause problems when it comes to employee retention and, in a widespread application, reduced business opportunities as lower employee salaries and wages equate to less consumer spending and weaker economic growth.

Meanwhile, costs are constantly rising and this includes the cost of living.  For employees, this dictates a need for a higher salary or wage.  Either through new employment opportunities or a raise, employees must eventually achieve this goal to maintain their lifestyles.  Although some raises are scheduled periodically, others may be rewarded under special circumstances.  Because employers want to retain most employees, raises are usually necessities for both employers and employees.  Starting off with a lower pay can mean an employee has to change jobs more often to keep pace with his or her peers, while offering a lower salaries makes a business less competitive in such circumstances.

Like all commodities, labor needs to be valued.  Every time a company offers a certain amount of compensation for a particular position, they are helping define the value of a person’s labor.  Beyond the consumer of labor, the supplier must also contribute to this process.  Because the value of labor is defined over an entire workforce, ensuring labor is properly valued requires all employees to accept a certain level of pay for their services. On the flip side, businesses can only pay their employees what they can, or want, to afford.  This dictates setting pay for new employees that must be a balance between what minimum the employee will accept and what the value of that employee’s labor will be over time.

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