Alternatives to Wage Labour
Wage labour — the renting out of an employee's time to an employer — is the only type of work arrangement most of us are used to. In fact, it's so prevalent that it's almost unthinkable to conceive of it as being fundamentally harmful, or to think of an alternative. I'd like to argue that wage labour is indeed harmful, and that there exist alternatives that can provide much greater collective happiness and a much more efficient organisation of work. As the curious reader can find these ideas and others in works by philosophers and sociologists such as Marx [marx-wage-labour] and Graeber [graeber-debt], I have tried to keep the terminology in this essay to a minimum, so as to ensure it is accessible to a general audience.
Virtually all of the working population at the present moment can be split into two classes: employers and employees. I believe a better description would treat class as a continuum, with gradations among both employees and employers as a function of their dependence upon the capital owned by others, but for simplicity's sake, let us content ourselves with this dichotomy for the present moment. Employers are shareholders of a business that sells a product or a service to generate revenue. Part of this revenue is used to pay employees who create the actual product or service and, therefore, also create the entirety of the value that the business earns its revenue for. The rest of the revenue remains as profit, which the employer is entitled to.
In addition, employers possess two privileges that employees do not, which is the key distinguishing feature of the two classes. The first privilege is power over the company's actions, usually enshrined either as shareholders' voting rights, or direct control by an executive. The second privilege is ownership of the company's capital, usually as ownership of shares. Through the combination of these two privileges, employers are able to decide both the salaries of employees, as well as the price of the product or service sold.
The net result is that an employer can, solely by virtue of their power over the company, and without necessarily providing any contribution of their own whatsoever to the value of the company's products or services, extract as much profit out of the employees' labour as they see fit, while simultaneously compensating the employees as little as they desire.
Again, let us assume that the employer or shareholder provides no economic value and does not contribute to the company's output in any way. Taking this into account, I can scarcely believe that anyone would consider this arrangement reasonable and equitable in the slightest, except perhaps if one's judgement was clouded by the sheer force of habit resulting from taking this present system for granted.
Suppose I walked over to a car repair shop and declared myself the owner of it, demanding 50\% of the shop's revenue from that day forward, without my making a contribution of any kind — I would be laughed at and thrown out immediately. The reader will no doubt object to this comparison on the grounds that a forcible takeover of an existing business is not the same as the founding of a company and the subsequent hiring of employees. However, it is not immediately obvious where exactly the crux of this difference lies.
I have been able to identify three classes of argument supporting the alleged fairness of ownership of the labour of others. I have called these the “work argument”, the “idea argument” and the “risk argument”, and they cover the three main contributions one can offer to a new business, namely work, ideas and capital, respectively. I will consider each argument separately.
The work argument centers around the idea that employers, especially when they are ambitious entrepreneurs, do incomparably more work than employees, and that this work is both significantly more difficult and much more crucial to the business than that of employees. Whether or not this claim is true obviously varies from company to company — there are certainly companies where the founders work many times more than employees, but the founders of many other companies do nothing particularly important and instead spend their time trying to justify their position. In my professional experience, I have come into contact with more companies of the latter than the former category, but I cannot claim to have conducted any kind of meaningful survey.
I think it is true and reasonable that those contributing to a company should be paid in proportion to the quantity, difficulty and importance of their work. I find this self-evident and I doubt this is a controversial view. I can, however, see no justification for differential treatment of employers and employees from this point of view. If employee A works twice as much as employee B, and we are judging pay by the quality of one's work, we should naturally want employee A to be paid somewhat more than employee B.
Perhaps employee A also works twice as much as employer E, or perhaps the work of employee A is twice as difficult or important as that of employer E. Say employer E has founded a data science company but has no experience with data science themselves, and most of the work is done by data scientist A. In this situation, one can scarcely use the argument of work to justify paying employer E more than employee A.
Therefore, while the criterion of work is an important one, it can simply be applied uniformly to everyone involved in a certain enterprise, with no need for preferential treatment. This is a very important point, because the salaries of CEOs and the earnings of shareholders are often tens, hundreds or thousands of times higher than those of even the most essential “ordinary” employees, regardless of the work actually done by the former, if any. Even with heroic efforts, a founder could hardly work a hundred times more in a day than a regular employee, to justify a hundredfold pay increase. Despite this, in any average company, if employees gathered together to object to a CEO who had no particularly measurable contribution being paid more than them, they would not have much of a chance of success. We think it self-evident that CEOs are highly paid simply for their being CEOs.
The clearest real-life example of this that I can think of is the classification of workers as “essential” during the coronavirus pandemic. The essential workers were in no cases the most highly paid — as far as I know, CEOs, high-level corporate managers, fund managers and so on were not classified as essential. Some of the jobs classified by the UK Health Security Agency as “essential” include: all NHS  and social care staff, transport workers, education and childcare workers, and those involved in supply chains (i.e. supermarket workers). [uk-essential-workers]
We can conclude two things. Firstly, the work argument hardly offers much justification for paying employers many times more than employees. Secondly, we would benefit from a system that allows pay to vary more closely with labour, and I will provide a sketch of such a system momentarily.
The second argument we will consider is the idea argument, which entails the assumption that, because employers provide the underlying “mission and vision” of a company, they should earn many times more than those that work under them. The trouble with this argument is that ideas are not nearly as valuable to a company as the work and, most importantly, expertise, needed to execute those ideas. Venture capitalist Paul Graham agrees: “A lot of would-be startup founders think the key to the whole process is the initial idea, and from that point all you have to do is execute. Venture capitalists know better. If you go to VC firms with a brilliant idea that you'll tell them about if they sign a nondisclosure agreement, most will tell you to get lost”. [graham]
Furthermore, many successful companies shift ideas multiple times, which they gracefully term a “pivot”. “Microsoft's original plan was to make money selling programming languages, of all things. Their current business model didn't occur to them until IBM dropped it in their lap five years later”. [graham]
Therefore, we can hardly use the idea argument to justify an employer with a “good idea” being paid many times more than the people actually implementing this idea.
Lastly, we will examine the risk argument, which involves the claim that employers, in their entrepreneurial efforts of founding a business, are exposed to a much greater degree of personal risk than they would have had they lived the comparatively stable life of an employee. Instead, entrepreneurial employers incur a sort of opportunity cost because they could have instead been earning money at a stable job, and should therefore be rewarded for carrying this burden of risk that employees never carry. A second aspect to this argument is that company founders often also risk the capital they used to start the company. I shall consider these two aspects separately.
Firstly, the risk of starting a venture should be proportional to the expected gain. If these two are in proportion, the founder of a risky venture should already have the potential for significant gain without having to also claim significantly more earnings than everyone else carrying out the work. Additionally, the risk employees are exposed to is also proportional to the likelihood of the company they work for to fail, so the risk incurred does not exhibit a dichotomy between employers and employees.
We are left, finally, with the financial aspect. A founder will often put forward some significant amount of capital on starting a business, which is something an employee does not do. If this, however, is the only remaining salient grounds for differentiation between employees and employers, it is just as well to treat this infusion of capital as a loan to the corporation, the repayment of which should be prioritised. Capitalists might object, saying that their contribution of seed capital means they should indefinitely receive a higher proportion of future profits than those who did not contribute this capital. I object to this on the grounds that it amounts to what Marx represented as $M \to M'$: that is, the creation of money ($M'$) not from work or something of intrinsic value, but simply from other money ($M$). An in-depth discussion of this topic is beyond the scope of this essay, but my view is that the ownership of an asset (future profits) simply on the basis of having owned some existing asset (capital) is not the basis of equitable collaboration.
Since the arguments we've surveyed have failed to hold water, we can only conclude that one cannot, at least based on the above arguments, describe wage labour as an equitable system. Therefore, the position of the employer has the possibility, and often the probability, to amount to nothing more than rent-seeking, with no checks or balances in place. The downsides are plain to see. The average employee's work ends up amounting to half of their waking hours across the entirety of their adult life, assuming they work 8 hours a day. For this reason, and because our work is one of the key components of our personal and social identity, the way one views one's work is heavily tied into how one views oneself. However, when one has no control over one's own work (because the employer decides what work must be done and how to do it) and no ownership of one's own work (because the employer decides the employee's wages and keeps the rest for himself), the default psychological relationship of today's employees to their work is one of alienation and intense dissonance. [price] It is not difficult to see that a more equitable system would contribute greatly both to general productivity and to the population's mental health.
It is worth asking why this system is so prevalent if it is so damaging. I believe this is largely because of philosophical, not economic, reasons. In our wider culture and general consciousness, we fetishise the role of the entrepreneur, attributing to them extraordinary intellect and Herculean efforts. We imagine the rich providing “a ladder upon which the aspiring poor may climb” [carnegie]. We turn a blind eye to employees who struggle to rise up the hierarchy of work despite this often happening precisely because wage labour demands daily effort simply for survival. Employers have no incentive to change the status quo, because this status quo benefits them greatly. I think it would however be foolish to imply that employers are “evil” — the simpler explanation is that the current system benefits employers greatly, and it takes a great deal of intentional psychological effort to fight, on moral grounds, against an arrangement that gives you riches.
Therefore, change has to happen in the collective philosophy and consciousness of society. Of course, in the absence of a better alternative, change is unlikely. In the remainder of this essay, I will endeavour to propose some general principles along which a better system might be designed.
We value the principle of democracy in the spheres of government, and we should consider it in our present question as well, because it can serve as a guiding beacon. I propose that companies should, by default, be organised using the principle of democracy. More concretely, this has two main implications. Firstly, regarding executive power, all decisions made which have an impact on the whole of the company and its employees, should not be made by a CEO or board, but instead by the entire body of employees, subject to conditions I will describe presently. Secondly, on the topic of ownership, all employees should hold shares in the company and be compensated according to the company's profits, and in this way they will directly benefit from the value generated by their own work. Because the distinction between employers and employees is largely eliminated by this change, I shall henceforth simply refer to all those working as part of a company as “members”.
There are, of course, many questions as to the specifics. The most obvious is the question of proportionality. If all members should have a share of executive power and ownership, should they all have an equal share? No. As I have described above, I believe that both control and pay should be proportional to the value a certain member offers to the company, and this is chiefly decided by the quantity, difficulty and importance of their work. Therefore, a member whose work is vital to the company may have greater voting rights and a greater share in the profits than a member who simply assists with certain matters on a part-time basis. There are other possible criteria that could be considered, such as length of membership in the company, but I believe these additional criteria are not fundamental and each company should have some flexibility in deciding its own principles, so long as they are still in line with the principle of democracy. Importantly, there has been a long tradition and legal basis for this kind of system dating back to the 15th century, today represented as the cooperative form of incorporation.
The question that naturally follows is: who should decide the relative importance of each member's contribution? The answer follows from our new organisational structure. The members themselves should decide each others' relative contribution, and this should happen as part of periodic reviews conducted between peers. This system has been in place at several large companies for some time , and Google has a “peer bonus” system where employees can offer a small bonus to their colleagues.
It may not always be realistic for every single member of a company to show up to a vote when the company is very large. In this scenario, a system of representation comparable to that of parliamentary representation may be used. In questions of company-wide governance, members can create a periodically-elected council of representatives that votes on their behalf. In smaller-scale issues such as that of peer-to-peer voting on member contributions just described, members can be organised into working groups that settle issues among themselves, with periodic checks to ensure decisions made are in line with wider company policy. People have humorously described capitalist corporations as “little Soviet Unions” due to their totalitarian nature — why wouldn't we want to make them just as fair and democratic as we want our political system to be?
One might object to these principles on the grounds that there often exist people who make some contribution to an organisation, but that contribution is so sporadic or incidental that they cannot be categorised as regular “members” of the organisation in any meaningful way. This, however, is not a problem — the system I am proposing is entirely compatible with the notion of external collaborators, which can work together with a company under the well-established tradition of contract work. There is then full flexibility on both sides, enabling the collaborator to set their own terms of collaboration and negotiate a fair agreement.
Another benefit of the above proposal is that it mitigates a very pernicious problem that has caused much suffering: the vacuum of responsibility between executives and shareholders. If a company organised around the typical principles of wage labour causes harm to a person or class of people, it is very difficult to determine responsibility and correct its actions, since the executives of the company often deflect responsibility by saying that they have a responsibility towards shareholders to maximise profits, and shareholders deflect responsibility by saying that it is not them, but the executives, who carried out the harmful actions. This exact problem has been covered in the media numerous times, especially in the instance of real estate companies that create miserable living conditions for tenants because the executives cut costs to an extreme in order to satisfy the shareholders. A cooperative corporation avoids this problem because the “executives” and “shareholders” are one and the same, therefore those members of a company who voted for a certain policy can be held responsible.
While I can think of many open questions and many directions in which this proposal can be (and has been) further developed, I firmly believe that even gradual, piecemeal change can make a significant positive impact not only on productivity, but also widespread mental health in today's society. Above all, I stress the importance of questioning current systems of labour, even when they seem so natural to us as to be almost unquestionable. In the 18th century, slavery was viewed by most not necessarily in a positive light, but as a sort of necessary evil, a fundamental reality of nature. Change was viewed as impossible and utopian. However, the systems around us are nothing more than our own inventions. Let us learn from the lessons of history, and take joy in the power to alter the course of our lives for the better.
- Marx, Karl; Joynes, J L. “Wage-labour and Capital”, London: Printed by the Twentieth Century Press, 1893.
- Graeber, David. “Debt: The First 5,000 Years”, Brooklyn, N.Y: Melville House, 2011.
- UK Health Security Agency. “Essential workers prioritised for COVID-19 testing”, GOV.UK. https://www.gov.uk/guidance/essential-workers-prioritised-for-covid-19-testing.
- Graham, Paul. “How to Start a Startup”, March 2005. http://paulgraham.com/start.html
- Price, Richard H.; Friedland, Daniel S.; Vinokur, Anuram D. “Job loss: Hard times and eroded identity”, Perspectives on loss: A sourcebook (1998): 303-316.
- Carnegie, Andrew. “The Gospel of Wealth”, June 1889.
- 1: National Health Service
- 2: Video game developer Valve Corporation uses a system almost identical to the one I described to decide salaries