How much is your time worth? If you could set whatever price you wanted, you’d charge a million dollars an hour… but how much is your time worth to others?
Time is money, as the old saying goes. It follows that one of money’s most important functions is establishing the value of time. Interfering with this crucial function throws the rest of the economy out of whack.
In a primitive environment, labor has very low value. It’s obviously very important – you’ve got to work your fingers to the bone, just to produce basic food and shelter – but it generates limited wealth, because you have little choice in how the product of your labor will be used. Prior to the dawn of the Industrial Age, the bulk of an average person’s labor was invested in obtaining the bare necessities of life.
Advanced technology increases the value of labor dramatically. Labor generates money, which can be spent in many different ways. For the average citizen of the modern United States, a relatively small portion of the money he earns must be spent on food and shelter… and even there, many choices are available.
Commerce allows us to greatly multiply the value of our labor. If you’re an average American, you make about $20 per hour, according to the Bureau of Labor Statistics. You could use $20 to buy many things that you could not personally create in one hour, including numerous products that no single human being could create at all.
Understanding this, it seems odd that we would suffer from two years of double-digit unemployment. Modern technology makes it possible for every individual to generate far more than the value of his basic subsistence. Every individual, in turn, represents thousands of dollars’ worth of demand each month. In the absence of a crippling shortage of resources, why would so many people be out of work?
Part of the answer lies in the way our economy’s ability to assign value to labor has been disrupted. Labor unions, much discussed due to the news out of Wisconsin and Indiana, are entirely dedicated to this purpose – the whole point of the exercise is to force compensation beyond what employers are willing to pay, and restrict the supply of labor to make that happen. Not much private industry is unionized these days, but a great deal of the public sector is, and because there is a close relationship between public unions and the government, the distortion of labor value is extreme. When benefits are included, the average public employee makes roughly twice what his private-sector counterpart does.
Another, more widespread cause of distorted labor value is the mandated cost government adds to payroll. Were you surprised by that average figure of $20 per hour I cited above, because you make less than that? Add the cost of your benefits, taxes, and other mandates, and you probably won’t have any trouble reaching such an amount. You don’t get to deposit these amounts into your bank account, but they are no less real to the business that pays them on your behalf.
Increasing the cost of anything drives down demand. The very same technology which expands the productivity of individuals makes it possible for any given business to make do with fewer employees. That means a high level of employment is best achieved by having a large number of employers, instead of a smaller number of very large employers. Unfortunately, much of our current system is biased against small business formation – an arrangement that does not make the management of large corporations unhappy.
Everyone naturally wants to find the greatest value for their labor. A prosperous country is filled with people who don’t think they’re getting paid enough. The value assigned to your time by a central authority will never equal what you can earn by making yourself valuable to competing employers in a free marketplace. Anything that clogs the machinery of commerce, and prevents it from computing the most logical value of every worker’s time, will inevitably benefit a few at the expense of many.
It is much better to deal with businessmen who look at a crowd of people and see a mixture of opportunity and resources, instead of central planners who see nothing but a group of mouths to feed. The best way to find out what your time is truly worth is to observe a vigorous competition between those who wish to purchase it.
Unfortunately, in our present system, the value of labor is almost impossible for any business to compute accurately, because so many compulsive forces interfere with their judgment. Would you expect consumption of a product that no one can price accurately to decline? If so, you must find today’s unemployment numbers much less “unexpected” than most of the media does.