Employees as Vendors

There are three parties involved in the act of commercial production: the capitalist who provides material resources for a business, the laborer who contributes his efforts, and the employer who stands between the two.   Essentially, the employer is the mediator in arguments over who deserves what share of the profit of a business, as he apportions and disburses funds to both laborer and capitalist.

In so doing, he is constantly in a precarious position: both labor and capital are necessary to the sustenance of a productive operation.  Both must be satisfied in terms of the profit they derive for their contribution.  And the profit of each comes at the expense of the other.

This is not to say that the employer has sole discretion over how the profits of business are to be distributed, as he must be responsive to the market demand.  If he offers investors too low a return, they will withdraw their capital; and if he offers workers too low a wage, they will withdraw their labor.  And what constitutes “too low” is dependent on his competition – other employers who offer better returns on capital or higher wages for labor.

Of the two, the capitalist is at greater risk.  A laborer can generally withdraw himself and proceed immediately to another place of employment to begin earning a better wage.  A capitalist invested in a business must sell his investment to liberate his capital, and sell it to another investor who finds the investment worthwhile in a market in which there are better returns.  However, labor is only at liberty to find other employment if it is available and capital is only at liberty to find other investments if they are available.  For both parties, the tendency is not to be mobile, but to stay where they are – and even if they are dissatisfied, their preference is to wait for better times.

Getting back around to the point, the nature of labor is often overlooked: it is a factor of production, but it is also a commodity on the market.  Each worker is, in effect, a supplier of labor to a market of employers and the supply and demand of labor have more influence over its value than any abstract notion of what is fair pay for a given task.   The more people willing and able to do the task, the less must be paid to get one of them to do it – and vice-versa.  With this in mind, there is less call for antagonism between labor and employers than there is for separate competitions between laborers against other laborers and employers against other employers.  And in a free market, where labor is mobile, this is exactly what occurs.

It is also curious, and likely erroneous, that the relationship between laborers and employers claim that the employers are in a position of advantage.   As buyers, employers are at the mercy of their needs for labor, as their operations require a certain amount of labor to remain profitable.   But it is also fair to say that sellers of labor are also required to generate enough income to sustain their own operations (to provide for their families) and as such are desperate to sell.   The question of which party is in greater desperation varies according to market conditions.

It is fair to say that labor is a highly perishable commodity – if it is not sold, it is wasted.  This suggests that laborers are at a disadvantage in that they have a good that they are desperate to sell.   However, this perspective fails to acknowledge that if it is not sold, it can be used for something else.   That is to say that the way in which a man “spends” his time is according to his own priorities – he may choose to trade his time for money, or spend it doing something else.   It is the laborer’s responsibility to find a productive use of his time, though others may provide him with options.

All things considered, the sellers of labor are in the same position of the seller of any other product: it is their responsibility to offer a quality product, to find a buyer, to negotiate a price, to accept the risk of unsold inventory, etc.