Outsourcing overseas

[chuckleslord]

I was wondering what the Objectivist stand is on this. I understand it's a way to make money, but, in my view, it stands as an escape from the responsibilities of paying a competent his full allotted pay and instead hiring ten monkeys that can do more work for less pay. I guess i'm not sure how to reason it out either way...

[Sir Andrew]

I understand it's a way to make money, but....

Isn't that what a business is supposed to do? A business has no "responsibility" to pay American works an artificially inflated wage.

[softwareNerd]

I was wondering what the Objectivist stand is on this. I understand it's a way to make money, but, in my view, it stands as an escape from the responsibilities of paying a competent his full allotted pay and instead hiring ten monkeys that can do more work for less pay. I guess i'm not sure how to reason it out either way...

As a businessman, is is rational to buy and sell things with an eye to long term profit. To run one's business on racist principles, as you suggest, would be irrational. By this same logic, a bigoted white factory owner in the south may have said" "why should I escape the responsibility of paying a competent white man his full pay and instead hire some lower paid negro?"

[Jake]

I was wondering what the Objectivist stand is on this. I understand it's a way to make money, but, in my view, it stands as an escape from the responsibilities of paying a competent his full allotted pay and instead hiring ten monkeys that can do more work for less pay. I guess i'm not sure how to reason it out either way...

What "competent" wants to do a monkey's work?

Are you suggesting that pay should be based on one's supposed ability rather than on one's production?

[Chris.S]

How is a fair wage defined though? Shouldn't it be based on the amount of income an employee's work brings into the business? Why would any rational man go work for someone at a cheaper rate than the previous guy with the same workload and responsibilities?

I don't think Rearden would outsource or hire cheaper, similarly qualified employees.

[softwareNerd]

Why would any rational man go work for someone at a cheaper rate than the previous guy with the same workload and responsibilities?

The previous guy is previous precisely because what he was earning was too high, at least given the current (no longer previous) context.

I don't think Rearden would outsource or hire cheaper, similarly qualified employees.

If Rearden had anything, it was a very strong sense of justice. Therefore, he would definitely not refuse to hire a qualified man from some sense of sentimentality about the past.

[Zip]

How is a fair wage defined though?

It's defined as the point where compensation for services rendered and the effort involved are of equal value (or very close to it) to both the employer and employee.

Shouldn't it be based on the amount of income an employee's work brings into the business?

No, business is not a zero sum game and that is what you are proposing.

Why would any rational man go work for someone at a cheaper rate than the previous guy with the same workload and responsibilities?

Hundreds of possible reasons, perhaps there is a glut of workers in his trade now which means lower wages. Perhaps the previous guy was overpaid. Maybe he wants to undercut the previous guy in tough economic times so that he can have the job. Maybe he's figured out a way to make the work easier. The possibilities are endless.

I don't think Rearden would outsource or hire cheaper, similarly qualified employees.

I don't think that someone gets to be a Rearden without minding his pennies.

[SD26]

You pay for what you get. I'm happy to pay more for something if it fits my needs. JIT inventory, smaller batches, higher quality. If it only needs to be mass produced in large quantities, then hire the monkeys. Or if there's a new process or material that costs less in the up front cost or long term, you do that.

Sometimes, it comes down to trust too. I know it will get done, and it will get done right, I will pay more.

[Jake_Ellison]

How is a fair wage defined though? Shouldn't it be based on the amount of income an employee's work brings into the business?

No. A wage is based on the principle of supply and demand, just like the price of any product. The correct way of looking at a job is this: the employer is purchasing a service, at the price of the market (which is the lowest price available to him on the market).

The only thing "the amount of income an employee brings into the company" should determine is the existence of his job (whether or not is is feasible for a company to purchase the service the employee is offering, at the price he is offering it at-which, if he is smart, should be the price of the market).

Now if he decides to offer his services at a price lower than the market's price, there are two possible reasons for that:

1. The potential employee is incompetent, so what he is selling is not what he is promising. In this case the employer should first determine what he is getting, and only then decide whether he hires the guy or not.

2. There is widespread discrimination against this potential employee, for reasons other than his competence, which forces him to try and sell his services for less than those who live in the US or are white, etc. In this case the employer should take him up on his offer (pay him what he is asking to be payed even if it is less than a white American would ask), and profit from this advantage his competitors are giving him because of their racism. Eventually, this will drive his racist competitors out of business, and everything will once again be right in the Universe.

However, if the employer says: No, I will pay my engineers in India the same I would have to pay the ones in America, because that is right, then he would most certainly go to sleep feeling great about himself. What he won't do however is this: gain an edge over his racist competitors, grow, and hire more and more Indians, at wages that are increasing as demand for their services grows (while demand for American engineers decreases-along with their salaries), until eventually everyone gets payed the same. Instead, he will have those few Indian employees be over-payed, just like the Americans are, and millions of other Indian engineers go unemployed, because his competitor's racism doesn't prevent them from staying in business.

As for your first question:

The fair wage is that which the company and the employee agree upon, when they both sign a contract.

Any other definition (including Zip's) implies that force should be used or at the very least employers or employees should act against their own self-interest (which, in an economic context is maximizing their profits without theft or fraud), in the name of fairness.(=morality)

Edited January 20, 2009 by Jake_Ellison

[Zip]

The fair wage is that which the company and the employee agree upon, when they both sign a contract.

Any other definition (including Zip's) implies that force should be used or at the very least employers or employees should act against their own self-interest (which, in an economic context is maximizing their profits without theft or fraud), in the name of fairness.(=morality)

Perhaps I wasn't clear...

If I'm a widget maker and you need widgets made then we negotiate the price. You take into account the value of the widget to your production of Whiz-bangs and I take into account my cost in effort to produce them. At some point we come to an agreement that defines the wage and therefore a reasonable value to each of us for our parts.

Where is the force?

Who in this scenario is operating against his self interest? Either of us could walk away from the deal.

Fair does indeed have something to do with it. In my scenario we are both out for ourselves, dealing as traders to get the best deal we can. At some point we will either come to a fair market value for the effort/product or we will walk away. Either we will arrive at what each of us by our own standards determine to be fair or we will not strike a deal.

We are dealing with fairness, but I'm not talking about some socialist collectivist ideal of that word. Each individual operating as a trader defines what he believes to be "fair".

He draws his line in the sand and says in effect that this is my "fair" price/wage. After that line is crossed then the deal is no longer "fair" in his estimate and only then would accepting a deal be considered not to be in his self-interest.

[MichaelH]

I was wondering what the Objectivist stand is on this. I understand it's a way to make money, but, in my view, it stands as an escape from the responsibilities of paying a competent his full allotted pay and instead hiring ten monkeys that can do more work for less pay. I guess i'm not sure how to reason it out either way...

Objectivism is quite explicit that any person should be free to trade with or hire anyone else, under any (non-force) terms they agree to. If an employer can get the job done cheaper by outsourcing to country Y, they don't have a moral obligation to hire people in country X.

There may be other benefits to workers in country X that make them a better long-run business decision. They may be more educated. Customers in country X may prefer dealing with people from country X. They may have higher standards of quality.

In an Objectivist world, businesses would look rationally at their individual situations. A likely outcome is one company outsourcing, and the other hiring locally. The decisions of consumers over the next few years would determine which method was more successful.

(In reality, a lot of business managers are second-handers. That is why there is usually a wave of outsourcing, even in situations where it does not make sense to do so. The principle is still the same.)

[Chris.S]

D'oh!

Yeah, I see everyones point. I hadn't thought the questions through.

So another question: would another man coming into a business saying "I'll do his job for $2 less an hour" be qualification to fire the previous employee to save a few dollars an hour on labour? No man is entitled to a job, but with no other reason to fire a man, it seems petty rather than just.

[SD26]

So another question: would another man coming into a business saying "I'll do his job for $2 less an hour" be qualification to fire the previous employee to save a few dollars an hour on labour? No man is entitled to a job, but with no other reason to fire a man, it seems petty rather than just.

Do you think it is immoral or moral? And then why?

[Greebo]

So another question: would another man coming into a business saying "I'll do his job for $2 less an hour" be qualification to fire the previous employee to save a few dollars an hour on labour? No man is entitled to a job, but with no other reason to fire a man, it seems petty rather than just.

That's up to the employer to determine, isn't it? Would the $2.00 an hour alone qualify the man? Not if I'm the employer. I'm going to want to see him demonstrate ability first. What about the existing employee's track record and dedication to his work? Those add some value to some employers, not to others. Would the new employee require training? That affects the bottom line as well.

An employer who bases the decision on simple cost per dollar alone has the potential to be very unwise. It's fiscal context-dropping: penny wise, potentially pound foolish.

But still, $2.00 an hour, $4,000 a year - that's a significant factor to consider as a part of the overall whole.

[softwareNerd]

So another question: would another man coming into a business saying "I'll do his job for $2 less an hour" be qualification to fire the previous employee to save a few dollars an hour on labour? No man is entitled to a job, but with no other reason to fire a man, it seems petty rather than just.

If it happens exactly as you state, a typical employer would not hire the new person. Who is this guy? Can he do the job that someone else is doing? Why is he willing to work for less than is being offered for this job? Does he want to train at my expense? Will he learn the job and then move to a regular-paying job, leaving me? An employer has to take a broader perspective and ask more questions than this example provides.

However, suppose this is an factory-town, and the factory just laid off a few thousand workers. Suppose people like this are coming in all the time, looking for work. Now, there is a much higher probability that an employer will react by lowering the wages he pays to his existing employees, or something like that -- e.g. firing some of the worst performers and taking on new people.

[Chris.S]

What about the existing employee's track record and dedication to his work? Those add some value to some employers, not to others. Would the new employee require training? That affects the bottom line as well.

That's what I was trying to get at with my Rearden example. Say his mills Foreman has worked for him loyally and excellently for 15 years. I guess Rearden would have to decide if that loyalty is worth less than saving $4000 over the year(s).

And yeah I agree I'd want a demonstration of knowledge and skills first before weighing the offer of cheaper labour with the previous employee's work record.

Do you think it is immoral or moral? And then why?

I think it would be stupid for an employer to sacrifice his relationship to a good employee based on $2/hr only. Like I said, I'd want a demonstration of knowledge and skills first to see his competence. And if they don't weigh out or are even equal, maybe there's another area with a bad employee to replace that I could use the new or old employee for instead.

[SD26]

I think it would be stupid for an employer to sacrifice his relationship to a good employee based on $2/hr only. Like I said, I'd want a demonstration of knowledge and skills first to see his competence. And if they don't weigh out or are even equal, maybe there's another area with a bad employee to replace that I could use the new or old employee for instead.

Well, now you have to define "stupid".

If one can get the same work, meaning quality, quantity, etc., accomplished for the same amount of money, then it's a no brainer, is it not? "Not stupid"?

There can even be the possibility that the new employee that is less expensive has better quality and more production capability too. So, keeping the old relationship with a current employee would be stupid.

I was wondering what the Objectivist stand is on this. I understand it's a way to make money, but, in my view, it stands as an escape from the responsibilities of paying a competent his full allotted pay and instead hiring ten monkeys that can do more work for less pay. I guess i'm not sure how to reason it out either way...

Hey, welcome to the forum again!

Was reading your post again, and I was struck by the word "responsibilities".

Can you define that and say who determines that under what standards?

[Chris.S]

If it happens exactly as you state, a typical employer would not hire the new person. Who is this guy? Can he do the job that someone else is doing? Why is he willing to work for less than is being offered for this job? Does he want to train at my expense? Will he learn the job and then move to a regular-paying job, leaving me? An employer has to take a broader perspective and ask more questions than this example provides.

However, suppose this is an factory-town, and the factory just laid off a few thousand workers. Suppose people like this are coming in all the time, looking for work. Now, there is a much higher probability that an employer will react by lowering the wages he pays to his existing employees, or something like that -- e.g. firing some of the worst performers and taking on new people.

Yeah the question was probably too narrow.

In the case of the factory town, the employer would be right in his decision to do that. It would probably even increase the performance of the employees that weren't fired.

This is the problem with labour unions I think. They tie up employers so that employees can do a crap job as long as they aren't late for work or steal. But Rand argues unions are good for trying to get fair working conditions or fair wages (I'm definitely misquoting but I'm at school without access to my books).

So the situation with the guy trying to get a job for a lower wage probably wouldn't happen because the employer doesn't have a right to replace the first guy - in his own business!

[chuckleslord]

Hey, welcome to the forum again!

Was reading your post again, and I was struck by the word "responsibilities".

Can you define that and say who determines that under what standards?

Ah, yes... well... responsibilities was a poor word choice.

What i meant (i apologize for my horrible wording of this, i tend to over think things and then erase them in my mind) is that is it objectively moral to withhold the information to the employees of country y as to what employees in country x are making, and denying them the chance to make an informed decision on their salary, whereas, these companies are withholding this information so as to hope that the new employees never catch on.

[Greebo]

Ah, yes... well... responsibilities was a poor word choice.

What i meant (i apologize for my horrible wording of this, i tend to over think things and then erase them in my mind) is that is it objectively moral to withhold the information to the employees of country y as to what employees in country x are making, and denying them the chance to make an informed decision on their salary, whereas, these companies are withholding this information so as to hope that the new employees never catch on.

Ask yourself, what right do the employees of Galts Gulch, for example, have to know what the employees of Taggart Transportation earn?

For that matter, what right do you have to know what I, in Baltimore, earn for my income doing the same job you do in Podunk, Ohio?

In your market, what you do, assuming you live in Podunk Ohio, is worth a certain value which is established in no small part by the local economy: home prices, food prices, taxes, etc., which are vastly different from what they are in Baltimore, MD (where they would be far more expensive). Conversely, my salary in Baltimore would not be based on what someone in New York City makes.

I work in Baltimore - my worth is based on my competition *in Baltimore*.

If competition is global, then my worth is based on my competition globally. If I lose my job to programmers in India, it'll suck, but I have no *right* to my job, and they have no *right* to my income information. That's between me and my employer.

[SD26]

I think the responsibility for wage is at the individual level.

The shop owner, for lack of a better term, is responsible for getting his product made for those that buy it from him or through whatever chain he uses for that purpose.

If the workers don't get paid enough, do something new. Make something of your own.

Or the task might be too menial for the local area. As an example, why hire ten people to dig a hole when one guy can to the same task for less money in less time? On the flip side, in some areas, day laborers might be less expensive that maintaining and fueling a back hoe, in addition to maintaining it and teaching someone to use it.

We're always back to the supply and demand of traders in the market place.

[Jake_Ellison]

... is it objectively moral to withhold the information to the employees of ...

Information is a commodity, and it has an owner. Unless we are talking about information on the activities of government (which ought to be "public property", as in available to the public), it cannot be immoral to withhold information from anyone except its owners. The owners are those who came up with the information (or bought it): in the case of a contract the parties to the contract.

Surely there must be a concrete case/hypothetical of outsourcing which you have a problem with. Why not mention it, and then you'll probably get a bunch of answers as to why it is perfectly moral to do it. Or who knows, maybe something is being done in the example which is more than just consenting trade, and people here will agree with you that it's wrong.

[DavidOdden]

is that is it objectively moral to withhold the information to the employees of country y as to what employees in country x are making, and denying them the chance to make an informed decision on their salary, whereas, these companies are withholding this information so as to hope that the new employees never catch on.

I don't understand the question, especially the "in order to" part. I can think of a number of reasons to not want to tell employees in India what their US counterparts are making, and vice versa. If you mention to US employees that labor is much cheaper in India, they may freak out and try to get a law passed against you, or at least get demoralized and be moping on the job rather than working. There is no use to the US employee in knowing what the Indian counterpart gets that I can think of, since a 20% pay cut would still not make the US employee more competitive wage-wise.

If you mention to Indian employees the US wage, they might compute the amount by which they could demand their salaries be increased before the demand becomes excessive, in terms of profit. Thus a wage of $1 per hour could be doubled to $2 per hour without making Indian labor seriously non-competitive. Any demand for higher salary is potentially risky, and knowledge of the employer's realistic alternatives would allow you to increase your income and not increase your risk (of losing your job). From the employer's perspective, it's more sensible that employees not have that information advantage, and that morally justifies withholding the information. Of course it is also your right to do so just on a whim.

Ordinarily I don't think anyone really cares about what people are making in India vs. the US, because Indian employees are not in the US. If immigration were open, I think they could realize that moving to the US in the hopes of a higher salary could be self-defeating -- they would not have the wage advantage so might not get hired. Hence I doubt that wage information about a foreign country would be useful information to a worker.

[chuckleslord]

Thanks a lot guys, I wasn't attempting to fight out one way or the other, I just couldn't come up with a justification either way. As I am a new Objectivist, it's merely a point of clearing away the soot of my past Collectivist view to see the truth.

This was helpful and I will use this info later on, no doubt.