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I'm not a political expert, I've just recently gotten interested in the political discussion around the current US election, and one interesting and popular topic is a raise in minimum wage.

Again, not an expert in this area by any means, but it seems to me that the obvious issue with raising minimum wage is that many businesses with weaker business models or new businesses might not be able to pay higher wages at weaker income points.

But on the other hand, some corporations are reporting tens of billions of dollars in quarterly profit. So a solution occurred to me:

What about a flat profit sharing policy forcing companies to share a very small percentage of their gross profit with all of their employees equally? This might be only a few dollars/year to employees of very small businesses, or it might be thousands of dollars/year to employees of large corporations.

Has this exact solution been considered and debated? What would be the pros and cons of this policy choice in terms of fairness, economic benefit, and ethics for all involved parties, including employees, business owners, and shareholders?

  • Again, way to broad and hypothetical. But you can certainly research issues of the increasing wealth gaps between bottom rung employees and top executives. – user1530 May 4 '16 at 4:50
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What profits?

What happens if the business makes no profit? I'm assuming that employees won't have to cover a percentage of the loss in that case, but if this money is meant to make up for low wages, it will fail in the face of a loss.

What happens if the business cooks the books to make it look like it didn't make a profit? Note that this was such a common problem in Hollywood productions that star contracts now routinely require a percentage of the gross revenues rather than the net profit.

And now we get to the hard part. Let's think about what we are trying to accomplish here. We want to increase the wages of the poor. In this system, the well-to-do would use their natural advantages (connections, resources, etc.) to grab the best jobs with the highest profit sharing. The poor would get the jobs at marginal businesses that never quite make a profit.

This is especially annoying in that normally lousy jobs at profitable companies would become lucrative. Of course, an easy fix for that would be to switch from direct hires to contractors. As contractors are not employees, they wouldn't share in the profit sharing. We can see examples of that now with the ridesharing companies Uber and Lyft. They evade employment laws by utilizing self-employed drivers.

So instead of hiring janitors in-house, companies will hire cleaning companies. Instead of hiring software developers, they will hire other companies. Those companies will make small profits, so they will have to share only a small amount. The hiring company will make big profits and evade paying more than the minimum wage.

Part-time workers

Should someone who works five hours a week at a company get the same profit sharing as someone who works fifty hours a week? What about someone who only works for a brief period of time? Same amount as someone who works all year?

Not quite that profitable

But on the other hand, some corporations are reporting tens of billions of dollars in quarterly profit.

This doesn't seem to be true. The most profitable corporation had less than $40 billion in profits. That's not even one ten of billions per quarter much less multiple tens.

Another problem is that even if it is true, those corporations won't necessarily employ the relevant employees. Even now, most McDonald's restaurants are owned not by the corporation but by local franchises.

Berkshire Hathaway is an especially interesting example. It's one of the most profitable companies in the world, but it is a holding company. For example, it owns 26% of Kraft Heinz. Do the Kraft Heinz employees share in the Berkshire Hathaway profits? Do multiple levels of employees share in the Kraft Heinz profits? What about wholly owned companies like GEICO? Pooled employees or separate employees?

Note that corporate headquarters has fewer than a hundred employees. Should they be the only ones to get the profit sharing? If not, how do we keep them from doing so? What's to keep them from reducing their ownership share of each company to just below the trigger amount?

Increased capital prices

A side effect of this would be to make capital returns smaller. So it would be harder for companies to raise money. It's essentially a tax on capital and a credit for employees. Of course, companies could compensate for that by reducing salaries and wages. Or by increasing debt financing. Presumably interest on debt won't be shared while dividends on stocks come out of profits.

Discourages growth

Currently if you have a profitable company, it can make sense to invest some of those profits into expanding the company. Even if the new growth is less profitable than the old, it can still increase total profits as it decreases average profits. But under this system, employees are incented to increase average profits per employee rather than total profits. Companies that fill small but profitable niches will be more desirable to employees than large, diverse companies.

  • You answered my question appropriately, but to venture into very brief discussion on the answer: Your main issues described were of how to share the profits fairly in diverse situations. What if the policy were handle it in this fundamental way: Instead of employees lets call them contributors. Contributors include anyone who performed professional, contracted or employed labor for the company reporting the profit. All contributors to each company share a portion of (for example) 2% of the company's profit margin. Profits are reported quarterly, of the 64 days, and the shares are (continued) – user6048918 May 4 '16 at 14:48
  • (...) divided based purely on the amount of time each employee spent performing labor for the company in any way shape or form. If a lawyer is on retainer, for example, his share is based on the documented amount of time actually spent performing service for the company. So you calculate that, and there's profit sharing, plain and simple. However as for Berkshire Hathaway's situation, I'd specify this: Sharing is calculated only for the profit earned which can be linked in some way to your labor. I see that this part does get very tricky.. I suppose I dont have any simple solution to it. – user6048918 May 4 '16 at 14:50
  • Do you know of any proposed profit sharing policies that handled this issue, or have there been no proposals largely due to this complication? – user6048918 May 4 '16 at 14:56
  • @user6048918 In that system there is a huge incentive for a company to not make a profit. If you make a profit you lose 2% of it, so reinvest everything that would be profits in the company and mark them a business expenses, or use it to pay dividends. That share of 2% varies between several times minimum wage and a few cents per year if you are in a large company with low margins like Walmart this is basically nothing where if you are the janitor in a small software company this is huge. – sdrawkcabdear May 4 '16 at 17:18
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    What profits? We don't make any. Just look at our last tax report. Too bad you are not working for our subsidiary on the Cayman islands which is for some reason extremely profitable despite having nothing more than a post box... but you are not working for them. – Philipp May 4 '16 at 19:21
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Brythan has great points please consider this answer an addendum to his.

It doesn't solve wealth disparity

There are still too many ways to change a company to cut the wages of lower paid employees.

It kills start ups

Some times companies like startups have to go through a unprofitable period as they start up or switch business models. Employees would get little or no reward for their work in this period, because there are no profits. Years later when the profits come rolling in they will be distributed to the current employees not to those who worked for no pay to get the company started.

Nonprofits What about companies that plan to never make profits?

Risk aversion

Employees want know how much they are going to make for the rest of the year. In a percentage based system if your company has a bad quarter then you pay could drop by 50% and you would not be able to pay rent. Then a good quarter might bring your wages back up. We really want a steady pay check because we have steady expenses like food and rent it is going to jump up and down we will want a higher average wage to make up for the volatility.

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