The value of the business payroll
A business payroll is a 'cost' in money profit accounting and therefore a smaller payroll results in a bigger profit. The cost of the payroll is justified because the workers are able to make product or deliver services that generates revenue for the business and contribute to profit.
But for society the business payroll has very significant value:
- for the employees who get wages
- for the families of employees who benefit from the wages
- the local suppliers of goods and services to the employees and their families
- the tax authorities at local, regional and national levels.
Economists have computed something referred to as the multiplier which relates one dollar of wage to a much larger number of dollar benefits through the economy … maybe 2, 2.5 or 3 times.
This was an idea that Keynes embraced in his thinking about the dynamic of an economy, and has been central to my own thinking on this subject. When a small wage increase, the 'value' to society becomes a multiplier of the original outlay.
The value of the payroll depends on the characteristics of the payroll.
A payroll of only 2 people and and money value of $2million most likely has less social 'value' than a payroll of 50 people with a money value of $1million
The value changes depending on the profile of the payroll. A payroll of 10 people and $200,000 total is likely to be more valuable than one of 5 people and the same total of $200,000
The location of workers is an important characteristic to be taken into consideration. There was a time when people lived and worked in the same community. There are different economic and social dynamics depending on whether or not the location where money is earned is the same as where money is spent.
There are also different economic dynamics depending on where products are produced and products are purchased and consumed.
The modern world has very long and complex supply chains most of which have been optimized for business profit without much consideration of social and environmental impacts.
In the last few years there has been a growing concernt that modern complex and long supply chains are raising risk profiles in a large number of ways, many of which have been ignored in the past. Low poduction cost contribute to high profits until the production is interupted for some reason and the lack of a small component holds up production in a whole production line.
EDIT AND EXPAND ... MORE WORK NEEDED
Peter Burgess
October 2012
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