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Blodget: Paying employees low wages is a choice

Henry Blodget

The CEO of Aetna (AET) recently did something astonishing: He voluntarily gave some of his lowest-paid employees a raise.

He didn't do this because of "market forces." The labor market is weak enough that Aetna could have gone on paying the employees $12 an hour forever.

He did it because it didn't seem fair to have people working so hard for such a profitable and successful company and yet still struggle to make ends meet.

It's too bad more CEOs don't think this way. If they did, the economy would be healthier and growing faster, and most working Americans would be much better off.

One reason the U.S. economy is still weak, after all, is that big American companies are "maximizing profits" instead of investing in their people and future projects.

This behavior is contributing to record income inequality in the country and starving the primary engine of U.S. economic growth — the vast American middle class — of purchasing power.

If average Americans don't get paid living wages, they can't spend much money buying products and services. And when average Americans can't buy products and services, companies that sell products and services can't grow. So the profit obsession of America's big companies is, ironically, hurting their ability to grow.

One solution is for big companies to pay their people more — to share more of the vast wealth that they create with the people who create it.

Big American companies have record profit margins, so they can certainly afford to do this.

But, unfortunately, over the past three decades, what began as a healthy and necessary effort to make our companies more efficient has evolved into a warped consensus that the only purpose of a corporation is to "maximize earnings."

This view is an insult to anyone who has ever dreamed of having a job or company that is about more than money. And it is a short-sighted and destructive view of capitalism.

This view has become deeply entrenched, though. These days, if you suggest that great companies should serve all of their constituencies (customers, employees, and shareholders) and that American companies should share more of their wealth with the people who generate it (employees), you get called a "socialist." You get called a "liberal." You get told that you "don't understand economics." You get accused of promoting "wealth confiscation." You get told that, in America, people get paid what they deserve to get paid: Anyone who wants more money should go out and "start their own company" or "demand a raise" or "get a better job."

In other words, you get told that anyone who suggests that great companies should voluntarily share the value they create with their employees instead of just lining the pockets of shareholders is an idiot.

After all, these folks say, one law of capitalism is that employers pay their employees as little as possible. Employees are just "costs." You should try to minimize those "costs" whenever and wherever you can.

This view, unfortunately, is not just selfish and demeaning to the people who do the work and create the value. It's also economically shortsighted. Those "costs" you are minimizing (your employees) are also current and prospective customers for your company and other companies. And the less money they have, the fewer products and services they are going to buy.

Obviously, the folks who own and run America's big corporations want to do as well as they can for themselves. But the key point is this:

It is not a law that they pay their employees as little as possible.

It is a choice.

It is a choice made by senior managers and owners who want to keep the highest possible percentage of a company's wealth for themselves.

It is, in other words, a selfish choice.

It is a choice that reveals that, regardless of what they say about how much they value their employees, regardless of what euphemism they use to describe their employees ("associate," "partner," "representative," "team-member"), they, in fact, don't value them.

These senior managers and owners, after all, are earning record profits while choosing to pay their employees so little in many cases that the employees have to live in poverty.

And the senior managers and owners add insult to injury by blaming the employees for this: "If they want to get paid more, they should start their own company. Or get a better job."

It is no mystery why America's senior managers and owners describe the decision to pay employees as little as possible as a "law of capitalism." Because this masks the fact that they are making a choice.

But it is a choice.