Tyler Cowen over at Marginal Revolution came up with the idea of Zero Marginal Product (ZMP) workers, people who do some work at their jobs, but not enough to be worth their cost (in salary and other costs), and offers it as a partial explanation of the ongoing unemployment problems of the developed world. This has provoked a certain amount of outrage, the script for which is “how dare you suggest that the unemployed are all lazy.”
Meanwhile, do you know the Peter Principle? The basic concept is, “Peter is a great employee. So he is promoted. He’s great in his new role. So he is promoted. Now he’s management, and he’s not great at management — he’s only mediocre. So he’s no longer promoted, and he stays a manager forever.” There’s some obvious core truth here. I’ve seen people who have been “promoted to the level of their incompetence,” and I imagine you have. But as a principle that purports to have a great deal of explanatory power for working life in America, I’m not sure I believe it. The pyramidal structure of management ensures that lots of people who are good to great in their current role are not going to be promoted, and indeed there seems to be at least some recognition, by both individuals and corporations, that not everyone should be promoted out of jobs they’re great at. In my field, software engineering, there is a career path for people who are great software engineers but have no desire to be managers or executives. I’ve seen multiple people who ended up in management, found they didn’t like it, and arranged to stay with their present company but get out of management.
But isn’t it true that even if we do not all get promoted to the level of our incompetence, we do get raises until we’re at least nearly ZMPs?
In most environments I’m familiar with, raises are everything that promotion into different job duties aren’t. Pretty much everyone gets a raise every year. While you might work five or ten years at a company and never get a substantial promotion (you might get “senior” tacked onto your job title), you don’t work five or even two years without a raise. While some people may reject promotions into management, nobody rejects raises.
And there is some salary level at which we are all ZMPs. I think I’m a very productive worker, but it would be silly for me to ask for $1 million a year in salary.
So the operative question, I think, is what the “profit margin” on a typical worker is. If you are basically an ordinary employee, how much value, in excess of your costs, do you typically create for a company? If the total cost of you as an employee (salary, benefits, the share of office space you take up, whatever) comes to $150,000 per year, do you increase the revenue of the company by $300,000 per year? If so, sure, you have a ton of headroom before you become a ZMP… but doesn’t that also suggest that you’re just underpaid?
If you are not, in an absolute sense, underpaid, then that basically means that you’re already edging up into being a ZMP, right? You’re at least a Low Marginal Product worker.
This is kind of the ugly reverse of commodified markets of goods. In a commodified market for goods, margins are extremely low on each item; the companies making the goods can’t really get a great profit, and that’s wonderful for the people consuming the goods. But if you’re paid “what you’re worth” in an efficient employment market, then you aren’t making your employer much profit, and if, for example, a recession happens and they need to lay people off, they’re likely to choose to lay you off, and it will be difficult for you to get another job at around the same compensation level, because, well… it’s not a huge net benefit to hire you at that level.