The new work compensation model

Introduction

1. Recent behavioral economics studies show, that happiness rises with increasing income only up to a certain level. Once this level is reached, money looses power to make people happier.
2. Every year, about one billion people from around the world work for free to produce socially useful work. In the process, they generate value, that would place a hypothetical country inhabited by volunteers 7th on a list of the most GDP-producing countries.

From these and similar findings an inference can be made, that people - once their basic material needs are satisfied - loose interest to work for material reward, if that can not buy adequate recognition from society. A related observation is, that people will work without material compensation, if their work is used and appreciated by other people. These conclusions lead to development of a new model of work compensation, which explicitly rewards pro-social aspect of work and puts natural limit on the size of material compensation a worker can receive. Implementing the proposed model in world economies should lead to fair distribution of and access to products and services, while giving workers explicit measure of their pro-social contributions.

Characteristics of the proposed model

In the new model, work compensation consists of two different kinds of rewards:
1. for the number of "fully engaged[1]" hours a particular job took to complete (effort), 
2. for the number of people benefiting from the product or service rendered by the effort (impact).

The model further postulates:
a. workers are materially compensated only for effort and not for impact,
b. the size of  material compensation received is independent of the work type (equality of effort),
c. workers are rewarded for impact of their work by a new measure, reflecting the number of people benefiting from the performed work.
d. people who for various reason do not produce economic value receive unconditional basic income.

Practical implementation of the proposed reward mechanism requires some additional modifications of the capitalist economic system, 

Discussion

Anemic economic growth, high unemployment, decreases in real incomes and other problems that developed economies have been experiencing since the financial crisis of 2007–2008 are fueling search for better economic models and government policies. One macroeconomic indicator especially - the income inequality - was identified as the most emblematic sign of the current economic model's problems, threatening the very stability of the world economy. A remedy suggested most often to (re)introduce stability into economies is (a more aggressive) progressive taxation. However, this strategy is known for its' problems, the most obvious one being how to set the tax rates high enough, while avoiding negative effects like decreasing motivation to work. A related problem is, how should governements distribute the collected tax money effectively, while maintaining motivation of the recipients to seek employment, or how to preventing social ills like corruption.

This paper proposes a solution to these problems by revising the work compensation mechanism in a way, that eliminates possibility of excessive wealth concentration altogether. To accomplish this, it suggests splitting work compensation into two different kinds of rewards. One - the "effort" kind - for the number of hours needed to complete a job. Because this reward can be exchanged for goods or services, it is similar to the existing wage but there is is an important difference. In the (new) "effort" reward type, the value of compensation a worker can earn in an hour does not depend on the type of work performed. This means for example, that an hour of computer programmer's work is rewarded materially the same, as one hour of a farm worker's manual labor. The reason for postulating this constrain is that both individuals are exerting comparable (mentally or physically taxing) effort in their respective assignments. It is obvious, that there are also differences between the jobs in our example. During work, the computer programmer barely moves a muscle in her body, while her mind is engaged in an activity that required years of studying to master. On the other hand, the farmer's mind is most of the time engaged in much less abstract work, while his body carries brunt of the effort needed to complete the job.

A natural question is, whether people in occupations that require long years of studying would feel less motivated to work in their fields, if they did not receive more material compensation than people working in less intellectually demanding fields. To judge an impact of (more-less) equal wages on motivation we can analyze situation of socialist economies. It is tempting to attribute their ultimate failure to the equality of work compensation, but closer scrutiny reveals a more complicated picture. For one, these were planned economies, where freedoms of all kinds were suppressed and among them also freedom to create enterprises - the engines of economic growth of capitalist economies. Furthermore, work compensation does not only provide workers with means to buy material goods or services. It is also an indicator of value, performed work delivers to the society. This explains a paradox, that even though doctors and engineers educated in socialist contries received more-less the same wages as less educated workers, interest to study in universities always exceeded the education systems' capacity. It turns out that most people chose to study for higher social status, associated with owning an university degree. A smaller group of individuals chose to study to satisfy their desire to know. Apparently, earning a bigger wage is not in general the main motivator causing an individual to study.

As can be seen, social aspect of work compensation is an important factor, that in the proposed model acquires form of a new kind of reward. This "impact" aspect of work is commensurable with the number of people who benefit from an individual's work.

The postulate "d" is introduced to provide material means to lead a normal life to people who during some time period do not produce socially-valuable economic output. Among them are children or people with health problems. Creative workers like artists, inventors or scientists might also for a period of time be producing output that does not find in a given period consumers, but will so in the future. The amount of unconditional basic income or the mechanism of it's alocation will be discussed further down in this paper.


Implementation

Software engineer providing services in the digital domain.

A volunteer building bridge over a creek.

In the proposed model, the size of rewards granted for performed work is derived from a simple record, containing ID of a worker, ID of the project the work relates to and the number of hours worked. The effort reward then equals number of hours worked. Impact reward is calculated from the number of hours work took and the number of customers who bought it, using the following formula:

M = (h/H)*C  where:

M is size of the impact reward a worker receives
h is number of hours a worker invested into making the product
H is sum of hours invested by all workers who participated on making the product
C is the number of customers who bought the product

In most situations the final size of impact reward is not granted immediately after the work is completed, because at that time it might not be known if or how many people will buy the product. Instead it is constantly recalculated over time. The calculation will be performed by a software application called "rovas"[3] running on a cloud computing platform like MadeSafe. The application's purpose is to record, recalculate and dynamically allocate work rewards between participants in the economy by following principles described further down in this document.

....

The cost the buyer pays for a product is generally equal to the sum of the effort rewards paid to the workers who directly, or indirectly participated in the process of making the product. The indirect labor is "hidden" in the tools the worker uses or expenses he/she has to pay to make the product.

To clarify the proposal, we will illustrate it on couple of scenarios.

The following nomenclature will be used for the two kinds of rewards: The engagement reward is granted in a currency we will call "equal" and impact of the effort is rewarded in "merits". One equal represents one hour of the performed work and the merit reward is calculated by the formula given above.

Scenario A (one to one). In the simplest scenario, a worker works for x hours, producing product which is subsequently bought by a single customer. To make the product, worker uses some tools, energy and has other expenses, which are added to the product price. No markup is charged. Here it is necessary to mention that all extra expenses in fact represent human labor that was invested by "upstream" workers into manufacture of tools and services "our" worker is using. A system 

Therefore, worker receives x equals for the time spent making product + any expenses.  1 merit M = (x/x)*1 = 1. Artisan jobs like pottery or furniture making are typical examples of this scenario.

Scenario B (many to one). In this scenario, multiple workers participate on production of a single product, which is "consumed" by one buyer. Each worker receives as many equals as is the number of hours they put into the project. The number of merits is again calculated using the formula given above. For example, if 30 workers together worked on production of a telephone for 8 hours and one of them worked on it for 3 minutes, his/her merit reward would be:

M = (3/480)*1 = 0,00625

During an 8 hour shift this worker would earn 8 equals and 1 merit. Total number of telephones manufactured in that period would be (8 * 60)/3 = 160. The telephone would cost 30 equals for direct human work plus the appropriate part of the cost of human labor "embedded" in the tools our 30 workers used to make the product. Here it should be noted that tools are embodiments of human labor and this in NEO will be recorded in rovas.

Next, the number of customers is divided by the individual contributions of each worker. The resulting number will determine the number of merits earned by each worker. The sum of equals paid by all the customers for the products will be equal to the sum of hours of all workers participating on manufacture of the product. In some cases the community (maybe represented by a government) will set a minimum price for the product or service to extract value for community-beneficial projects.


Conclusion

* NEO allows people to earn money for work on projects the current economy can not pay for.

[1] i.e. counted is only time during which the worker was working with full intensity 
[2] Piketty
[3] Slovak word "rováš" stands for a physical object like a plank of wood, or animal antler where grooves are made for each unit of value one trading party owes to another.