The Myth of Wage Theft and the Evils of Profit

Socialists claim that wages are being stolen and that all profits constitute theft. They argue that wages themselves are a form of theft and that capitalism inherently involves exploitation. The only solution, they contend, is government intervention, including the provision of a universal basic wage and/or mandating companies to pay a high minimum wage. Additionally, they demand that the government enforce fair hiring practices, dictate scheduling according to their standards, and prevent companies from laying off employees even when business performance declines.

To their point, if companies were not allowed to earn a profit, it would be impossible to determine whether a company was performing well and thus no justification for laying off employees. However, without the ability to earn a profit, there would be no companies, and no jobs. So, our current system seems much better than socialism.

There are headlines, Tweets, and Instagram posts from socialist sources all over the internet regarding the concept of wage theft. Wage theft is indeed a real issue, with some employers illegally cutting corners through various nefarious means, such as having employees come in before work to “set up” or stay late to “clean up” without pay. However, socialists have expanded their definition of wage theft to an exaggerated and preposterous level.

One source wrote, “A system of profit and wage labor is a system of theft.” They believe that the workers are the ones generating the profits, and they should thus be allowed to keep them. In some extreme wage theft camps, if firm XYZ earned $200 million in profit, they claim that the company stole $200 million from the workers, equating the entire profit to wage theft.

In These Times, a socialist news media outlet, stated, “Immigrant rights are worker rights,” suggesting that companies were engaging in wage theft when they paid undocumented workers lower wages. By demanding that undocumented workers be paid the same as everyone else, socialists inadvertently confirm the conservative argument that undocumented workers take jobs and drive down wages. If the socialists win and undocumented workers must be paid the same as everyone else, companies will have no incentive to hire them. They will lose their jobs and wages will rise.

Another example of alleged wage theft is “manipulating hours,” but isn’t that just called scheduling, and isn’t it up to the employer rather than the state to decide when and for how many hours each employee works? Another complaint is that some employers find ways to evade employment laws through various tactics such as “misclassifying” employees as independent contractors or paying off the books. Paying off the books is already illegal, as is intentionally misclassifying workers as contractors. However, if the classification meets the legal definition, then employers are not in violation. And if working as a contractor with no benefits doesn’t suit them, the employees are free to leave the company and get another job.

Hiring contractors is an important tool used by companies, particularly those with seasonal or dramatically varying labor demands. Legislation preventing the hiring of contractors would not only jeopardize many companies but also eliminate jobs for people who prefer to work as contractors.

Wage theft, from the perspective of socialists and extreme liberals, is often seen as part of a broader condemnation of the capitalist system, which they believe exploits workers. This viewpoint is reflected in headlines and posts such as “Only Socialism Can Put an End to Exploitation,” “Workers Should Demand Higher Wages Right Now,” and my personal favorites, “All Capitalism is Wage Theft” and “Why Profit is Theft.” One of the articles provided an example of how “wealth extraction” works: “Let’s say a worker does 8 hours of work to produce $160 in value for the company. If everyone was paid the full value of their work, this person would get paid $160. Instead, this worker is paid $8 an hour and receives $64, while the other $96 goes to the owners.”

This incredibly simplistic take on how business works is very instructive in that it helps us understand why this person is a low-paid worker rather than an owner. The author of this example believes that all of the “value” should go to “the worker.” But what about all of the other employees in the chain of production, delivery, and distribution? What about the administrators, salespeople, marketing, and operating expenses? If all of the value went to the employee, the firm would have a value of zero. How would a firm with a value of zero obtain financing? What investor would buy shares in a company that earns no profits and whose value will remain zero forever?

All of this discussion is tied to the fact that there are high inflation and high housing prices right now, and the job market is competitive, so people with no skills or degrees in useless fields cannot find work. Consequently, they blame the entire system with headlines like “Capitalism Can’t Give Us Affordable Housing.” They miss the point that capitalism provides houses at the market price and pays workers the market wage. If they feel housing prices are too high, they are permitted, in a capitalist system, to sell houses for less. If they want a higher wage, they are welcome to pursue degrees in the medical field, STEM, or other high-demand areas to earn more. They are also free to start companies and give all of the profits to the workers.

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