How Will Remote Workers Change Corporate Welfare in America?

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In American Investment in the Twentieth Century,  Marco Rubio dates the time when the American macroeconomy started prioritising investments in financial assets over investments in research and productivity as the turn of the century. There are diverse factors playing into the evolution of the American economy and there is no better time than when the world economy is undergoing an forced transformation to examine the entangled threads that brought the American economy to its recent structural configuration.

Before corona virus the American economy had taken on a quality of weightless clouds of monetary investments. The silver lining in the dark cloud called carona is the potential to reconnect income to earning, giving new impetus to growth from the roots.

A Sudden Change in Course!

In recent news Mark Zuckerberg announced that employees choosing remote work on a permanent basis may face a reduction in pay, a seemingly bad public relations move in an era when wealth inequality is a major social issue.

However when factoring in devolvolution of corporate welfare as a determining factor in corporate expenditures, the change announced by Zuckerberg is an appropriate business adjustment that can potentially benefit the American economy at large as it re-establishes the earned income from the top down.

The Trend Toward Remote Workers Disrupts Corporate Welfare

At the heart of the American corporate welfare system is a negotiation which allows the State to determine how much an employee is paid, a decision which is divorced from the value a worker brings to the company, a judgement call that the State does not have enough information to determine.

Instead the State conflates a worker’s worth with social justice for the few and a tax burden for the many, construed as a trickle down effect. The higher wages, negotiated by the State, provide the State with a stream of income from higher personal payroll taxes, in exchange for tax exemptions and other multifarious forms of corporate welfare provided to the corporation and subsidized by the economy at large.

Remote workers create a spanner in the works of corporate welfare.

Remote workers are not employees, they are independent contractors. The State has no say in what an independent contractor is paid because an independent contractor is an entrepreneur and not an employee.

The typical public-private transaction between the State and private corporations is that the corporation will hire a given number of employees at higher than average wages. The State of Maine states this as “higher than average wages for the area”. Mark Zuckerberg stated that he anticipates that offices will be functioning at 25% density, which is likely to fall short of corporate welfare quotas.

Tax-Payer Subsidised Upper Income Jobs

Economic development districts such as Maine’s Pine Tree Zone offer tax exemptions up to 100% , while refundable tax credits, such as Maine’s Seed Capital Tax Credit (50% of Capital investment) offer a cash refund worth the value of the credit if the corporation does not owe taxes. The combined effect by another name is called a subsidy.

Each new company locating in a corporate welfare district must pay higher than average wages for the area in order to buy their spot on the corporate wealth redistribution fund. This means that wages in corporate welfare districts will continually increase, by artificially induced means.

How Wealth Inequality is Created

The surrounding communities pay taxes used to subsidize the increased wages in the corporate welfare district. As corporate welfare district wages increase, workers benefiting from subsidized jobs buy homes in the surrounding areas driving up real estate values and driving out preexisting communities.

The corporation might not need as many full time workers as are required to qualify for tax-payer capitalization of their private corporation, but as the corporate welfare packages become increasingly generous, hiring more employees than needed at a higher rate of pay than they might be worth to the corporation is the trade off required for a share of increasingly generous corporate welfare benefits.

When a company spends more than is needed to produce its product or service, the result is an inflation in prices, a hidden form of public-private taxation on the larger economy.

What Was Zuckerberg Thinking?

The thoughts running through Mr Zuckerberg’s head, when he rattled off that remote workers should not expect the same rate of pay as company employees, might have been that the corporation is now released from State mandates when it comes to paying remote workers. Not only that but those workers will not be bringing in their weight in corporate welfare benefits, and so should be paid less, proportionate to their real value to the company.

By being divorced from the value that the employee brings to the employer, State payroll mandates function as a social justice programs rather than as genuine economic development. The devolution of corporate welfare can be a healthy shake out for an economy which has lost touch with wealth creation rooted in productivity.

The sector of the economy which has not been receiving corporate welfare has been financing corporate welfare, while being disadvantaged by having to compete with tax payer subsidized payrolls, tax-payer subsidized job training, and even tax-payer subsidized capitalization of larger scaled corporations.

Taking all the public benefit rhetoric out of corporate welfare, the state is negotiating for an influx of higher personal payroll taxes for itself, as the state functions as a corporation serving its own bottom line and its own targeted sector rather than the serving the diverse interests of the people.

What does change mean for the former employee who is now a remote worker

Mr Zuckerberg’s thinking is sound when he prioritizes authorizing remote working relationships only for employees who have established their worth to the company. As independent contractors, remote workers can also offer services to other companies, unless exclusivity is a negotiated term.

Mr Zuckerberg talks about teams that work within the company culture. A high value remote worker can function as an independent contractor who hires his own team and brings more jobs to his local community as a small business operator.

I predict that the corporations will want to write up the independent contractor terms as a one sided negotiation. Remote workers confident in their unique value to the company can negotiate. Those who feel they can easily be replaced will feel compelled to go along with a contractual agreement written by the employer.

In the new age of remote workers, rather than the State moving toward mandating business to business financial relationships, the State and/or private organizations should offer educational courses on negotiating skills.

Workers with less skills and experience may find themselves given the choice of remaining on as employees or parting ways. This may not be a bad thing because some of the workers in the least valuable sector may actually prefer another kind of work or a different working environment. With corporate welfare disabled, employers outside of the State’s targeted sector are more competitive in the jobs market. A worker who may have taken the corporate job may have preferred another kind of the job but was swayed by the higher pay offered by the subsidized corporation. Now that worker may have to take a pay reduction but he has more freedom of choice to select his occupation based on other considerations.

kalvisuals — unsplash

The Creeping Totalitarian Threat 

Since the 1960’s states have been taking greater control over the economy, led by the federal government and grant distribution. Since the 2013 H.R. 803 SKILLS Act, some states have been moving into business to business relationships

H.R. 803 SKILLS Act

Reauthorizes appropriations workforce investment systems for job training and employment services.

Requires a plan describe:

strategies and services to more fully engage employers and meet their needs, as well as those to assist at-risk youth and out-of-school youth in acquiring education, skills, credentials, and employment experience;

how the state board will convene industry or sector partnerships that lead to collaborative planning; ( emphasis by author)

how the state will use technology to facilitate access to services in remote areas;

state actions to foster partnerships with non-profit organizations that provide employment-related services; and

the methodology for determining one-stop partner program contributions for the cost of the infrastructure of one-stop centers.

In Maine, the enactment of H.R. 803 SKILLS Act coincided with the enactment of the Maine Industrial Partnerships Act (2013) which utilizes many government resources including education, social services and the Department of Corrections to the advance the growth of the State’s targeted business sectors.

Maine’s Industrial Partnerships Act is filled with copacetic phrasing such as the following sentence to mask a progressively centralized and totalitarian government which is frequently inconsistent with the Mane Constitution:

K. Strengthen connections among businesses in industry clusters, leading to cooperation beyond workforce issues that would improve competitiveness and job quality, such as joint purchasing, market research or centers for technology and innovation. [PL 2013, c. 368, Pt. FFFFF, §1 (NEW).]

Given these trends, it is quite possible that central government will try to repair the damage down to corporate welfare systems by enacting laws governing the relationships between businesses. That will be more difficult with workers dispersed all over the country as small businesses, and because corporate welfare is based on workers being concentrated in one location, and on the States getting their cut through personal employee payroll taxes. While enactments like Industrial Partnerships usurped the power of local governments using wealth redistribution as its instrument, remote workers redistribute power to the local community. Municipalities can create ordinances conducive to home and small businesses to attract a dispersing workforce of remote workers (small businesses).

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The argument against the Skills Act went straight to the point:

Opponent’s Argument for voting No:

Undermine the local delivery system that has been the cornerstone of job training programs

Establish a program that is based on political boundaries (states) rather than on economic regions and local labor markets, or the naturally evolving areas in which workers find paying work

Eliminate a strong role for local elected officials but require that they continue to be fiscally liable for funds spent in their local areas

Change what was once a program targeted to those most in need — economically disadvantaged adults and youth and special population groups like veterans, migrant farm workers, and low income seniors — into a block grant to governors

Contribute to the emerging division between those American’s who have the requisite skills to find employment and those who do not

The Skills Act passed on a primarily Republican Vote, with some Republicans and most Democrats voting No.

The distribution of wealth in a society is more equitable when there are diversified sizes and shapes on businesses which is more likely in a free enterprise system.

Now is the time for free enterprise proponents to take advantage of the seismic shift in the economy by taking the reigns.

Originally Published on Medium's Data Driven Investor