24 July 2012

In Did you really build that I raised the following question:

How do we, as a society, balance the corporate interest of maximized profits (and by corollary minimizing expenses), against the social interest of workers earning a ‘living wage’ and being able to provide for the ‘general welfare’ of their family?

I’m not sure I have a great answer, but I did want to lay out some of the thinking that lead to that particular question.

Until recently I have been a PC/Windows guy. But I married a Mac person, so in our house we have an iMac, a couple of MacBooks and you can’t swing a dead cat without hitting an iPod. (Not that I would actually swing a cat, dead or alive…). I have come to appreciate Apple’s attention to quality and design. At least in the iPod/iPad space they build an incredibly useful product.

So I was particularly interested when I saw a note in passing about Apple’s earning for the fiscal quarter ending April, 2012. Apple’s net profit (that is, the amount of money they have left over after paying all expenses including taxes and wages) was approximately $11.6 Billion on revenue of $39.2 Billion(1). So, out of $39.2 Billion coming in, Apple spends 27.6 Billion on wages and benefits, supplies, materials, taxes and all other expenses, leaving $11.6 Billion free and clear. Those numbers by themselves are huge, but don’t really tell us much. Let’s combine combine them with some employment figures.

Apple has approx 47,000 employees(2) - a large portion of them are retail and clerical workers making $12-$15/hour, or a little over $6,000 a quarter. These are the people who handle shipping and fulfillment, and who work the counters in the Apple Stores. Clearly there are higher paid employees, and the average wage across the company is estimated to be just under $12,000 a quarter(3).

Let’s do some math. $39.2 Billion (That’s $39,200,000,000 for those of you who like to see the zeros) divided by 47,000 will give us the amount of revenue per employee. That figure is just over $834,000 / employee. $11.6 Billion divided by 47,000 will gives us a net profit of $247,000 / employee.

Here is another way to look at it: Less than 1.5% of the money paid to Apple is returned to the employees who make and sell the items in the form of wages. Even if you argue that Apple has the most generous benefit plan in the country, you are safe assuming that less than 3% of Apple’s revenue is returned to employees as compensation.

Why should anyone care?

I don’t know that you should really - this is just one case of a very profitable and very successful company. Maybe Apple already pays ‘above market wages’ to their employees. But the flip side is that Apple made $247,000 in profit on the effort of individuals it paid on average $12,000. What if they decided to give every employee an across the board $5/hour raise. Their profit would fall to around $245,000 a quarter, while each individual’s income would go up over $800 a month.

Now, I am not a communist. I think companies should be able to turn a profit, and unless the workers want to form a co-op, somebody has to ‘own the means of production’. And the structure of a modern corporation obscures the question of who the ‘owners are’. Apple has nearly a billion shares of stock outstanding, so there are literally millions of ‘owners’ of Apple, many of whom are also employees.

I am also not a fan of unfettered social redistribution through fees, fines, taxes or regulation. But at the same time proponents of an unregulated laissez-faire economy need to be able to make a case that the distribution of over 95% of the revenue to ‘owners’ and less than 5% to the ‘producers’ is both fair, and socially optimal.

I’m sorry, but I just don’t see it…

Footnotes

(1) http://www.apple.com/pr/library/2012/04/24Apple-Reports-Second-Quarter-Results.html

(2) http://www.apple.com/about/job-creation/

(3) http://www.simplyhired.com/a/salary/search/q-apple



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