Thoughts About Labor Day

In 1887, Oregon became the first state to make Labor Day a holiday. By 1894, 30 states were signed on to the movement. And on June 28th of that same year, during the famed Pullman Strike, President Grover Cleveland signed the bill into law, making Labor Day an official federal holiday to be celebrated on the first Monday of every September. But only for federal workers! Under the threat of strikes, most states soon made Labor Day a holiday for every worker. And by the 1930s, all U.S. states, the District of Columbia, and U.S. territories, had declared Labor Day a statutory holiday.

Marking the "unofficial end of Summer", Labor Day is considered a day of family gathering, either over a barbecue or taking in a professional ballgame. An extended family picnic or camping trip might come to mind. The weather is usually still warm, and the kids are just getting started in the new school year.

Labor Day's real purpose though is to celebrate labor. To recognize the contribution of those who produce and transport all the goods and services our country provides.

Labor is a nobel thing, especially considering the axiom I was taught as a child, that "Idle hands are the work of the devil". I cannot argue with that, and therefore celebrating labor is a good thing.

The real question that comes to my mind during this time of year isn't about the labor itself, but rather about the fruits of the labor. What do we do with all that bounty? Especially when we live in the world's richest country!

If you are like most people, you use your paycheck to pay bills, and if there is anything left over, you might save it or splurge on something nice. In other words there is a common view that labor is our means to pay bills.

I have never really thought of my labor that way. Instead, I think of my labor as a way to raise capital. And I strive to have the fruits of my capital (dividends and interest) pay my bills. With this way of thinking, I work once for the capital and get paid forever.

I am reminded of a Price Waterhouse Coopers of Saratoga study from 2004, but still valid today 21 years later. The study looked at 13,000 mid and large sized companies across the United States, and asked about the "profit per employee".

If we picture a company in 2004, it has to pay for inputs and raw materials. The employees produce an output, and they receive a wage in return for their labor. The company then sells the output for a price, and pays taxes on that sale. If money is left over, that is the profit. After all expenses are considered (including any borrowing interest), the profit per employee was $68,000 per year.

I looked up the census records for that same year and observed that the average wage of the average employee (including benefits) of those thousands of companies was $45,000 per year. And various taxes took a quarter of that.

So in 2004, the average employee produced a total bounty of $113,000. The employee was handed $45,000 of it in the form of wages, while the owners kept the profit off that labor of $68,000. In other words, that year a typical employee was only paid 40% of the value they produced! The owners meanwhile kept 60% of the laborors bounty while hanging out on the golf course!

With wealth and income disparity in America growing substantially since that time, these numbers are much more skewed to the owners today.

The key point here is that while labor is a good thing and we should celebrate it, it is not the thing that gets us rich in a capitalist country. Capital gets us rich. Ownership gets us rich. Otherwise we would be called a "laborist" country.

Your labor should never be thought of as the sole means to pay bills. Instead it should be thought of as a way to raise capital. That capital is then invested in America, and the dividends and interest become your real income that you can either consume, or turn into more captial to increase that income. You can also invest in your own business if you have appropriate business skills and a dream, employing various tax strategies to improve the amount of wealth you keep.

Wishing everyone a happy Labor Day, and encouraging all on this special day to carefully consider exactly why we are working....to raise capital and become the owner. As I have asked my readers many times, "Do you own a piece of America, or do you just work here?"