Please comment on the following situation.

Let’s take a baker. Abby devises and tests out various recipes. She invests all her savings in her new business – she rents out a storefront in a well-researched location; she buys displays and counters for the front of the store and buys the commercial cooking equipment needed in the back; she applies for and ultimately gets local health department approval to open her bakery. She does some advertising; she offers free samples at farmers’ markets; she develops a following. Business picks up – to the point where operating her bakery all alone is a bit overwhelming. So she hires her first employee, Joe, to do the baking in the back while she staffs the front of the shop herself. Joe bakes the goods in the back in strict accordance with the recipes developed and tested by Abby. He uses the commercial oven purchased by Abby in the space rented by Abby, using ingredients purchased by Abby. Joe gets paid whether the goods he bakes get sold or not. A bag of cookies at this bakery sells for $5. The bakery sells about 400 bags each week for a total of $2,000 per week or $104,000 per year. Abby pays Joe $25,000 per year. After rent, ingredients and the like, Abby nets $40,000 in “profits.” The full “value” of Joe’s services exceeds $100K since Joe is doing all of the baking. Most of the “wealth” created by the fruits of his labor go to Abby. How much say should Joe have in the distribution of the wealth he is creating?

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  • Kenneth Miller
    followed this page 2018-01-29 14:26:14 -0500
  • Edward Jackson
    followed this page 2018-01-28 14:12:54 -0500
  • Richard Deshaies
    published this page in Ask Prof. Wolff 2018-01-25 14:33:47 -0500