The time value of money represents the widely accepted assumption that there is greater benefit in receiving a sum of money today than receiving an identical nominal sum in the future. The principle of the time value of money: present value and future value.
Suppose a worker saves a salary of $100,000 from the first “advance salary”, and has the opportunity to place it in a certificate of deposit at 5% nominal per month per year. At the end of the month he would accumulate $105,000. The $5,000 of interest earned on the placement represents the value that money represents over time.
Financially, the time value of money has its origin in the understanding that an amount agreed in a period, has a different value at the time of its effective receipt. The remuneration of the work is stipulated in a preliminary way to its effective collection. It is necessary to take into account that money earns interest and that the present value (PV*) is different from the value of the face amount received 30 days later. Example $100,000 today is worth more than $100,000 collected next month.
The time value of money refers to the economic concept that explains the phenomenon whereby present money (PV), expressed in any currency, will have less purchasing power in the future. In Argentina 2022, the nominal value of the salary in terms of purchasing power lost between 5% and 7%, being collected within 30 days.
INFLATIONARY PERFORMANCE
For this reason, it is important to understand that while the inflation rate is high, the same employer who tends to correct the price of its products and services up in advance, at the same time liquefies the cost paid for the work, by paying it deferred. . This partly explains the disproportion of income distribution in the pie. But the same nominal salary can affect inflationary expectations against you. If the salaries were paid per month in advance, the affectation would be given in a positive way.
IF THERE IS HUMAN CAPITAL, FAVOR IT LIKE CAPITAL
The first approximations to the term human capital are given in the book “The Wealth of Nations” by Adam Smith, who proposes that the man who has been educated at the cost of a lot of work and time, should be able to engage in an activity that repays the cost of your training. Gary Becker defines human capital as the set of productive capacities that an individual acquires by accumulating general or specific knowledge. Schultz says that people’s acquired skills and knowledge are a form of capital, and like other forms of capital, human capabilities provide economic services. The concept of human capital in organizations goes beyond the traditional concept of human resources, in which employees are considered a productive resource (Idalberto Chiavenato). We do not like the propositions “human capital” or “human resource”. But we agree that the worker arrives and puts all his assets, the set of skills, training, experience and knowledge that he possesses. If he is capital, let’s treat him as such.
CORPORATE AND FINANCIAL CAPITAL
The higher the risk, the higher the required return. The risk premium must be higher, if the risk warrants it. If we don’t know what the inflation rate will be in 2023, the nominality could start to include implicit risk.
Just as the objective of a financial manager is to increase the wealth of the shareholders, the objective of the trade union representative must be: to increase the performance of the employee’s service. As the man of finance and the businessman make investment and financing decisions, both in the company and in their personal lives, since the objective is to maximize the wealth of the shareholders, they add as much value as possible. And they are the rules of the system.
In order to articulate the worker – “human capital” – with capitalist thought, unions should do the same as companies and financial institutions. A bill of “advance salary” would be a magnificent investment and financing decision. Collect the assets between the 1st and 5th of each month, per month in advance. The financing of the first month could be financed by official and private banks, with a specific line of credit. Then the monthly salary dynamics would be automatically coupled.
The key capital issues—this includes human capital—have to do with capital budgeting, capital structure, and working capital. Thus, the worker should also be able to budget, get out of debt and decide his investment, according to the capital he has available, and not the salary he earns at the beginning of the month. Just as for capital there is a relationship between risk and return or profit rate, many workers find out that they are not going to collect their salary in a failed company, the day of the first default. Others reach retirement age and find that the company has not made the contributions.
The “roller coaster” risk in Argentina is expensive and the worker is the most vulnerable in the productive and service system. It happened many times in history that companies went bankrupt, without indications. – And your shareholders? – No. They took cover. We don’t know of any failed homeless shareholder.
When a financier is going to run a higher risk, he is going to demand a higher value premium, therefore, if the human capital receives its remuneration in advance, the risk decreases. And that’s good for everyone. For the employer there is no conflict, because one month of the worker’s salary is always retained within the company, even if he resigns-there is always the final settlement: the proportional part of the bonus, vacations and days worked. The cost of the change is only 30 days, for the only time, and financed with a specific line of credit; After its normalization, assemble.
SALARY FROM 1 TO 5 PER MONTH IN ADVANCE, EVERYONE WINS
Lower nominal inflation -due to the expectations effect- and this is good for the State, companies and wage earners. “Just as before we could assume that the public did not foresee the consequences of the future price level, now we have to consider the adjustments of inflation expectations”. Robert Mundell’s conclusion.
From the beginning, Massa announced that the BCRA It was not going to issue until the end of the year to finance the Treasury, with the intention of lowering inflation expectations, and that was fulfilled. There is no direct issuance to the treasury via advances and the inflation rate dropped to 4.9% in November. But citizens continue to examine different forms of defenses to protect themselves from inflation. After the world championship, the media and their ecolobists beat the patch again, transferring insecurity and evil omens. Given the high growth of the debt in pesos, the market demands ever higher interest rates. These rates would drop if the nominal salary falls, as a consequence of the “anticipated salary.”
Graduate Professor UBA and Masters in private universities. Master in International Economic Policy, Doctor in Political Science, author of 6 books. @PabloTigani
Source: Ambito
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