Employees of Hollywood production companies recently staged a strike. Initially it was just writers and supports personnel, but then the actors joined in. The main gripe is that producers are making huge profits while most of the workers receive, what they believe to be, small salaries. The workers say that the producers are making hundreds of millions of dollars from their labor, and they want their fair share.

The employees see that the industry is changing. Fewer Americans go to the movies, while more are watching streaming services. The streaming services tend to have longer lives and usually bring more revenue to the producers. The workers want a share of this revenue, especially since streaming seems to be the future.

The basic question is: Are employees entitled to a share of the profit?

From the workers’ standpoint, they believe they are entitled to a share of the profit, especially when the profit is very large. The producers can very handsomely pay the executives and give generous dividends to stockholders. After that, there are often sufficient profits to give the employees more.

After all, they argue, the profits were made because of the employees’ efforts. They wrote and produced the script. The camera people and support staff made the film, and the actors gave performances that attracted, in many cases, large audiences either in the movies or through the streaming services. Without them, there would be no content.

The producers say that the workers are paid market wages. The more talented writers who have a history of successful work, are generally paid more. The production crew is also paid according to their value when making the movies. The top actors are paid according to how the producers perceive the audience’s reaction.

Some actors are well known and have a proven track record of success. These actors are paid much more because the producers believe they will attract a large revenue-generating audience.  The lesser-known actors are paid for the work that they do but are not likely to draw large audiences, so they are paid less.

Like any business enterprise, the owners invest their capital and then hire management to supervise the project. Generally, management’s salaries are based on how likely they are to produce high-revenue-generating movies.

Management then hires all of the labor needed. Its job is to hire the best possible people and pay them the going market wage. The producers are taking all the risk. They sometimes invest hundreds of millions of dollars, hoping that they hire the writers, support staff and actors who can generate enough revenue to cover the costs and provide a profit.

Sometimes the content produces losses. Sometimes the content produces profit. Sometimes the content produces very large profit. Still, the producers take the risk, while the employees are paid regardless of the outcome.

Many top employees are able to negotiate residual income, meaning that their contribution was so important to the success of the venture, they can earn additional money if the venture is extremely successful. These are the top employees who can demand this type of contract.

The vast majority of employees cannot negotiate residual income, mostly because each employee can be fairly easily replaced, allowing the producers to just pay a market wage.

And that’s essentially what this strike is all about. Except for key employees, usually part of the management team, each worker is fairly compensated for their labor. The producers feel that is all they are entitled to. They are not entitled to a share of the profit.

Indeed, if the production ended up losing money, the employees would not want a reduction in their pay.

This argument about employees sharing profit has been ongoing for many years. Back in the 1960s, automobile workers saw the huge profits car companies were making “on the backs of their labor” and they staged strikes to receive a portion of the profit. In some instances, they were successful.

In our economy, workers are paid based on the perceived value of their output when the work is done. Owners provide the capital to make sure all workers are paid before any revenue is generated. 

Since the owners take the risk and the employees are paid for their labor regardless of profit generation, shouldn’t a market wage be sufficient for labor?
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Michael Busler is a public policy analyst and a professor of finance at Stockton University in Galloway, New Jersey, where he teaches undergraduate and graduate courses in finance and economics. He has written op-ed columns in major newspapers for more than 35 years.