5 ms·

It is in no companies fiscal interest to pay their employees more. In the short-run, yes. In the long run, perhaps not. From retention to training to quality

It is in no companies fiscal interest to pay their employees more. In the short-run, yes. In the long run, perhaps not. From retention to training to quality issues, it can make sense to pay more. Universal basic income is a bandaid on the fact that the short-term, market-driven focus of capitalism under-values people and seems to be creating a winner take all game that will eventually end the game itself, if balance isn't restored. I'm not opposed to UBI – it may well be the best option at this point, but I'd also like to figure out how to incentivize the system to look at long-term consequences as well. (Though, I recognize I'm far from the first down this line of thought).

pessimizer 11y ago
> From retention to training to quality issues, it can make sense to pay more. Depends on how consolidated the industry has been, and whether the firms that are left can collude or silently set norms to put ceilings on pay and quality.
TDL 11y ago
Capitalism isn't inherently short-term oriented. This has more to do with the incentives in & the regulatory framework of the system (consider requirements for quarterly reporting & the whole expectations game that has risen from that requirement.)
- incongruity 11y ago
  Capitalism isn't inherently short-term oriented. No, but people do tend to be. We seem to be wired to value near-term gains much more strongly than long-term gains -- http://www.behavioraleconomics.com/mini-encyclopedia-of-be/time-temporal-discounting/ http://www.behavioraleconomics.com/mini-encyclopedia-of-be/t... This then drives us to create the systems that focus on near-term rewards – like the quarterly reporting and equities that can be traded at a moment's notice, etc. etc.
- eldavido 11y ago
  I see a lot of parallels with the political system. If you let the masses take charge, you're going to a get a more wild, dynamic, unpredictable outcome. In the stock market this new "democracy" manifests as extremely short hold times, in the political arena, as fringe candidates that party elites would never have let win the primaries, had they been in charge. I, for one, hold stocks for a long time, and hope companies do optimize for the long term, but I realize I may be in the minority.
madaxe_again 11y ago
Companies tend to not think in the long term - they are encouraged by investors, lenders and the market to think in very short planning horizons. A recent experience when trying to get a personal mortgage as a company director underscored this: "Your profits are down! Your business must be failing!!" "No, we opted to re-invest some of the substantial amount of cash we're sitting on, and therefore took a hit to profitability this year so as to be more profitable in the future." "So your business is failing?" Consider this at a grand scale and you understand the incentives within which corporations operate. Everything is about the quarterly earnings report.
- JoeAltmaier 11y ago
  Worse. Its about management bonuses. "Should we compensate floor mechanics better in our factory? How would that affect my bonus this quarter? It would be smaller? Then hell no." That's all it takes to explain myopic businesses. And so much of our manufacturing sector are motivated in just this way.
  - pc86 11y ago
    Self-interest is not necessarily myopia. The problem in your example is that payroll somehow affects a manager's bonus which is asinine (not saying it's not common).
    - JoeAltmaier 11y ago
      Profit includes everything, affects everything. And that's the common (universal?) stockholder-value metric.
- eldavido 11y ago
  This isn't as crazy as it sounds. Look at a typical main street business: retailer, car dealership, restaurant, etc. There is no "R&D". Profits scale linearly with revenue; it's not so crazy to jump from "profit is down" to "business is failing". In fact, the very definition of a "high-technology company" is one that reinvests a large amount of revenue into development. The exact threshold varies, but 20-30% and most people agree you're into "high tech" land. For comparison, consumer product goods companies like P&G spend some 10% of their revenue on marketing/advertising. http://adage.com/article/special-report-pg-at-175/procter-gamble-s-advertising-spending-1987-2012/237974/ http://adage.com/article/special-report-pg-at-175/procter-ga... The real issue is that "Business" doesn't yet understand the economics of software companies. They have no tangible assets, their cash cycles are vastly different from most other companies, and they grow in discontinuous, sharp, nonlinear ways. You'll see this bias all over the economy if you look. "Silicon Valley companies are overhyped, THEY HAVE NO PROFITS" "That company is failing, it's going under" Amazon is the grand counterexample, look at how much of a head-scratcher that company is to Wall Street to get an idea of how puzzling this is to Joe Business Guy.
randyrand 11y ago
> They want you to work for as little as you agree to This implies retention. It also implies a certain level of quality or the agreement fails. So your long run argument falls flat. Yes, you can pay more to get more quality. This is not at odds with wanting you to work for as little as you will agree to.
zanny 11y ago
If you want more long term business thinking you want more private companies. Once you go public, personal ambition goes out the window - all that matters is the share price and quarterly growth forecasts, because then the people that own and run the company are no longer passionate innovators, but the investors, who are only looking to make money. We talk about how the tech industry has a problem with employer / employee loyalty where you should expect to work for a half dozen companies by 35, but even moreso investors have zero loyalty whatsoever, and will jump at the first sign of declining growth. So entrepreneurship is only half the battle - we also need to incentivize more Dells that either revert from public to private or just get more new business startups that aren't looking to just cash out and sink the business.

pessimizer 11y ago

> From retention to training to quality issues, it can make sense to pay more. Depends on how consolidated the industry has been, and whether the firms that are left can collude or silently set norms to put ceilings on pay and quality.

TDL 11y ago

Capitalism isn't inherently short-term oriented. This has more to do with the incentives in & the regulatory framework of the system (consider requirements for quarterly reporting & the whole expectations game that has risen from that requirement.)

incongruity 11y ago
Capitalism isn't inherently short-term oriented. No, but people do tend to be. We seem to be wired to value near-term gains much more strongly than long-term gains -- http://www.behavioraleconomics.com/mini-encyclopedia-of-be/time-temporal-discounting/ http://www.behavioraleconomics.com/mini-encyclopedia-of-be/t... This then drives us to create the systems that focus on near-term rewards – like the quarterly reporting and equities that can be traded at a moment's notice, etc. etc.
eldavido 11y ago
I see a lot of parallels with the political system. If you let the masses take charge, you're going to a get a more wild, dynamic, unpredictable outcome. In the stock market this new "democracy" manifests as extremely short hold times, in the political arena, as fringe candidates that party elites would never have let win the primaries, had they been in charge. I, for one, hold stocks for a long time, and hope companies do optimize for the long term, but I realize I may be in the minority.

madaxe_again 11y ago

Companies tend to not think in the long term - they are encouraged by investors, lenders and the market to think in very short planning horizons. A recent experience when trying to get a personal mortgage as a company director underscored this: "Your profits are down! Your business must be failing!!" "No, we opted to re-invest some of the substantial amount of cash we're sitting on, and therefore took a hit to profitability this year so as to be more profitable in the future." "So your business is failing?" Consider this at a grand scale and you understand the incentives within which corporations operate. Everything is about the quarterly earnings report.

JoeAltmaier 11y ago
Worse. Its about management bonuses. "Should we compensate floor mechanics better in our factory? How would that affect my bonus this quarter? It would be smaller? Then hell no." That's all it takes to explain myopic businesses. And so much of our manufacturing sector are motivated in just this way.
- pc86 11y ago
  Self-interest is not necessarily myopia. The problem in your example is that payroll somehow affects a manager's bonus which is asinine (not saying it's not common).
  - JoeAltmaier 11y ago
    Profit includes everything, affects everything. And that's the common (universal?) stockholder-value metric.
eldavido 11y ago
This isn't as crazy as it sounds. Look at a typical main street business: retailer, car dealership, restaurant, etc. There is no "R&D". Profits scale linearly with revenue; it's not so crazy to jump from "profit is down" to "business is failing". In fact, the very definition of a "high-technology company" is one that reinvests a large amount of revenue into development. The exact threshold varies, but 20-30% and most people agree you're into "high tech" land. For comparison, consumer product goods companies like P&G spend some 10% of their revenue on marketing/advertising. http://adage.com/article/special-report-pg-at-175/procter-gamble-s-advertising-spending-1987-2012/237974/ http://adage.com/article/special-report-pg-at-175/procter-ga... The real issue is that "Business" doesn't yet understand the economics of software companies. They have no tangible assets, their cash cycles are vastly different from most other companies, and they grow in discontinuous, sharp, nonlinear ways. You'll see this bias all over the economy if you look. "Silicon Valley companies are overhyped, THEY HAVE NO PROFITS" "That company is failing, it's going under" Amazon is the grand counterexample, look at how much of a head-scratcher that company is to Wall Street to get an idea of how puzzling this is to Joe Business Guy.

randyrand 11y ago

> They want you to work for as little as you agree to This implies retention. It also implies a certain level of quality or the agreement fails. So your long run argument falls flat. Yes, you can pay more to get more quality. This is not at odds with wanting you to work for as little as you will agree to.

zanny 11y ago

If you want more long term business thinking you want more private companies. Once you go public, personal ambition goes out the window - all that matters is the share price and quarterly growth forecasts, because then the people that own and run the company are no longer passionate innovators, but the investors, who are only looking to make money. We talk about how the tech industry has a problem with employer / employee loyalty where you should expect to work for a half dozen companies by 35, but even moreso investors have zero loyalty whatsoever, and will jump at the first sign of declining growth. So entrepreneurship is only half the battle - we also need to incentivize more Dells that either revert from public to private or just get more new business startups that aren't looking to just cash out and sink the business.