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It seems the greater question is, "What is the employer paying for?" Economic theory suggests an employer pays for value created. After all, if an employee is

It seems the greater question is, "What is the employer paying for?" Economic theory suggests an employer pays for value created. After all, if an employee is generating less economic value than they're consuming, it makes sense to fire that person. But that's only true in a fantasy world where you can perfectly measure and compensate that kind of performance, like performing physics equations without air resistance or friction. The reality is that calculating "value created" is extraordinarily difficult, so we tend to use "hours-of-butt-in-seat" because it's the closest proxy.

jerrylives 9y ago
Closest, or easiest?
- austenallred 9y ago
  Fair point; it's likely some combination of the two. Unsurprisingly we tend to measure by things that are easy to measure. There are examples of roles where outcomes are easier to measure, and those roles generally tend to be more directly connected to compensation. As PG put it in http://paulgraham.com/wealth.html http://paulgraham.com/wealth.html: > To get rich you need to get yourself in a situation with two things, measurement and leverage. You need to be in a position where your performance can be measured, or there is no way to get paid more by doing more. And you have to have leverage, in the sense that the decisions you make have a big effect. > Measurement alone is not enough. An example of a job with measurement but not leverage is doing piecework in a sweatshop. Your performance is measured and you get paid accordingly, but you have no scope for decisions. The only decision you get to make is how fast you work, and that can probably only increase your earnings by a factor of two or three.
ue_ 9y ago
>The reality is calculating "value created" is extraordinarily difficult, so we use "hours-of-butt-in-seat" because it's the closest proxy. Some would disagree on this, the Marxian school posits that the employer really is paying for "hours-of-butt-in-seat", technically, labour-time (note, this is not the same as labour, or the value created by the labour). As such, value of the products doesn't come into it at all, but rather only the minimum value required to keep the worker. What is this value equal to? The amount required to sustain the worker - i.e to cater to his survival, to ensure the continued flow of labour (viz. supporting the worker's family), to keep the employee coming to his job, and most importantly the reproduction of his labour-time commodity.
- austenallred 9y ago
  > As such, value of the products doesn't come into it at all, but rather only the minimum value required to keep the worker. What is this value equal to? The amount required to sustain the worker... Partially. The employee is paid the minimum amount that the employer can pay, but (again in this fantasy no-air-resistance world) if an employee can produce x units of value for either employer a or employer b, they'll go with whichever will pay more, and both employer a and employer b profit while paying up to x-1 units of value in wages. And thus, over long periods of time and disregarding practical realities, compensation approaches the point at which compensation = value created, despite employers attempting to pay the minimum possible.
  - ue_ 9y ago
    How would that work in the case where the employers have the majority of the bargaining power? What motivation is there to keep pushing up the wage? It would seem to work if the employer is choosing only one potential candidate, but in reality employers have an almost constant supply of people who are able and willing to work for almost whatever the employer is asking for. Almost never will two employers go head to head to bid over a candidate. This is precisely why labour unions exist, because the employer owns the means of production and the employee does not.
    - austenallred 9y ago
      In theory there is never an infinite supply of employees, and at a certain point you run out of people that will work for $x. In practice that's not a question that can be answered in one comment, and right now it depends on who you ask. In my mental model of the world that's where the perfect simulation starts to break down and run into real world constraints.
      - WaxProlix 9y ago
        I mean - if we're talking zero-friction circular cows, then if the unemployment rate is over 0%, there are more employees. The unemployment rate is always well above zero.
spynxic 9y ago
> It seems the greater question is, "What is the employer paying for?" This agreement is typically unspoken upon initial employment, leaving many employees at a position to take a loss during the production of assets outside of the initial workload. The most an employee can wish for in this position is merit.
ethbro 9y ago
> It seems the greater question is, "What is the employer paying for?" I would argue that in the US, at least in the CS/IT industry, the answer to this has been perverted into "all work you can be coerced into producing." Viz lack of overtime, non-competes, right to all work product, non-set-hours, etc It's almost like capital owners subconsciously realized that technology was likely to be the last place where skilled workers had leverage... and acted to tilt the rewards in their favor as much as possible...
- mathperson 9y ago
  non-competes aren't universal in the US at least. that said I am moving to a place where non competes DO exist (moving for grad school) and so I would much appreciate any advice and/or horror stories regarding how to manage them.
  - ethbro 9y ago
    Imho, if you are asked to sign one then push back against it as hard as you can. If you end up having to sign it, my problem is the power they give the employer, and the leverage that affords them to do frankly illegal things. F.ex. my employer knows I'm covered by a non-compete. My employer also knows I'm being considered for a position at another firm. My employer calls the other firm and "reminds" them that its employees all sign non-compete agreements... F.ex. I'm asking for a raise. My company knows I'm in dire financial straits and couldn't afford a year without income. The non-compete is broad enough to cover any employment in the field I'd have. They of course turn down my request because why would they worry about my leaving? The chilling effect is that these same results can happen even if your company isn't enough of a dick to legally pursue its non-compete. The mere threat of enforcement has therefore changed your behavior. In another thread on the topic, I suggested getting a copy of the non-compete (or that one will not be used) as early in the hiring process as possible. If there is one, and you find the terms unreasonable (which to me is anything beyond "I promise not to work for a direct competitor on the same thing for 6 months"), I suggested putting a dollar amount over the presumably then negotiated salary. E.g. "I think this non-compete is overly restrictive. Here are the things I would like changed. If this is important to you to be signed as-is, then I'll need salary x + y% instead of x."
taneq 9y ago
I do freelance development and I've found myself working in a loose collective of similar freelancers and small businesses. If one of us needs something from the others, it's done on a price-per-result basis rather than hours. This is working well for me, because it means I can quote based not only on my cost to supply, but also on the value I'm creating, and I can spend whatever time I feel is required to then create that value. I've also come to the conclusion that (for me, at least) being paid per hour is hugely detrimental to my performance and my enjoyment of my work.

jerrylives 9y ago

Closest, or easiest?

austenallred 9y ago
Fair point; it's likely some combination of the two. Unsurprisingly we tend to measure by things that are easy to measure. There are examples of roles where outcomes are easier to measure, and those roles generally tend to be more directly connected to compensation. As PG put it in http://paulgraham.com/wealth.html http://paulgraham.com/wealth.html: > To get rich you need to get yourself in a situation with two things, measurement and leverage. You need to be in a position where your performance can be measured, or there is no way to get paid more by doing more. And you have to have leverage, in the sense that the decisions you make have a big effect. > Measurement alone is not enough. An example of a job with measurement but not leverage is doing piecework in a sweatshop. Your performance is measured and you get paid accordingly, but you have no scope for decisions. The only decision you get to make is how fast you work, and that can probably only increase your earnings by a factor of two or three.

ue_ 9y ago

>The reality is calculating "value created" is extraordinarily difficult, so we use "hours-of-butt-in-seat" because it's the closest proxy. Some would disagree on this, the Marxian school posits that the employer really is paying for "hours-of-butt-in-seat", technically, labour-time (note, this is not the same as labour, or the value created by the labour). As such, value of the products doesn't come into it at all, but rather only the minimum value required to keep the worker. What is this value equal to? The amount required to sustain the worker - i.e to cater to his survival, to ensure the continued flow of labour (viz. supporting the worker's family), to keep the employee coming to his job, and most importantly the reproduction of his labour-time commodity.

austenallred 9y ago
> As such, value of the products doesn't come into it at all, but rather only the minimum value required to keep the worker. What is this value equal to? The amount required to sustain the worker... Partially. The employee is paid the minimum amount that the employer can pay, but (again in this fantasy no-air-resistance world) if an employee can produce x units of value for either employer a or employer b, they'll go with whichever will pay more, and both employer a and employer b profit while paying up to x-1 units of value in wages. And thus, over long periods of time and disregarding practical realities, compensation approaches the point at which compensation = value created, despite employers attempting to pay the minimum possible.
- ue_ 9y ago
  How would that work in the case where the employers have the majority of the bargaining power? What motivation is there to keep pushing up the wage? It would seem to work if the employer is choosing only one potential candidate, but in reality employers have an almost constant supply of people who are able and willing to work for almost whatever the employer is asking for. Almost never will two employers go head to head to bid over a candidate. This is precisely why labour unions exist, because the employer owns the means of production and the employee does not.
  - austenallred 9y ago
    In theory there is never an infinite supply of employees, and at a certain point you run out of people that will work for $x. In practice that's not a question that can be answered in one comment, and right now it depends on who you ask. In my mental model of the world that's where the perfect simulation starts to break down and run into real world constraints.
    - WaxProlix 9y ago
      I mean - if we're talking zero-friction circular cows, then if the unemployment rate is over 0%, there are more employees. The unemployment rate is always well above zero.

spynxic 9y ago

> It seems the greater question is, "What is the employer paying for?" This agreement is typically unspoken upon initial employment, leaving many employees at a position to take a loss during the production of assets outside of the initial workload. The most an employee can wish for in this position is merit.

ethbro 9y ago

> It seems the greater question is, "What is the employer paying for?" I would argue that in the US, at least in the CS/IT industry, the answer to this has been perverted into "all work you can be coerced into producing." Viz lack of overtime, non-competes, right to all work product, non-set-hours, etc It's almost like capital owners subconsciously realized that technology was likely to be the last place where skilled workers had leverage... and acted to tilt the rewards in their favor as much as possible...

mathperson 9y ago
non-competes aren't universal in the US at least. that said I am moving to a place where non competes DO exist (moving for grad school) and so I would much appreciate any advice and/or horror stories regarding how to manage them.
- ethbro 9y ago
  Imho, if you are asked to sign one then push back against it as hard as you can. If you end up having to sign it, my problem is the power they give the employer, and the leverage that affords them to do frankly illegal things. F.ex. my employer knows I'm covered by a non-compete. My employer also knows I'm being considered for a position at another firm. My employer calls the other firm and "reminds" them that its employees all sign non-compete agreements... F.ex. I'm asking for a raise. My company knows I'm in dire financial straits and couldn't afford a year without income. The non-compete is broad enough to cover any employment in the field I'd have. They of course turn down my request because why would they worry about my leaving? The chilling effect is that these same results can happen even if your company isn't enough of a dick to legally pursue its non-compete. The mere threat of enforcement has therefore changed your behavior. In another thread on the topic, I suggested getting a copy of the non-compete (or that one will not be used) as early in the hiring process as possible. If there is one, and you find the terms unreasonable (which to me is anything beyond "I promise not to work for a direct competitor on the same thing for 6 months"), I suggested putting a dollar amount over the presumably then negotiated salary. E.g. "I think this non-compete is overly restrictive. Here are the things I would like changed. If this is important to you to be signed as-is, then I'll need salary x + y% instead of x."

taneq 9y ago

I do freelance development and I've found myself working in a loose collective of similar freelancers and small businesses. If one of us needs something from the others, it's done on a price-per-result basis rather than hours. This is working well for me, because it means I can quote based not only on my cost to supply, but also on the value I'm creating, and I can spend whatever time I feel is required to then create that value. I've also come to the conclusion that (for me, at least) being paid per hour is hugely detrimental to my performance and my enjoyment of my work.