4 ms·

The people who claim that pay is based solely on supply and demand don't have a fully-developed conception of pay dynamics, historically or otherwise. Who you a

by bsanr2 7y ago

The people who claim that pay is based solely on supply and demand don't have a fully-developed conception of pay dynamics, historically or otherwise. Who you are - or rather, who is likely to be doing your job - absolutely helps determine pay rates. I have no doubt that the consternation regarding that "$70k for all employees" company extends to decision-makers, nor do I have trouble believing that the race/gender income gaps are not solely about job choice or negotiation skills or any of that. Whether its systemic or personal, there is definitely a decision being made as to how much this or that person "is worth."

WalterBright 7y ago
Sooner or later, it comes down to total employee costs vs what value the employee contributes becomes the opportunity cost of money, usually around 15%. https://en.wikipedia.org/wiki/Opportunity_cost https://en.wikipedia.org/wiki/Opportunity_cost Supply & demand forces will always be pushing things toward this value.
- sandoooo 7y ago
  why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.
  - WalterBright 7y ago
    > why 15%? Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him. The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.
    - sandoooo 7y ago
      Ah, I see what you're saying. This suggests a wide availability of alternative, reasonable-risk passive investments with 15% yield, which seems unusually high. What is this investment, usually? Stock buybacks?
      - WalterBright 7y ago
        Stocks, bonds, etc. Larger corporations often have a department tasked with managing such investments. If you were considering starting a business, would you consider a business with a projected ROI of 15% and you had to work 24/7 on it, compared with 10% ROI investing in the S&P 500 passively? I.e. don't look at what you'd make running the business. Look at what you'd make relative to passively investing the money instead. That's "opportunity cost".
- erikpukinskis 7y ago
  You're assuming there are no rackets, either explicit ones or implicit ones. Women's wages, for example, are very easily suppressed by a cultural racket that tells us the kinds of jobs they do (teacher, nurse, etc) are not very valuable. Whether that's true doesn't really matter because as long as people believe it, there is money to be made acting as if it's true. There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for. The moneymaking scenario is if you can make more money with fewer people by paying top dollar for the best people in an otherwise underpaid class. But that will typically just result in a bifurcation of the market, with some higher paid positions, and many lower paid positions, not a global rise in salaries. Then the best gamespeople will be drawn to those higher paying gigs, and they will push out the most talented professionals from those positions, erasing the desired productivity gain, and eventually causing the salaries to revert back to the mean. You really need a very strong leader to break the racket, someone who can create an organization that really cultivates good people maintaining control of their work. And a very good business model that would allow you to grow fast to displace your competitors. That kind of company is extremely unusual. It's just not something the market automatically creates. There are much easier kinds of companies to create that still make money, so that's where the bulk of investment goes. People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out.
  - WalterBright 7y ago
    > People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out. Poorly run businesses is why there is always opportunity for someone else to do better, and why there is a constant turnover of businesses. > There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for. Your scenario means that hiring nurses is a high margin business. High margin means businessmen will be attracted to get into those businesses. (After all, businessmen are in it to make money, not pursue a social agenda.) Lots of businessmen moving in will inevitably erode away those high margins. This is what always happens in a free market. Greed trumps racism, sexism, etc., every time. If it isn't happening, look for a legal/regulatory framework that prevents it. For example, the original impetus for medical doctor licensing was to drive black and jewish doctors out of business, because the free market had failed to do so. See "Competition and Monopoly in Health Care" by Frech.

by bsanr2 7y ago

WalterBright 7y ago

Sooner or later, it comes down to total employee costs vs what value the employee contributes becomes the opportunity cost of money, usually around 15%. https://en.wikipedia.org/wiki/Opportunity_cost https://en.wikipedia.org/wiki/Opportunity_cost Supply & demand forces will always be pushing things toward this value.

sandoooo 7y ago
why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.
- WalterBright 7y ago
  > why 15%? Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him. The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.
  - sandoooo 7y ago
    Ah, I see what you're saying. This suggests a wide availability of alternative, reasonable-risk passive investments with 15% yield, which seems unusually high. What is this investment, usually? Stock buybacks?
    - WalterBright 7y ago
      Stocks, bonds, etc. Larger corporations often have a department tasked with managing such investments. If you were considering starting a business, would you consider a business with a projected ROI of 15% and you had to work 24/7 on it, compared with 10% ROI investing in the S&P 500 passively? I.e. don't look at what you'd make running the business. Look at what you'd make relative to passively investing the money instead. That's "opportunity cost".
erikpukinskis 7y ago
You're assuming there are no rackets, either explicit ones or implicit ones. Women's wages, for example, are very easily suppressed by a cultural racket that tells us the kinds of jobs they do (teacher, nurse, etc) are not very valuable. Whether that's true doesn't really matter because as long as people believe it, there is money to be made acting as if it's true. There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for. The moneymaking scenario is if you can make more money with fewer people by paying top dollar for the best people in an otherwise underpaid class. But that will typically just result in a bifurcation of the market, with some higher paid positions, and many lower paid positions, not a global rise in salaries. Then the best gamespeople will be drawn to those higher paying gigs, and they will push out the most talented professionals from those positions, erasing the desired productivity gain, and eventually causing the salaries to revert back to the mean. You really need a very strong leader to break the racket, someone who can create an organization that really cultivates good people maintaining control of their work. And a very good business model that would allow you to grow fast to displace your competitors. That kind of company is extremely unusual. It's just not something the market automatically creates. There are much easier kinds of companies to create that still make money, so that's where the bulk of investment goes. People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out.
- WalterBright 7y ago
  > People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out. Poorly run businesses is why there is always opportunity for someone else to do better, and why there is a constant turnover of businesses. > There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for. Your scenario means that hiring nurses is a high margin business. High margin means businessmen will be attracted to get into those businesses. (After all, businessmen are in it to make money, not pursue a social agenda.) Lots of businessmen moving in will inevitably erode away those high margins. This is what always happens in a free market. Greed trumps racism, sexism, etc., every time. If it isn't happening, look for a legal/regulatory framework that prevents it. For example, the original impetus for medical doctor licensing was to drive black and jewish doctors out of business, because the free market had failed to do so. See "Competition and Monopoly in Health Care" by Frech.