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The parent was comparing the value a worker brings to the company against the worker's compensation. To illustrate how the worth of a transaction can be differe

by chc 6y ago

The parent was comparing the value a worker brings to the company against the worker's compensation. To illustrate how the worth of a transaction can be different from the cost: If I offer to give you a $50 bill in exchange for a $5 bill, is that bill not worth $50 just because I lost on the deal?

gwright 6y ago
I would certainly value that piece of paper at $50 but apparently you value it at something less than $5 because you are willing to accept $5 for it. I haven't a clue as to why you would value it at less than $5, perhaps you get some entertainment value in giving away money? This doesn't seem like a particularly helpful illustration.
- chc 6y ago
  You arrived at the conclusion that something can be worth more than you paid for it, which is the point I was trying to illustrate (because the person I was replying to assumed that the lowest price you can pay = worth). So it seems like the illustration did its job to me.
lukevdp 6y ago
Yes but it is wrong to do so because wages are not set only by the worth a worker is to a company. That is only one side of the equation (demand). The labour market also have a supply side component which is the ability for the company to find labour.
- danenania 6y ago
  You seem to be refuting a claim that no one made. We aren't only talking about wages, but the amount of value the worker contributes to the company. The latter is typically significantly higher than the former. In a profitable company, this is true by definition (at least on average across all the company's employees). Another way to look at it is: what is the maximum a company could conceivably pay for a particular role, even if that amount was way above the market rate? That number would presumably be a bit below the value that role is expected to contribute.
curryst 6y ago
Both the value of the worker and this situation both ignore the supply side. A $5 bill is worth $50, assuming there is a supply of people willing to pay $50. Likewise, a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour. If they're working for $5/hour, there's a good chance the supply of people willing to pay them $50/hour is slim to none. I would argue at that point that they are actually worth $5/hour, and $50/hour is a fiction like saying my shares of Hertz are worth $10,000 a piece.
- CarbyAu 6y ago
  I think there is a miscommunication in "worth" between some of the posts here. Definition 1. - your version "a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour." Definition 2. "a worker is "worth" $50/hour if they add $50/hour value for the business." (who then goes on to pay the worker as little as possible, maybe only $5/hr) Not sure which definition is "correct".
  - lukevdp 6y ago
    When you’re talking about wage prices, definition 1 is the relevant definition. Definition 1 includes both supply and demand. You have a worker willing to work for $50/hr and someone willing to pay them $50/hr. Definition 2 is only taking into account demand. You have a supplier who has set their price, but no buyers at that level.

by chc 6y ago

gwright 6y ago

I would certainly value that piece of paper at $50 but apparently you value it at something less than $5 because you are willing to accept $5 for it. I haven't a clue as to why you would value it at less than $5, perhaps you get some entertainment value in giving away money? This doesn't seem like a particularly helpful illustration.

chc 6y ago
You arrived at the conclusion that something can be worth more than you paid for it, which is the point I was trying to illustrate (because the person I was replying to assumed that the lowest price you can pay = worth). So it seems like the illustration did its job to me.

lukevdp 6y ago

Yes but it is wrong to do so because wages are not set only by the worth a worker is to a company. That is only one side of the equation (demand). The labour market also have a supply side component which is the ability for the company to find labour.

danenania 6y ago
You seem to be refuting a claim that no one made. We aren't only talking about wages, but the amount of value the worker contributes to the company. The latter is typically significantly higher than the former. In a profitable company, this is true by definition (at least on average across all the company's employees). Another way to look at it is: what is the maximum a company could conceivably pay for a particular role, even if that amount was way above the market rate? That number would presumably be a bit below the value that role is expected to contribute.

curryst 6y ago

Both the value of the worker and this situation both ignore the supply side. A $5 bill is worth $50, assuming there is a supply of people willing to pay $50. Likewise, a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour. If they're working for $5/hour, there's a good chance the supply of people willing to pay them $50/hour is slim to none. I would argue at that point that they are actually worth $5/hour, and $50/hour is a fiction like saying my shares of Hertz are worth $10,000 a piece.

CarbyAu 6y ago
I think there is a miscommunication in "worth" between some of the posts here. Definition 1. - your version "a worker is only "worth" $50/hour if there is a supply of people willing to pay them $50/hour." Definition 2. "a worker is "worth" $50/hour if they add $50/hour value for the business." (who then goes on to pay the worker as little as possible, maybe only $5/hr) Not sure which definition is "correct".
- lukevdp 6y ago
  When you’re talking about wage prices, definition 1 is the relevant definition. Definition 1 includes both supply and demand. You have a worker willing to work for $50/hr and someone willing to pay them $50/hr. Definition 2 is only taking into account demand. You have a supplier who has set their price, but no buyers at that level.