4 ms·

Five times "why" tends to give us more answers. 1) Why is the labor supply so low? Workers are not interested in the relatively low salary for relatively bad w

Five times "why" tends to give us more answers. 1) Why is the labor supply so low? Workers are not interested in the relatively low salary for relatively bad working conditions. 2) Why do salaries not rise? Mid-term the hard cap for salary increases is the increase in worker productivity. 3) Why does worker productivity not rise? It does rise, but far less than inflation (about 1% p.a. for the last ten years). Mostly due to micro-optimizations of existing jobs. 4) Why can't we increase productivity significantly? It would require a shift in how we structure work, i.e. stop doing things that shouldn't be done in the first place instead of optimizing them. Existing jobs will barely change, new ones will. 5) Why is this process not faster? Because both institutions and people are unwilling to change behavior on a large scale. Institutions because they did not need to (before the great resignation) and worker mostly out of habit and complete lack of economic understanding, aka. salary must be earned in form of generating revenue, not in the form of passing time.

akagusu 5y ago
> 1) Why is the labor supply so low? Workers are not interested in the relatively low salary for relatively bad working conditions. It is not about what workers are interested or not. They just need to earn enough to live. > 2) Why do salaries not rise? Mid-term the hard cap for salary increases is the increase in worker productivity. Salaries are not proportional to productivity and you all know it. There are people out there doing the same job with the same output but one earns more than other just because companies want to pay more for one and less for other. > 3) Why does worker productivity not rise? It does rise, but far less than inflation (about 1% p.a. for the last ten years). Mostly due to micro-optimizations of existing jobs. There are lot's of research out there showing how much worker's productivity increased but salaries didn't increase proportionally.
- pengwing 5y ago
  1: It's the same from an econ perspective as long as people are interested in being alive. 2: I think "same job" is the misunderstanding here. It is about your contribution to the company's gross result. Being a lumber jack at a badly run company is the not the same as being a lumber jack at a great company with economics of scale and a large distribution network. 3: If you have data, please provide it. The official OECD number for GDP per hour worked (aka productivity) back my claim of about 1% p.a. ( https://data.oecd.org/lprdty/gdp-per-hour-worked.htm https://data.oecd.org/lprdty/gdp-per-hour-worked.htm )
  - rbanffy 5y ago
    > It's the same from an econ perspective as long as people are interested in being alive. A lot of people downsized during the pandemic. It turns out full time work has a cost and relaxing that has a huge benefit. Also, for a lot of us, there is remote work where we can work less time, have no commute, and live wherever the reduced income can afford a better living. I (living in Ireland) am seriously thinking about leaving Dublin (a high-cost region) and move to perhaps Galway or Mayo and just continue to work the same job.
DarylZero 5y ago
> 2) Why do salaries not rise? Mid-term the hard cap for salary increases is the increase in worker productivity. That's not true at all. Firms can take in monopoly profits and pay workers above their productivity indefinitely. There's no hard cap, just that workers are unlikely to be powerful enough to negotiate such an arrangement. (NBA players union is good example.) Shareholders are in a sense workers with 0 productivity, and yet they receive more payment than 0.
- pengwing 5y ago
  Thank you for that comment. It helped me understand that many people do have their own definition of productivity (getting X done per hour) which differs starkly from the economic definition of it (GDP per hour). Speaking in economic terms: Being a monopoly potentially increases worker productivity, because they can achieve more revenue per hour worked.
  - DarylZero 5y ago
    Why would you attribute monopoly rents to worker productivity? It doesn't make any sense from a causal perspective.
    - pengwing 5y ago
      It doesn't have to, that is probably the largest take-away and also most important aspect when it comes to career advice: Being a 10x engineer at a small, insignificant company without growth potential means that you hardly produce anything at all in economic terms. It's much better to be a 0.5x engineer at FAANG (economically speaking). Your productivity is dominated by the industry and market position of your employer. Don't optimize what shouldn't be done in the first place. Again: productivity = GDP/working hours. Due to more price control the monopoly can increase the numerator, while the denominator remains the same.
      - DarylZero 5y ago
        I mean why would you attribute the "GDP" to the worker if there's no causal connection? > Being a 10x engineer at a small, insignificant company without growth potential means that you hardly produce anything at all in economic terms. It's much better to be a 0.5x engineer at FAANG (economically speaking). That's not the kind of scenario I'm talking about. You're talking about an actual difference in what the worker produces. Not what I mean. Suppose the worker produces a widget while working for a monopolist who controls the distribution channel. Then the worker's productivity is the price P the customer pays for the widget. Now suppose the worker's firm is distinct from the monopolist firm. The worker's firm sells to the monopolist at a lower price, P - X, the monopolist marks it up to P. The worker's causal productivity hasn't changed, the only difference is which people capture the value. If the people capturing monopoly rents are in the same firm as the worker, then the worker's "GDP" is higher. If they're in a different firm, the worker's "GDP" is lower.
trixie_ 5y ago
As if workers were not interested in working for a low salary before the pandemic. This line of reasoning blows my mind.
polishdude20 5y ago
Productivity gains quickly get eaten up by increases in rent. That's why productivity doesn't always add an increase to wages. The business owners must pay rent.
- pengwing 5y ago
  Rent is commonly very low on the list of issues a business owner faces. This may apply to mom-and-pop shops who feel two simultaneous effects: lack of demand and gentrification. Do you have a specific business in mind that is very rent-dependent?

akagusu 5y ago

> 1) Why is the labor supply so low? Workers are not interested in the relatively low salary for relatively bad working conditions. It is not about what workers are interested or not. They just need to earn enough to live. > 2) Why do salaries not rise? Mid-term the hard cap for salary increases is the increase in worker productivity. Salaries are not proportional to productivity and you all know it. There are people out there doing the same job with the same output but one earns more than other just because companies want to pay more for one and less for other. > 3) Why does worker productivity not rise? It does rise, but far less than inflation (about 1% p.a. for the last ten years). Mostly due to micro-optimizations of existing jobs. There are lot's of research out there showing how much worker's productivity increased but salaries didn't increase proportionally.

pengwing 5y ago
1: It's the same from an econ perspective as long as people are interested in being alive. 2: I think "same job" is the misunderstanding here. It is about your contribution to the company's gross result. Being a lumber jack at a badly run company is the not the same as being a lumber jack at a great company with economics of scale and a large distribution network. 3: If you have data, please provide it. The official OECD number for GDP per hour worked (aka productivity) back my claim of about 1% p.a. ( https://data.oecd.org/lprdty/gdp-per-hour-worked.htm https://data.oecd.org/lprdty/gdp-per-hour-worked.htm )
- rbanffy 5y ago
  > It's the same from an econ perspective as long as people are interested in being alive. A lot of people downsized during the pandemic. It turns out full time work has a cost and relaxing that has a huge benefit. Also, for a lot of us, there is remote work where we can work less time, have no commute, and live wherever the reduced income can afford a better living. I (living in Ireland) am seriously thinking about leaving Dublin (a high-cost region) and move to perhaps Galway or Mayo and just continue to work the same job.

DarylZero 5y ago

> 2) Why do salaries not rise? Mid-term the hard cap for salary increases is the increase in worker productivity. That's not true at all. Firms can take in monopoly profits and pay workers above their productivity indefinitely. There's no hard cap, just that workers are unlikely to be powerful enough to negotiate such an arrangement. (NBA players union is good example.) Shareholders are in a sense workers with 0 productivity, and yet they receive more payment than 0.

pengwing 5y ago
Thank you for that comment. It helped me understand that many people do have their own definition of productivity (getting X done per hour) which differs starkly from the economic definition of it (GDP per hour). Speaking in economic terms: Being a monopoly potentially increases worker productivity, because they can achieve more revenue per hour worked.
- DarylZero 5y ago
  Why would you attribute monopoly rents to worker productivity? It doesn't make any sense from a causal perspective.
  - pengwing 5y ago
    It doesn't have to, that is probably the largest take-away and also most important aspect when it comes to career advice: Being a 10x engineer at a small, insignificant company without growth potential means that you hardly produce anything at all in economic terms. It's much better to be a 0.5x engineer at FAANG (economically speaking). Your productivity is dominated by the industry and market position of your employer. Don't optimize what shouldn't be done in the first place. Again: productivity = GDP/working hours. Due to more price control the monopoly can increase the numerator, while the denominator remains the same.
    - DarylZero 5y ago
      I mean why would you attribute the "GDP" to the worker if there's no causal connection? > Being a 10x engineer at a small, insignificant company without growth potential means that you hardly produce anything at all in economic terms. It's much better to be a 0.5x engineer at FAANG (economically speaking). That's not the kind of scenario I'm talking about. You're talking about an actual difference in what the worker produces. Not what I mean. Suppose the worker produces a widget while working for a monopolist who controls the distribution channel. Then the worker's productivity is the price P the customer pays for the widget. Now suppose the worker's firm is distinct from the monopolist firm. The worker's firm sells to the monopolist at a lower price, P - X, the monopolist marks it up to P. The worker's causal productivity hasn't changed, the only difference is which people capture the value. If the people capturing monopoly rents are in the same firm as the worker, then the worker's "GDP" is higher. If they're in a different firm, the worker's "GDP" is lower.

trixie_ 5y ago

As if workers were not interested in working for a low salary before the pandemic. This line of reasoning blows my mind.

polishdude20 5y ago

Productivity gains quickly get eaten up by increases in rent. That's why productivity doesn't always add an increase to wages. The business owners must pay rent.

pengwing 5y ago
Rent is commonly very low on the list of issues a business owner faces. This may apply to mom-and-pop shops who feel two simultaneous effects: lack of demand and gentrification. Do you have a specific business in mind that is very rent-dependent?