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"Buyers are willing to pay for labour at the clearing price based on their assessment of cost-vs-benefit." If you're competing against firms like Google or sta

"Buyers are willing to pay for labour at the clearing price based on their assessment of cost-vs-benefit." If you're competing against firms like Google or startups that just raised unicorn funding, and these days everyone is, then the people bidding in the market or labor are not doing cost benefit analysis. They just need to hire. They have the money, they need to hire and they're going to do it no matter what the price ends up being because that's just what they do. Whether the hires actually generate more value than they're costing is only rarely assessed because the money won't dry up anytime soon. Additionally, market rates are an abstraction. Consider a simplified example where you have 3 people who need to buy a chicken. They're all starving so they need the chicken or else they die. First person bids $1. Second person says, I'll pay $2. Third person says no wait, wait, I'll pay $3. First person says, I'll bid $4. This loop ends when only one of the people can still pay and everyone else starves. It does not end when the price has reached some a-priori knowable "market rate" that you could go out and measure ahead of time. To the people actually in the market, they have limited information and don't know what the bidding limit is for the other players, and thus to them it can appear that regardless of what price they bid, they are always beaten by 20%. In a properly functioning liquid market in which nobody has access to printed money, this cycle is supposed to reach an equilibrium fairly quickly with supply catching up to counterbalance demand. In the actual software market there's been a fairly direct flow from quantitative easing and crypto directly into employers, as well as the yearly 20% revenue bump Google always seems to achieve, so some participants have effectively "unlimited" money. It doesn't make sense to talk about a clearing price in that situation. From the perspective of any normal business that gets money from customers, they will always lose.

BaseballPhysics 5y ago
> If you're competing against firms like Google or startups that just raised unicorn funding, and these days everyone is, then the people bidding in the market or labor are not doing cost benefit analysis. They just need to hire. That is a cost-benefit analysis. They've received funding, they have a business model, now they need labour. It seems to me your real gripe is that there's a large amount of investment flowing into Silicon Valley and you don't believe that should be happening. > This loop ends when only one of the people can still pay and everyone else starves. That's right. And that means, in the valley in particular, some companies will never get off the ground because they can't afford the price for labour. The solution is simple: hire in a different labour market. > To the people actually in the market, they have limited information and don't know what the bidding limit is for the other players, and thus to them it can appear that regardless of what price they bid, they are always beaten by 20%. Sure, that's called incomplete information, and it's a feature of virtually all markets, minus open and instantly traded markets like stock exchanges. I'm not sure what point you're trying to make, here, other than to complain about a general feature of capitalism that (in a refreshing change of pace) happens to be working in favour of labour. > In a properly functioning liquid market in which nobody has access to printed money And now we get to the political axe you're grinding. Look, the SV labour market has been explosively expensive for 20-30 years. This isn't a new phenomenon by any stretch, and it certainly pre-dates the 2008 financial crisis and the low interest rate environment that followed. There's a reason outsourcing became so popular throughout the early 2000s. The problem is that tech companies failed to expand their labour pool beyond a few tight markets, either by opening offices in other locations or supporting remote workers. That's their choice, but don't complain when labour prices go up as a consequence.
- native_samples 5y ago
  My point is that you're over-simplifying. You've given two "simple" solutions neither of which are actually responses to the post you were replying to by vbezhenar: 1. "Hire/retain at market rate". Easy unless you don't know what the market rate is, which you don't, because - as you say - incomplete information is an inherent feature of any resource allocation system including markets. Which is probably why vbezhenar phrased their claim in relative terms instead of absolute terms, whilst caveating that this is true for an "ordinary company" but maybe not for Google or governments. Theirs is an inside-the-market view. You're arguing that all you have to do to solve this problem is somehow step outside the market, and just know what the final price actually is for any given person. 2. "Hire in a different market". But that isn't an answer to the OP's point, it's an agreement with it. He's explaining why ordinary companies will refuse to train people. You're claiming the "solution" is to get out of Dodge i.e. not train people. It's not a refutation. There's no political axe grinding here. What's happening is not unique to SV tech firms. It's an inevitable consequence of CB monetary policy distorting classical market economics. The causes of the policy may ultimately be political, but the outcomes are inevitable.

BaseballPhysics 5y ago

> If you're competing against firms like Google or startups that just raised unicorn funding, and these days everyone is, then the people bidding in the market or labor are not doing cost benefit analysis. They just need to hire. That is a cost-benefit analysis. They've received funding, they have a business model, now they need labour. It seems to me your real gripe is that there's a large amount of investment flowing into Silicon Valley and you don't believe that should be happening. > This loop ends when only one of the people can still pay and everyone else starves. That's right. And that means, in the valley in particular, some companies will never get off the ground because they can't afford the price for labour. The solution is simple: hire in a different labour market. > To the people actually in the market, they have limited information and don't know what the bidding limit is for the other players, and thus to them it can appear that regardless of what price they bid, they are always beaten by 20%. Sure, that's called incomplete information, and it's a feature of virtually all markets, minus open and instantly traded markets like stock exchanges. I'm not sure what point you're trying to make, here, other than to complain about a general feature of capitalism that (in a refreshing change of pace) happens to be working in favour of labour. > In a properly functioning liquid market in which nobody has access to printed money And now we get to the political axe you're grinding. Look, the SV labour market has been explosively expensive for 20-30 years. This isn't a new phenomenon by any stretch, and it certainly pre-dates the 2008 financial crisis and the low interest rate environment that followed. There's a reason outsourcing became so popular throughout the early 2000s. The problem is that tech companies failed to expand their labour pool beyond a few tight markets, either by opening offices in other locations or supporting remote workers. That's their choice, but don't complain when labour prices go up as a consequence.

native_samples 5y ago
My point is that you're over-simplifying. You've given two "simple" solutions neither of which are actually responses to the post you were replying to by vbezhenar: 1. "Hire/retain at market rate". Easy unless you don't know what the market rate is, which you don't, because - as you say - incomplete information is an inherent feature of any resource allocation system including markets. Which is probably why vbezhenar phrased their claim in relative terms instead of absolute terms, whilst caveating that this is true for an "ordinary company" but maybe not for Google or governments. Theirs is an inside-the-market view. You're arguing that all you have to do to solve this problem is somehow step outside the market, and just know what the final price actually is for any given person. 2. "Hire in a different market". But that isn't an answer to the OP's point, it's an agreement with it. He's explaining why ordinary companies will refuse to train people. You're claiming the "solution" is to get out of Dodge i.e. not train people. It's not a refutation. There's no political axe grinding here. What's happening is not unique to SV tech firms. It's an inevitable consequence of CB monetary policy distorting classical market economics. The causes of the policy may ultimately be political, but the outcomes are inevitable.