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Employers want to pay the minimum, clearly, but until a person’s salary exceeds the value they bring to a firm, there will be other firms willing to pay more an

Employers want to pay the minimum, clearly, but until a person’s salary exceeds the value they bring to a firm, there will be other firms willing to pay more and attract that talent. So provides some upward pressure on wages, which the author addresses: > Economists will teach you something called the Marginal Productivity Theory of Wages, the idea being that the amount of money that a company is willing to spend on an employee is essentially the value that the company expects to get out of their work. This strikes me as mostly true, most of the time, and likely to be the case in the corporate world that we’re considering here.

bluGill 2y ago
> but until a person’s salary exceeds the value they bring to a firm, there will be other firms willing to pay more and attract that talent This is false. Supply and demand is a factor. I could clean the toilets at the office, if janitors were in short supply my boss might setup a rotation schedule - nobody wants to but it must be done and so he would pay me. However because janitors are cheaper than me he doesn't. This isn't just theoretical - McDonald's mostly has the crew clean the floors - janitors make more money than McDonalds crew.
- johnnyanmac 2y ago
  I don't see the contradiction. Janitorial duties are at the very worst easy to train any person off the street for. As long as people need any sort of minimum wage to survive you can find a janitor. But that also means that, because minimum wage, your salary will almost never exceed the value brought to that business. Outside of some super crazy regulations of cleanliness.
  - Spooky23 2y ago
    Not necessarily true. You either pay the margin for a contractor, or pay the janitor more in-house.
  - bluGill 2y ago
    Janitor is a messy and low prestige job. As such some will choose a lower paying job if they get the option and the pay isn't too much worse
shkkmo 2y ago
"provides upward pressure on wages" is true, but you simply can't get from there to actually demonstrating the "marginal producivity theory of wages". It is pretty clear that the employment market suffers from severe inefficiency and information asymmetry. It takes a pretty bad economist to look at a market like that and think that its pricing is accurate. Employees often don't know how much value they bring and thus are severly limited as counter party and other companies have a hard time predicting how much value you'll be able to add for the. These (plus many other factors) mean that you should expect significant mismatches between pay and performance. Edit: None of this is evidence against performance being a paretor distribution (which makes sense to me), but we're gonna need more than just pay data to determine that.
PittleyDunkin 2y ago
> there will be other firms willing to pay more and attract that talent. ...marginally more. Still nowhere near the actual value their labor brings in. We simply don't have a competitive enough employer market to provide the upward wage pressure that would be sufficient to pay people fairly.
- nox101 2y ago
  If you think you're not getting paid enough you should quit and start your own company. The fact that google/apple/amazon make 5-10x per employee is not proof that you're underpaid. The chef at French Laundry makes $$$$$$$, does that mean the apple farmer who supplied the apples for $ is underpaid?
  - PittleyDunkin 2y ago
    > If you think you're not getting paid enough you should quit and start your own company. I'd rather eat a bullet, thanks. I have dignity and I'd like to keep it. > The fact that google/apple/amazon make 5-10x per employee is not proof that you're underpaid. That's exactly what it means. > The chef at French Laundry makes $$$$$$$, does that mean the apple farmer who supplied the apples for $ is underpaid? The chef is paid for their labor. Shareholders contribute nothing to society.
    - johnnyanmac 2y ago
      >I have dignity and I'd like to keep it. it's not about dignity, it's about history. That's why those FAANGs offered crazy salaries before tapering off some 5 years ago. The last thing they wanted was for the true 10x'ers to become tomorrow's competition, or for others to work for such 10x'ers. Because if such an engineer could make a 10m/yr business vs being hired for 100k, many would take that business opportunity. >Shareholders contribute nothing to society. they contribute money, and that's all that matters. quality, long term profitability, and worker dignity be damned.
    - xyzzy4747 2y ago
      The original shareholders created the company. Without them there wouldn't be jobs. The newer shareholders provided liquidity to the original shareholders. Their benefit to society was helping to incentivize the people who created the company (and all the jobs) by making them rich.
ip26 2y ago
There’s a “marriage problem” element not covered here. The marginal value of an employee is higher if the team they join is small. Eventually, the team reaches a size where more employees add little value. Most people understand this. However, it follows that the marginal productivity theory of wages gets more complicated. They might not be willing to pay you the full value they get from your work, for example, because they might suspect a replacement (e.g., keeping team size constant) would likely produce higher value. Or, they might pay you much closer to the full value of your work than others because they fear a replacement would likely bring lower value.
HDThoreaun 2y ago
Two problems with this are 1. It is very difficult for outside employers to tell is someone is a high performer, and 2. Economists also teach to always think on the margins. A employees value isnt the amount you bring in more than if they didnt exist, it's the amount they bring in over a replacement. If people are willing to replace you for $5/hr even if you make the company $100/hr you wont get anywhere near that amount.

bluGill 2y ago

> but until a person’s salary exceeds the value they bring to a firm, there will be other firms willing to pay more and attract that talent This is false. Supply and demand is a factor. I could clean the toilets at the office, if janitors were in short supply my boss might setup a rotation schedule - nobody wants to but it must be done and so he would pay me. However because janitors are cheaper than me he doesn't. This isn't just theoretical - McDonald's mostly has the crew clean the floors - janitors make more money than McDonalds crew.

johnnyanmac 2y ago
I don't see the contradiction. Janitorial duties are at the very worst easy to train any person off the street for. As long as people need any sort of minimum wage to survive you can find a janitor. But that also means that, because minimum wage, your salary will almost never exceed the value brought to that business. Outside of some super crazy regulations of cleanliness.
- Spooky23 2y ago
  Not necessarily true. You either pay the margin for a contractor, or pay the janitor more in-house.
- bluGill 2y ago
  Janitor is a messy and low prestige job. As such some will choose a lower paying job if they get the option and the pay isn't too much worse

shkkmo 2y ago

"provides upward pressure on wages" is true, but you simply can't get from there to actually demonstrating the "marginal producivity theory of wages". It is pretty clear that the employment market suffers from severe inefficiency and information asymmetry. It takes a pretty bad economist to look at a market like that and think that its pricing is accurate. Employees often don't know how much value they bring and thus are severly limited as counter party and other companies have a hard time predicting how much value you'll be able to add for the. These (plus many other factors) mean that you should expect significant mismatches between pay and performance. Edit: None of this is evidence against performance being a paretor distribution (which makes sense to me), but we're gonna need more than just pay data to determine that.

PittleyDunkin 2y ago

> there will be other firms willing to pay more and attract that talent. ...marginally more. Still nowhere near the actual value their labor brings in. We simply don't have a competitive enough employer market to provide the upward wage pressure that would be sufficient to pay people fairly.

nox101 2y ago
If you think you're not getting paid enough you should quit and start your own company. The fact that google/apple/amazon make 5-10x per employee is not proof that you're underpaid. The chef at French Laundry makes $$$$$$$, does that mean the apple farmer who supplied the apples for $ is underpaid?
- PittleyDunkin 2y ago
  > If you think you're not getting paid enough you should quit and start your own company. I'd rather eat a bullet, thanks. I have dignity and I'd like to keep it. > The fact that google/apple/amazon make 5-10x per employee is not proof that you're underpaid. That's exactly what it means. > The chef at French Laundry makes $$$$$$$, does that mean the apple farmer who supplied the apples for $ is underpaid? The chef is paid for their labor. Shareholders contribute nothing to society.
  - johnnyanmac 2y ago
    >I have dignity and I'd like to keep it. it's not about dignity, it's about history. That's why those FAANGs offered crazy salaries before tapering off some 5 years ago. The last thing they wanted was for the true 10x'ers to become tomorrow's competition, or for others to work for such 10x'ers. Because if such an engineer could make a 10m/yr business vs being hired for 100k, many would take that business opportunity. >Shareholders contribute nothing to society. they contribute money, and that's all that matters. quality, long term profitability, and worker dignity be damned.
  - xyzzy4747 2y ago
    The original shareholders created the company. Without them there wouldn't be jobs. The newer shareholders provided liquidity to the original shareholders. Their benefit to society was helping to incentivize the people who created the company (and all the jobs) by making them rich.

ip26 2y ago

There’s a “marriage problem” element not covered here. The marginal value of an employee is higher if the team they join is small. Eventually, the team reaches a size where more employees add little value. Most people understand this. However, it follows that the marginal productivity theory of wages gets more complicated. They might not be willing to pay you the full value they get from your work, for example, because they might suspect a replacement (e.g., keeping team size constant) would likely produce higher value. Or, they might pay you much closer to the full value of your work than others because they fear a replacement would likely bring lower value.

HDThoreaun 2y ago

Two problems with this are 1. It is very difficult for outside employers to tell is someone is a high performer, and 2. Economists also teach to always think on the margins. A employees value isnt the amount you bring in more than if they didnt exist, it's the amount they bring in over a replacement. If people are willing to replace you for $5/hr even if you make the company $100/hr you wont get anywhere near that amount.