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I had to comment on this due to the large amount of misinformation in this thread. Many people think that companies should be kind, and pay more than the marke

I had to comment on this due to the large amount of misinformation in this thread. Many people think that companies should be kind, and pay more than the market wage for their workers. This is false and unreasonable. Companies try to minimize their costs, including wages. Now if in some industry, some company is making huge profit margins, and paying low wages, what is the cause, and what is the solution? In economics, profits go down until they reach 0 or close to 0. Why? because if there are huge profit margins, more firms come in, to compete. Therefore in all industries, profits go down to a lower level. Now why doesn't this happen in practice? The answer is artificial barriers to entry. Political agreements and regulations benefiting the big companies. So what is needed here is an easier path for new companies (Which are people after all). This will always ensure that profit margins stay low, and wages approach the true market rate. The solution is not donation. Why would a company pay 9 dollars to a worker who is willing to work for 8? Why aren't YOU donating money to poor people in Africa? The answer is not minimum wage either. This distorts markets. If you want to alleviate poverty, in a more economically reasonable way, do it though universal income.

erichocean 13y ago
Your intuition is correct, but unfortunately, it doesn't actually work that way, because on a per-employee basis, big business is ~4x more efficient. That is, for every $1 in revenue an SMB brings in, big business brings in $4. (These numbers are averages, but the basic relationship holds across industries.) I personally do not see how SMBs can compete when they are paying 4x more for labor. The reason big business is so efficient is IT investment, and the problem with IT investment is that you need to be big in order to really take advantage of it. The amount of improvement SMBs get for a proportional amount of investment is low. You have to spend a lot to get anything, really, and SMBs just can't afford that. So, to recap: big business profits stay high because SMBs actually can't force prices downward, due to the huge imbalance in labor costs between SMBs and big business. If we could get the same IT advantage to SMBs at a cost that is proportional to their revenue, then the dynamic you expect to be occurring would, in fact, happen.
- adharmad 13y ago
  Big Businesses also have larger overheads, internal bureaucracy and are generally show on the uptake. A small and nimble SMB can surely take advantage of this? After all, most of the tech startups are in some way small businesses and don't seem to have any trouble innovating against the lumbering tech giants.
  - seanmcdirmid 13y ago
    Not a great comparison. Capital investments needed for IT production are actually much smaller than other industries, and IT just doesn't really scale well at all with respect to company size. Large and small companies alike are limited to the talent they can attract and pay for.
- WalterBright 13y ago
  Consider your statement in the light of looking at the 10 largest corporations in America on a decade by decade basis. Go back a few decades, and I bet you won't even recognize the names. Again and again, small companies have displaced can't-fail big ones.
  - dlp211 13y ago
    So let's look at the 10 biggest public American companies as calculated by Forbes in May of 2013: 1) J.P Morgan 2) General Electric 3) Exxon Mobile 4) Berkshire Hathaway 5) Wells Fargo 6) Chevron 7) Apple 8) Walmart 9) Citigroup 10) AT&T Yea, I am going to have to disagree with your premise, that the top companies from decades ago have been replaced by bit players considering at least half these companies predate WWII and the rest came about not by competition, but by market evolution. http://www.forbes.com/global2000/list/ http://www.forbes.com/global2000/list/ Edit: added public to the first sentence.
    - jmspring 13y ago
      And at least half of those companies have received large bailouts from the government or are getting access to natural resources on the cheap ($1/year leases).
zurn 13y ago
Universal income would be nice but meanwhile unions work passably.

erichocean 13y ago

Your intuition is correct, but unfortunately, it doesn't actually work that way, because on a per-employee basis, big business is ~4x more efficient. That is, for every $1 in revenue an SMB brings in, big business brings in $4. (These numbers are averages, but the basic relationship holds across industries.) I personally do not see how SMBs can compete when they are paying 4x more for labor. The reason big business is so efficient is IT investment, and the problem with IT investment is that you need to be big in order to really take advantage of it. The amount of improvement SMBs get for a proportional amount of investment is low. You have to spend a lot to get anything, really, and SMBs just can't afford that. So, to recap: big business profits stay high because SMBs actually can't force prices downward, due to the huge imbalance in labor costs between SMBs and big business. If we could get the same IT advantage to SMBs at a cost that is proportional to their revenue, then the dynamic you expect to be occurring would, in fact, happen.

adharmad 13y ago
Big Businesses also have larger overheads, internal bureaucracy and are generally show on the uptake. A small and nimble SMB can surely take advantage of this? After all, most of the tech startups are in some way small businesses and don't seem to have any trouble innovating against the lumbering tech giants.
- seanmcdirmid 13y ago
  Not a great comparison. Capital investments needed for IT production are actually much smaller than other industries, and IT just doesn't really scale well at all with respect to company size. Large and small companies alike are limited to the talent they can attract and pay for.
WalterBright 13y ago
Consider your statement in the light of looking at the 10 largest corporations in America on a decade by decade basis. Go back a few decades, and I bet you won't even recognize the names. Again and again, small companies have displaced can't-fail big ones.
- dlp211 13y ago
  So let's look at the 10 biggest public American companies as calculated by Forbes in May of 2013: 1) J.P Morgan 2) General Electric 3) Exxon Mobile 4) Berkshire Hathaway 5) Wells Fargo 6) Chevron 7) Apple 8) Walmart 9) Citigroup 10) AT&T Yea, I am going to have to disagree with your premise, that the top companies from decades ago have been replaced by bit players considering at least half these companies predate WWII and the rest came about not by competition, but by market evolution. http://www.forbes.com/global2000/list/ http://www.forbes.com/global2000/list/ Edit: added public to the first sentence.
  - jmspring 13y ago
    And at least half of those companies have received large bailouts from the government or are getting access to natural resources on the cheap ($1/year leases).

zurn 13y ago

Universal income would be nice but meanwhile unions work passably.