7 ms·

“Information asymmetry” cuts both ways

127 points by luu 12y ago

lkrubner 12y ago
This is untrue: "All very true, except that with a share of Google, they're all the same and you arguably know what you're buying..." We've had many, many corporate scandals over the years: Enron, WorldCom, Tyco, etc. We know that corporations can lie. The lies are of 2 kinds: 1.) deliberate falsehoods 2.) lies of omission We also know there are many facts that can not be known about a corporation. What is the real value of the software? What is the real value of a patent? Does the software contain a serious bug? Is the patent open to legal challenge? Regarding the danger that Citibank got into, and the near extinction it faced during the financial crisis of 2008, Robert Rubin (who had been director and senior counselor of Citi, during the bubble years) said: "It is not easy to know how much risk is building up on the trading floor." Here you have one of the top people of the company claiming he had no idea what condition the corporation was in. Was he lying? If he was lying, then how can you trust any information you have about the corporation? If he wasn't lying, how can you trust that you know anything about a corporation, when the people who run the corporation have no idea? So how can you ever really know what a share in a corporation is worth? It's at least as much of a mystery as the question of "How much is a computer programmer worth?"
- MCRed 12y ago
  In all of the examples you mention it was understood by people paying attention the level of risk. I knew there would be a housing bubble and crisis in 2001 because I read an article on mises.org that pointed out the two factors: (Clinton era CRA "reforms" forcing people to lend money to those who couldn't repay, because doing otherwise was "racist", an issue brought up by Barack Obama's class action lawsuit... which, by the way, turned out to be false- when corrected for income there was no racial bias in lending during the period) and Bush's policy of lending money lower then the real cost of it (a result of the dotcom bubble, and by the way, a police that is currently in action inflating the new bubble.) I knew citibank was in trouble. I looked into Worldcom, Enron and Tyco back then as investments and didn't like their books. While the average person may not read a companies annual reports, and the average person may not think about the consequences of forcing banks to lend money and then giving them money at a rate below the market rate, but happily buying the resulting loans (via fannie mae) at market rates... those who are paying attention can. In those cases the info is publicly available.
  - mark_l_watson 12y ago
    +1 for mentioning mises.org. Their Web site content convinced me to get out of the stock market in 2007.
    - astrange 12y ago
      I wonder what the return on SPY since 2007 has been… Here's a calculator: http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/ 68% with dividends reinvested! Not bad.
      - mark_l_watson 12y ago
        Well, I did slowly get back into the market after 2008. I am in my 60s so my investments are very diversified. I am going for safety, in a chaotic world, rather than trying for maximum growth.
      - MCRed 12y ago
        You forgot to include inflation. This gives you %6 per year. That's great compared to CDs and Bonds but it's not a great return compared to stocks historically. (I think since WWII it was %10 for broader indexes?)
- yummyfajitas 12y ago
  The lies you mention are not actually information asymmetries between the buyer and seller of Citi shares, so the comparison isn't really very apt.
- IanCal 12y ago
  > So how can you ever really know what a share in a corporation is worth? It's at least as much of a mystery as the question of "How much is a computer programmer worth?" I think the point is that one share in google is worth exactly the same amount as another, and this fact is easily verifiable by the buyer and the seller. You won't buy a share and then find out that it's actually only worth half of someone else's share, or for some reason costs you money rather than earning you dividends while everyone else is raking it in.
  - fragmede 12y ago
    > one share in google is worth exactly the same amount as another Pedantically, they're not. There are 3 public classes of Google stock, publicly traded GOOG and GOOGL, as well as Class B stock, which doesn't have a public ticker symbol. http://economix.blogs.nytimes.com/2014/04/02/the-many-classes-of-google-stock/?_r=0 http://economix.blogs.nytimes.com/2014/04/02/the-many-classe...
    - IanCal 12y ago
      That is very true, thanks for the clarification. If I said "one share of GOOG" would that uniquely identify one class of the stock?
MCRed 12y ago
This article is very insightful. One of the interesting things about jobs, and a source of frustration and the reason I'm much more interested in being a founder than an employee-- is that so many companies are run by people who don't know what they're doing. I've seen this from 20 year old startup "founders" who don't know their industry, to 50 year old billionaires who have lots of business experience, and thus opinions, but no wisdom about running a software company. Even with our industry being around for 40 years or so, there are very few companies where programmers are managed by programmers who understand programming. Too much of the time its "Business" people. So, not only are you going to be incentivized by how well you're paid vs the problems you're given, you're also going to be affected by the quality of the environment ("open plan office? sigh, I can't wait til I have been here long enough to quit.") to the amount of interference and straight up hassle (sometimes even harassment) you are getting from management. Let me give you an example: Last year I worked in an office run by an ex-navy Seal. He cussed, all the time. His motivational technique was to threaten violence- literally. He was a bundle of barely contained psychotic violence and you were just waiting for something to set him off. I half expected he was going to come in some day and shoot up the office. I don't know what his problem was but he was not right in the head. Needless to say, he knew nothing about programming, software, or even business- his entire career had been in the military. Certainly every 5 minutes he wanted to have a meeting about something. He thought it was funny to bring in bongo drums and a cowbell... and if we were too quiet, he would bang on them. For awhile he was showing up at 4pm and trying to get us drunk. I guess that's how they bond in the military. I am not making this up. That company is now on their third team-- they've had %400 turnover in employees over the past 2 years, with the average employee lasting less than 6 months. And they still haven't figured out what the problem is. There's no way to know when getting hired that you're going into an office like that-- and while that's an extreme, over the past 30 years, most of the places I've worked have been dysfunctional to one degree or another. So, you're negotiating your salary, you're also having to figure out how much combat pay premium you need to tack on. And if you're in the business of hiring people, give them meaningful equity and a real vesting schedule if you want them to stay at your startup-- then show them you have the skills to turn the company into a success. You can start by producing a healthy environment for work. (and I don't mean giving me a year supply of Pabst Blue Ribbon.)
michaelochurch 12y ago
Much of what keeps programmer salaries from going up as fast as they should is that managers know that, even if you're a genuine "10x" or even 100x engineer, you don't stay a 10x-er unless you get interesting projects, which tend to be rare in most companies. Since they control the allocation of interesting work, there's often an implied either/or: you can get interesting work and a cost-of-living bump or you can get a 20% raise. For some examples: (1) frequent job hops can improve your salary, but they reduce your ability to stick with a long project and become good at anything; (2) if you're looking to make the case for a move into management, you do better to take on an ugly-but-necessary project where you'll delegate most of the work, than to stick with the technically interesting stuff and get a reputation of someone who only wants to work on the "fun" stuff; (3) Haskell engineers make about 40% less than Java engineers at the same level of engineering ability. (The difference in medians is only a few percent, but the median Haskell engineer is equivalent to ~95th percentile in Java.) That's because Java engineers can set up multilateral bidding wars every 2 years and get huge pay bumps; in Haskell, that's nearly impossible because it's a small community. Personally, I tend to go for interesting work. That's because I think, in the long term, it'll play out better for me to have spent my 30s well than to have ratcheted up my salary but not really know anything. If we want to see engineers paid what they're worth, though, we've got to get political enough that we can actually run companies (let's be honest; 98+ percent of VC-funded startups are run by Guys With Connections Who Therefore Call Shots, not engineers) and take control of the work allocation processes as well.
- eropple 12y ago
  > frequent job hops can improve your salary, but they reduce your ability to stick with a long project and become good at anything This is a major reason why I went into platform engineering and devops. Projects are very accelerated (usually because you end up starting too late, relative to the best time to change a dev team, its culture, and its practices) and you really can learn quickly and get better at a rapid pace. It helps, too, that the state of the art is changing quickly enough that effectively nobody is an expert at everything. > Java engineers can set up multilateral bidding wars every 2 years and get huge pay bumps ...and this is the other reason. Best of both worlds, in my view.
jonathanwallace 12y ago
I'm not sure I follow the author's argument. However this is a definite fallacy: "Cause goodness knows that the easiest way to raise one's compensation in the knowledge economy is to simply space out more while getting paid the same." There's an opportunity cost to being stuck in a chair "pretending" to work. And my compensation does not go up if I'm "pretending" to work. Instead, I choose to work at places that don't value my time by my presence but instead value my results.
- _yosefk 12y ago
  I wasn't advising employees to pretend to work, I was advising employers to avoid this situation. That said, working less and taking less responsibility means less stress for many people and so their quality of life does rise, without the compensation falling, so it's kind of a win. Not the kind of win some of us are after and certainly not the kind of win most of us would acknowledge we're after, but a win nonetheless...
- darkmighty 12y ago
  He meant all workers are concerned to some degree in demonstrating their job as invaluable to managers/employers -- even (or specially) if they don't actually believe it is, or if they don't believe to be on top of the knowledge of skill ladder.
  - jonathanwallace 12y ago
    Focusing on creating perception of value vs. actual value sounds way too much like job insecurity for me.
formulaT 12y ago
They key point here is that workers are not identical. If you are getting paid less than your colleagues, that could be because you got a raw deal, but it could also be because you aren't as good as them. Even within a job title, there are good reasons why pay should not be the same. For example, the job ladder represents both authority and technical ability, and these sometimes need to be decoupled. A very talented individual might have technical ability that deserves high pay, but not the industry experience to hold a position of leadership or authority. So they get hired at a lower job title, but with higher pay than their peers.
- _yosefk 12y ago
  My main point in the article was that employers cannot measure productivity and hence often get a raw deal themselves.
mark-r 12y ago
Funny, these comments play right into Patrick's latest venture. He's trying to quantify programming ability, or at least get a usable ranking. See http://www.kalzumeus.com/2015/03/09/announcing-starfighter/ http://www.kalzumeus.com/2015/03/09/announcing-starfighter/
whybroke 12y ago
The thesis of the article makes two assumptions: 1. that pay differences are due to merit and 2. employees do not want a merit based system so if they discuss salaries they will intentionally dismantle that system Both of these assumptions are in error. It is the job of every business man (and likely the instinct of every human) to buy value as cheaply as possible. Thus an employer will tend offer the lowest amount possible regardless of the employees productivity. We know this happens in practice because salary negotiation is at least as critical as technical skill. Additional evidence is that changing jobs results in much higher wage increase than staying put, if wages were connected to skill this would not happen. Likewise fiscal desperation of the employee results in accepting lower wages but if salary is merit based, why were those lower wages were offered in the first place. And of course we know that race, gender, marital status, religion and age were or still are factors in salary. The second assumption is also thoroughly untrue. Typical human behavior is to want compensation proportional to productivity and to live in a system that allows this. The contrary has words like "dishonest", "cheating", "theft" and "unfair" associated with it and is almost universally socially deprecated. It is exactly why grinding in video games are is popular, it taps this very fundamental desire. Which desire is exactly not being met by work so players seek simulated work after hours.
- makeitsuckless 12y ago
  The problem with the second is the definition of "merit". The usual "janitor versus wall street trader" discussion. Pay isn't based on merit, it's based on value to the employer, which is an entirely different thing.
- _yosefk 12y ago
  I don't think I assumed what you say I did. That said, your "human instinct" of getting the most in exchange for the least - would it not extend to employees and not just businessmen? Assuming both are equally human, you'd expect people to have a tendency to slack off and to like it when it doesn't hurt their bottom line.
  - whybroke 12y ago
    The first paragraph mentions two employees with different salaries. One resents the others and so wants them equalized. If the difference is _not_ merit based then equalizing the salaries is a _good_ thing. Since the articles states equalizing is a bad thing, there is a hidden assumption that inequality is due to merit. Likewise you do not want decision makers to be deterred from giving raises to some and not to others. This behavior would only be desirable if those raises were merit based. If they were not merit based than they should indeed be deterred. etc. > Assuming both are equally human, you'd expect people to have a tendency to slack off and to like it when it doesn't hurt their bottom line. Yes, presumably every employee will try to get the highest pay per work unit possible. If they do not know the salary of their coworker and their coworker has negotiated a higher rate then a disparity will exist that is not due to merit but due to negotiation. If they know about this disparity then either 1. they can demand the same rate thus be more meritocratic or 2. (less likely) the low productivity employee will be pressured or have his (lack of) work more reported on by peers. In this case, the resentment you mention is actually a useful thing. If a pay differential is justifiable then the employer will have no problem explaining it to the lesser paid person or, if he gripes, replacing him with someone who produces the same or more per dollar and being better of for it. Put simply, if two employees are paid the same and know it but one spends the day on facebook, the other will demand a raise and the employer will either grant it or loose one of the workers. Any of those three outcomes is an improvement. Put even more succinctly, a system with more open information (eg regarding salaries) will be more efficient than a more information closed system.

127 points by luu 12y ago

This is untrue: "All very true, except that with a share of Google, they're all the same and you arguably know what you're buying..." We've had many, many corporate scandals over the years: Enron, WorldCom, Tyco, etc. We know that corporations can lie. The lies are of 2 kinds: 1.) deliberate falsehoods 2.) lies of omission We also know there are many facts that can not be known about a corporation. What is the real value of the software? What is the real value of a patent? Does the software contain a serious bug? Is the patent open to legal challenge? Regarding the danger that Citibank got into, and the near extinction it faced during the financial crisis of 2008, Robert Rubin (who had been director and senior counselor of Citi, during the bubble years) said: "It is not easy to know how much risk is building up on the trading floor." Here you have one of the top people of the company claiming he had no idea what condition the corporation was in. Was he lying? If he was lying, then how can you trust any information you have about the corporation? If he wasn't lying, how can you trust that you know anything about a corporation, when the people who run the corporation have no idea? So how can you ever really know what a share in a corporation is worth? It's at least as much of a mystery as the question of "How much is a computer programmer worth?"

MCRed 12y ago
In all of the examples you mention it was understood by people paying attention the level of risk. I knew there would be a housing bubble and crisis in 2001 because I read an article on mises.org that pointed out the two factors: (Clinton era CRA "reforms" forcing people to lend money to those who couldn't repay, because doing otherwise was "racist", an issue brought up by Barack Obama's class action lawsuit... which, by the way, turned out to be false- when corrected for income there was no racial bias in lending during the period) and Bush's policy of lending money lower then the real cost of it (a result of the dotcom bubble, and by the way, a police that is currently in action inflating the new bubble.) I knew citibank was in trouble. I looked into Worldcom, Enron and Tyco back then as investments and didn't like their books. While the average person may not read a companies annual reports, and the average person may not think about the consequences of forcing banks to lend money and then giving them money at a rate below the market rate, but happily buying the resulting loans (via fannie mae) at market rates... those who are paying attention can. In those cases the info is publicly available.
- mark_l_watson 12y ago
  +1 for mentioning mises.org. Their Web site content convinced me to get out of the stock market in 2007.
  - astrange 12y ago
    I wonder what the return on SPY since 2007 has been… Here's a calculator: http://dqydj.net/sp-500-return-calculator/ http://dqydj.net/sp-500-return-calculator/ 68% with dividends reinvested! Not bad.
    - mark_l_watson 12y ago
      Well, I did slowly get back into the market after 2008. I am in my 60s so my investments are very diversified. I am going for safety, in a chaotic world, rather than trying for maximum growth.
    - MCRed 12y ago
      You forgot to include inflation. This gives you %6 per year. That's great compared to CDs and Bonds but it's not a great return compared to stocks historically. (I think since WWII it was %10 for broader indexes?)
yummyfajitas 12y ago
The lies you mention are not actually information asymmetries between the buyer and seller of Citi shares, so the comparison isn't really very apt.
IanCal 12y ago
> So how can you ever really know what a share in a corporation is worth? It's at least as much of a mystery as the question of "How much is a computer programmer worth?" I think the point is that one share in google is worth exactly the same amount as another, and this fact is easily verifiable by the buyer and the seller. You won't buy a share and then find out that it's actually only worth half of someone else's share, or for some reason costs you money rather than earning you dividends while everyone else is raking it in.
- fragmede 12y ago
  > one share in google is worth exactly the same amount as another Pedantically, they're not. There are 3 public classes of Google stock, publicly traded GOOG and GOOGL, as well as Class B stock, which doesn't have a public ticker symbol. http://economix.blogs.nytimes.com/2014/04/02/the-many-classes-of-google-stock/?_r=0 http://economix.blogs.nytimes.com/2014/04/02/the-many-classe...
  - IanCal 12y ago
    That is very true, thanks for the clarification. If I said "one share of GOOG" would that uniquely identify one class of the stock?

MCRed 12y ago

This article is very insightful. One of the interesting things about jobs, and a source of frustration and the reason I'm much more interested in being a founder than an employee-- is that so many companies are run by people who don't know what they're doing. I've seen this from 20 year old startup "founders" who don't know their industry, to 50 year old billionaires who have lots of business experience, and thus opinions, but no wisdom about running a software company. Even with our industry being around for 40 years or so, there are very few companies where programmers are managed by programmers who understand programming. Too much of the time its "Business" people. So, not only are you going to be incentivized by how well you're paid vs the problems you're given, you're also going to be affected by the quality of the environment ("open plan office? sigh, I can't wait til I have been here long enough to quit.") to the amount of interference and straight up hassle (sometimes even harassment) you are getting from management. Let me give you an example: Last year I worked in an office run by an ex-navy Seal. He cussed, all the time. His motivational technique was to threaten violence- literally. He was a bundle of barely contained psychotic violence and you were just waiting for something to set him off. I half expected he was going to come in some day and shoot up the office. I don't know what his problem was but he was not right in the head. Needless to say, he knew nothing about programming, software, or even business- his entire career had been in the military. Certainly every 5 minutes he wanted to have a meeting about something. He thought it was funny to bring in bongo drums and a cowbell... and if we were too quiet, he would bang on them. For awhile he was showing up at 4pm and trying to get us drunk. I guess that's how they bond in the military. I am not making this up. That company is now on their third team-- they've had %400 turnover in employees over the past 2 years, with the average employee lasting less than 6 months. And they still haven't figured out what the problem is. There's no way to know when getting hired that you're going into an office like that-- and while that's an extreme, over the past 30 years, most of the places I've worked have been dysfunctional to one degree or another. So, you're negotiating your salary, you're also having to figure out how much combat pay premium you need to tack on. And if you're in the business of hiring people, give them meaningful equity and a real vesting schedule if you want them to stay at your startup-- then show them you have the skills to turn the company into a success. You can start by producing a healthy environment for work. (and I don't mean giving me a year supply of Pabst Blue Ribbon.)

michaelochurch 12y ago

Much of what keeps programmer salaries from going up as fast as they should is that managers know that, even if you're a genuine "10x" or even 100x engineer, you don't stay a 10x-er unless you get interesting projects, which tend to be rare in most companies. Since they control the allocation of interesting work, there's often an implied either/or: you can get interesting work and a cost-of-living bump or you can get a 20% raise. For some examples: (1) frequent job hops can improve your salary, but they reduce your ability to stick with a long project and become good at anything; (2) if you're looking to make the case for a move into management, you do better to take on an ugly-but-necessary project where you'll delegate most of the work, than to stick with the technically interesting stuff and get a reputation of someone who only wants to work on the "fun" stuff; (3) Haskell engineers make about 40% less than Java engineers at the same level of engineering ability. (The difference in medians is only a few percent, but the median Haskell engineer is equivalent to ~95th percentile in Java.) That's because Java engineers can set up multilateral bidding wars every 2 years and get huge pay bumps; in Haskell, that's nearly impossible because it's a small community. Personally, I tend to go for interesting work. That's because I think, in the long term, it'll play out better for me to have spent my 30s well than to have ratcheted up my salary but not really know anything. If we want to see engineers paid what they're worth, though, we've got to get political enough that we can actually run companies (let's be honest; 98+ percent of VC-funded startups are run by Guys With Connections Who Therefore Call Shots, not engineers) and take control of the work allocation processes as well.

eropple 12y ago
> frequent job hops can improve your salary, but they reduce your ability to stick with a long project and become good at anything This is a major reason why I went into platform engineering and devops. Projects are very accelerated (usually because you end up starting too late, relative to the best time to change a dev team, its culture, and its practices) and you really can learn quickly and get better at a rapid pace. It helps, too, that the state of the art is changing quickly enough that effectively nobody is an expert at everything. > Java engineers can set up multilateral bidding wars every 2 years and get huge pay bumps ...and this is the other reason. Best of both worlds, in my view.

jonathanwallace 12y ago

I'm not sure I follow the author's argument. However this is a definite fallacy: "Cause goodness knows that the easiest way to raise one's compensation in the knowledge economy is to simply space out more while getting paid the same." There's an opportunity cost to being stuck in a chair "pretending" to work. And my compensation does not go up if I'm "pretending" to work. Instead, I choose to work at places that don't value my time by my presence but instead value my results.

_yosefk 12y ago
I wasn't advising employees to pretend to work, I was advising employers to avoid this situation. That said, working less and taking less responsibility means less stress for many people and so their quality of life does rise, without the compensation falling, so it's kind of a win. Not the kind of win some of us are after and certainly not the kind of win most of us would acknowledge we're after, but a win nonetheless...
darkmighty 12y ago
He meant all workers are concerned to some degree in demonstrating their job as invaluable to managers/employers -- even (or specially) if they don't actually believe it is, or if they don't believe to be on top of the knowledge of skill ladder.
- jonathanwallace 12y ago
  Focusing on creating perception of value vs. actual value sounds way too much like job insecurity for me.

formulaT 12y ago

They key point here is that workers are not identical. If you are getting paid less than your colleagues, that could be because you got a raw deal, but it could also be because you aren't as good as them. Even within a job title, there are good reasons why pay should not be the same. For example, the job ladder represents both authority and technical ability, and these sometimes need to be decoupled. A very talented individual might have technical ability that deserves high pay, but not the industry experience to hold a position of leadership or authority. So they get hired at a lower job title, but with higher pay than their peers.

_yosefk 12y ago
My main point in the article was that employers cannot measure productivity and hence often get a raw deal themselves.

mark-r 12y ago

Funny, these comments play right into Patrick's latest venture. He's trying to quantify programming ability, or at least get a usable ranking. See http://www.kalzumeus.com/2015/03/09/announcing-starfighter/ http://www.kalzumeus.com/2015/03/09/announcing-starfighter/

whybroke 12y ago

The thesis of the article makes two assumptions: 1. that pay differences are due to merit and 2. employees do not want a merit based system so if they discuss salaries they will intentionally dismantle that system Both of these assumptions are in error. It is the job of every business man (and likely the instinct of every human) to buy value as cheaply as possible. Thus an employer will tend offer the lowest amount possible regardless of the employees productivity. We know this happens in practice because salary negotiation is at least as critical as technical skill. Additional evidence is that changing jobs results in much higher wage increase than staying put, if wages were connected to skill this would not happen. Likewise fiscal desperation of the employee results in accepting lower wages but if salary is merit based, why were those lower wages were offered in the first place. And of course we know that race, gender, marital status, religion and age were or still are factors in salary. The second assumption is also thoroughly untrue. Typical human behavior is to want compensation proportional to productivity and to live in a system that allows this. The contrary has words like "dishonest", "cheating", "theft" and "unfair" associated with it and is almost universally socially deprecated. It is exactly why grinding in video games are is popular, it taps this very fundamental desire. Which desire is exactly not being met by work so players seek simulated work after hours.

makeitsuckless 12y ago
The problem with the second is the definition of "merit". The usual "janitor versus wall street trader" discussion. Pay isn't based on merit, it's based on value to the employer, which is an entirely different thing.
_yosefk 12y ago
I don't think I assumed what you say I did. That said, your "human instinct" of getting the most in exchange for the least - would it not extend to employees and not just businessmen? Assuming both are equally human, you'd expect people to have a tendency to slack off and to like it when it doesn't hurt their bottom line.
- whybroke 12y ago
  The first paragraph mentions two employees with different salaries. One resents the others and so wants them equalized. If the difference is _not_ merit based then equalizing the salaries is a _good_ thing. Since the articles states equalizing is a bad thing, there is a hidden assumption that inequality is due to merit. Likewise you do not want decision makers to be deterred from giving raises to some and not to others. This behavior would only be desirable if those raises were merit based. If they were not merit based than they should indeed be deterred. etc. > Assuming both are equally human, you'd expect people to have a tendency to slack off and to like it when it doesn't hurt their bottom line. Yes, presumably every employee will try to get the highest pay per work unit possible. If they do not know the salary of their coworker and their coworker has negotiated a higher rate then a disparity will exist that is not due to merit but due to negotiation. If they know about this disparity then either 1. they can demand the same rate thus be more meritocratic or 2. (less likely) the low productivity employee will be pressured or have his (lack of) work more reported on by peers. In this case, the resentment you mention is actually a useful thing. If a pay differential is justifiable then the employer will have no problem explaining it to the lesser paid person or, if he gripes, replacing him with someone who produces the same or more per dollar and being better of for it. Put simply, if two employees are paid the same and know it but one spends the day on facebook, the other will demand a raise and the employer will either grant it or loose one of the workers. Any of those three outcomes is an improvement. Put even more succinctly, a system with more open information (eg regarding salaries) will be more efficient than a more information closed system.