Here's What Really Happened at That Company That Set a $70,000 Minimum Wage • Hacker News Board

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#21

Post by biomene » Mon, Oct 26, 2015, 5:46 PM UTC

GeoDeV wrote: post #4

Wages are subject to the law of supply and demand, just like every other aspect of economic life. Since the CEO seems to be paying well above the going market rate, I doubt that this is sustainable for the long run. Yes, he's partially compensated for the imbalance by cutting his own pay, but it won't be enough. Also, the rapid growth of the company will also buy him some time, but that can't go on forever. The artic…

> Since the CEO seems to be paying well above the going market rate, I doubt that this is sustainable for the long run.

I doubt it too. But it's not completely impossible: if a doubling of your employees salary means they increase their productivity three-fold, it might even increase your total profits (of course this depends on what the surplus rate was to begin with). The point is, since profits come from the surplus rate, which depends on productivity, increased salaries can in some cases lead to higher profits.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#22

Post by Jtsummers » Mon, Oct 26, 2015, 5:55 PM UTC

evanpw wrote: post #15

rdancer wrote: post #9

Earlier quoted context omitted.

The cost of your inputs has little to do with the price you can charge for your outputs. Those are two supply-demand curves, which have very little to do with each other. Note that there is an infinite number of business models where the inputs curves are way above the outputs curve, and those are the business models that never can possibly be profitable. Increase of minimum wage (albeit this extreme) only raises the…

In an economically idealized world, if someone pays above-market wages then you would expect a competitor to appear that will charge less to their customers while making the same profits, destroying the first business. Of course, in that idealized world, there are no "excess profits" (profits not commensurable with risk), so it should be impossible for the company to raise wages like that anyway. So the real question…

Employees are part of that market as well. If there are two companies, one paying market wages, and one paying more, the employees will move to the second company. The second company now has a larger pool (and potentially better pool) of candidates to choose from than the first.

The first company may do better on margins per sale, but the second will have better quality/productivity per employee.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#23

Post by camelNotation » Mon, Oct 26, 2015, 5:56 PM UTC

GeoDeV wrote: post #4

Wages are subject to the law of supply and demand, just like every other aspect of economic life. Since the CEO seems to be paying well above the going market rate, I doubt that this is sustainable for the long run. Yes, he's partially compensated for the imbalance by cutting his own pay, but it won't be enough. Also, the rapid growth of the company will also buy him some time, but that can't go on forever. The artic…

Wages are set by the market, but two major market factors are revenue and how much money senior leadership want to keep in their own pockets. If he is okay making less and his company revenues are high enough to pay these salaries, then it will work indefinitely. The reason it wouldn't normally work is because management would never take a pay cut just to pay their employees more. All they'd do is increase personnel overhead across the board.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#24

Post by Jtsummers » Mon, Oct 26, 2015, 6:05 PM UTC

rdancer wrote: post #6

This is socialism. Paying wages that are 50k over the market creates enormous incentives for corruption. The CEO seems to be a devout Christian, and I want to hope that all the employees are strongly moral people, but to paraphrase the parable of the camel and the needle, it is extremely difficult to be both rich and righteous at the same time. There is a pressure on the people to outsource much of their work at mark…

I find it fascinating, using Christianity to justify paying people less. The exact opposite of charity and compassion and generosity.

> It also puts an immense value on getting the job (possibly by deception or by getting rid of the incumbent in some way), and then staying at that job at all cost. The risk-aversion will be through the roof. There will be absolutely no back-talking. The managers will never be challenged, no matter what they do, by their underlings. Morale and the working conditions will deteriorate as a consequence, with negative effect on the bottom line.

Anyways, I know that my risk-aversion has gone way down as my pay has gone up. Why? Because I'm smart with my money and have more than enough stored away to make it years (literally) without needing a job. I can be an opinionated employee. Of course, my risk-aversion also went down when I was grossly underpaid. Why? Because I didn't give a shit, they weren't paying me what I was worth and I was actively looking for a way out. Being opinionated and effective was the only way to get noticed in a way that might increase my pay at the company. When was I not risk-averse? Precisely when I was making "market wages". I was making enough that I was totally content in that I could afford my lifestyle, but not enough that I could really save enough to get the FU money.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#25

Post by Jtsummers » Mon, Oct 26, 2015, 6:11 PM UTC

rglullis wrote: post #17

landryraccoon wrote: post #14

Earlier quoted context omitted.

I don't get it. If I hire a housekeeper and she asks for $10/hr but because I like her a lot I offer her $20/hr, are you arguing that's socialism? It's my money and I can do whatever I wish with it - that's capitalism at it's finest. The CEO owns the company. If he has total control, he could instead of paying his workers more simply buy himself a jet or donate it to a church. (Obviously, if his shareholders object,…

If I understand the parent correctly, the argument is that any artificial method to establish a price to wages will lead to corruption. Your example is talking about one housekeeper: if she notices that she can arbitrage on your generosity, she can pretty much contract someone else to do her job for $10/hour, and not even show up and still earn $10/hour. If you object to it, it is a signal that you value one's work m…

She can be fired, she's not entitled to that $20/hour. Cut out the middleman, though the current "free market" in the US is going to more middlemen and rent seekers so she'd be right at home here.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#26

Post by rglullis » Mon, Oct 26, 2015, 6:34 PM UTC

Jtsummers wrote: post #25

rglullis wrote: post #17

Earlier quoted context omitted.

If I understand the parent correctly, the argument is that any artificial method to establish a price to wages will lead to corruption. Your example is talking about one housekeeper: if she notices that she can arbitrage on your generosity, she can pretty much contract someone else to do her job for $10/hour, and not even show up and still earn $10/hour. If you object to it, it is a signal that you value one's work m…

She can be fired, she's not entitled to that $20/hour. Cut out the middleman, though the current "free market" in the US is going to more middlemen and rent seekers so she'd be right at home here.

Yeah, but we are making assumptions about market-clearing wages and rational agents, here. Anyone that gets to the position of making above-market wages will use this arbitrage opportunity and would be fired, if we followed your strategy.

In the end, the only way to end this and to actually get your house cleaned is to pay market-level wages.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#27

Post by Jtsummers » Mon, Oct 26, 2015, 6:36 PM UTC

rglullis wrote: post #26

Jtsummers wrote: post #25

Earlier quoted context omitted.

She can be fired, she's not entitled to that $20/hour. Cut out the middleman, though the current "free market" in the US is going to more middlemen and rent seekers so she'd be right at home here.

Yeah, but we are making assumptions about market-clearing wages and rational agents, here. Anyone that gets to the position of making above-market wages will use this arbitrage opportunity and would be fired, if we followed your strategy. In the end, the only way to end this and to actually get your house cleaned is to pay market-level wages.

Ok, if you're assuming strictly rational agents. If they realize they'll be fired for contracting out their work, then wouldn't the rational thing be to continue working rather than contract out and retire early on the higher income?

Or to train people to do as well as you and set up your own business taking advantage of your stronger than average reputation in the field.

But doing an activity which has a high probability of costing you the income you desire is not rational.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#28

Post by asn0 » Mon, Oct 26, 2015, 6:38 PM UTC

smt88 wrote: post #3

wtbob wrote: post #2

I suspect that the real reason for the raises is the dispute with his brother: by paying profit out to employees, he doesn't have to pay it as dividends to his brother.

That is a reasonable suspicion, unless you actually read the article. 1. The lawsuit was filed after the pay increase. 2. "Profit growth continued to substantially outpace wage growth." So basically the company is more profitable than ever. 3. This guy is an outspoken advocate of paying people an equitable wage. It'd be a lot of trouble go to through all of that charade just to pay his brother less. 4. Profits don't…

1. The lawsuit was likely an escalation of the long-running dispute that started early on, also mentioned in the article.

3,4. People will go to extraordinary efforts when fighting over ownership or money. There's enough value and profit in this company to be worth a lot of trouble.

It's too early to know what Mr. Price's real intentions are. I'm waiting for the Wired follow-up in 3-5 years.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#29

Post by rglullis » Mon, Oct 26, 2015, 6:46 PM UTC

Jtsummers wrote: post #27

rglullis wrote: post #26

Earlier quoted context omitted.

Yeah, but we are making assumptions about market-clearing wages and rational agents, here. Anyone that gets to the position of making above-market wages will use this arbitrage opportunity and would be fired, if we followed your strategy. In the end, the only way to end this and to actually get your house cleaned is to pay market-level wages.

Ok, if you're assuming strictly rational agents. If they realize they'll be fired for contracting out their work, then wouldn't the rational thing be to continue working rather than contract out and retire early on the higher income? Or to train people to do as well as you and set up your own business taking advantage of your stronger than average reputation in the field. But doing an activity which has a high probab…

The original rational thing to do would be for the person doing the hiring to just go and pay the $10/hour. "Because I like her" is not an economic justification for extra value.

Re: Here's What Really Happened at That Company That Set a $70,000 Minimum Wage

#30

Post by evanpw » Mon, Oct 26, 2015, 7:16 PM UTC

Jtsummers wrote: post #22

evanpw wrote: post #15

Earlier quoted context omitted.

In an economically idealized world, if someone pays above-market wages then you would expect a competitor to appear that will charge less to their customers while making the same profits, destroying the first business. Of course, in that idealized world, there are no "excess profits" (profits not commensurable with risk), so it should be impossible for the company to raise wages like that anyway. So the real question…

Employees are part of that market as well. If there are two companies, one paying market wages, and one paying more, the employees will move to the second company. The second company now has a larger pool (and potentially better pool) of candidates to choose from than the first. The first company may do better on margins per sale, but the second will have better quality/productivity per employee.

This is a valid point, I think the effect will usually be small.

1. If a company is paying above-market wages, then by definition there are more people who want to work there than there are available spots, so the second company will get some of the overflow.

2. The market for a particular kind of labor (e.g. phone techs) is usually much larger than whatever market for outputs these two companies are involved in (e.g., credit-card processing), so one company paying above-market wages is unlikely to change the market wage level very much.

This could definitely break down for some very specialized jobs.