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

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

#11

Post by rdancer »

GeoDeV wrote: post #10
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…

This is definitely not socialism! There is no coercive government intervention here. It is the CEO of a private company paying his employees above market rate. One of the many benefits of a free market is that you will often see experiments like this. Some will fail, some will succeed, but no one will go to Siberia. Socialism is political system, an incredibly irrational and immoral one, but this is merely a business…

One of the aspects of socialist economies is that unlike in free-market economies, wages are not set by the market. Whether they are set by the CEO or the Central Committee is a distinction without a difference.

You can swap the word "capitalism" in for "socialism" in your comment, and those statements would still work. Socialism didn't fail because it were monstrous. It failed, because we ran out of money and the will to live in squalor.

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

#12

Post by GeoDeV »

rdancer wrote: post #9
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…

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…

I'll have to think about it more, but I don't think your premise is valid, i.e. that there are 2 mostly unrelated supply demand curves. My first thought is that all prices in a dynamic economy are interrelated and are always moving towards a state of equilibrium. This company's actions are disruptive and will either fade or they will change the point of equilibrium. Another factor, mentioned in the article, is productivity. Henry Ford was able to raise his worker's wages because his manufacturing methods dramatically increased their productivity. I don't know if this company's productivity is high enough to support a raise to 70 G's.

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

#13

Post by GeoDeV »

rdancer wrote: post #11
GeoDeV wrote: post #10

Earlier quoted context omitted.

This is definitely not socialism! There is no coercive government intervention here. It is the CEO of a private company paying his employees above market rate. One of the many benefits of a free market is that you will often see experiments like this. Some will fail, some will succeed, but no one will go to Siberia. Socialism is political system, an incredibly irrational and immoral one, but this is merely a business…

One of the aspects of socialist economies is that unlike in free-market economies, wages are not set by the market. Whether they are set by the CEO or the Central Committee is a distinction without a difference. You can swap the word "capitalism" in for "socialism" in your comment, and those statements would still work. Socialism didn't fail because it were monstrous. It failed, because we ran out of money and the wi…

I couldn't disagree with you more on this point. It's a common fallacy to equate political power (Central Committee) with economic persuasion (any private business). No one is forced to deal with Dan Price and his company - it's up to him and his company to offer value and stay competitive to all stakeholders and customers. On the other hand, the Central Committee's edicts are backed by political power. Disobey, go to jail, or worse.

The word "free" in free market capitalism means freedom from political coercion or force.

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

#14

Post by landryraccoon »

rdancer wrote: post #11
GeoDeV wrote: post #10

Earlier quoted context omitted.

This is definitely not socialism! There is no coercive government intervention here. It is the CEO of a private company paying his employees above market rate. One of the many benefits of a free market is that you will often see experiments like this. Some will fail, some will succeed, but no one will go to Siberia. Socialism is political system, an incredibly irrational and immoral one, but this is merely a business…

One of the aspects of socialist economies is that unlike in free-market economies, wages are not set by the market. Whether they are set by the CEO or the Central Committee is a distinction without a difference. You can swap the word "capitalism" in for "socialism" in your comment, and those statements would still work. Socialism didn't fail because it were monstrous. It failed, because we ran out of money and the wi…

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, he'll have to convince them to go along as well). If you want to think in terms of market wage, what he is doing is paying them market wage, then unilaterally deciding to give them a "big tip" at his own expense - which happens to bring their total compensation to $70K a year. That's still capitalist, since it was his money to give away in the first place. He could give it all to Donald Trump instead, if he wanted to - the fact that he happened to give it to his employees is almost arbitrary. The only issue is whether he can afford to keep it up, but that's entirely on him.

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

#15

Post by evanpw »

rdancer wrote: post #9
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…

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 is: why is this company so profitable, and can that continue indefinitely? Or does this guy just have such a high tolerance for risk that "acceptable profits" for him are unacceptable for any possible competitors?

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

#16

Post by linkregister »

rdancer wrote: post #7
kspaans wrote: post #5

> he has sold all his stocks, emptied his retirement accounts, and mortgaged his two properties -- including a $1.2 million home with a view of Puget Sound Maybe I'm missing something, but how is a $1.2m mortgage affordable on $70k/year? Did he not remortgage the whole value of the house?

He sold the mortgage to his company, for stock. The company takes out a mortgage, secured by the house he owns, he gets stock in return. If the company fails to pay, house gets foreclosed on, but he still keeps the stock.

Are you speculating or is that substantiated?

"He sold his stocks" implies stocks in other companies.

He can't increase his equity (50%) in his company until he buys out his brother. Am I missing something?

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

#17

Post by rglullis »

landryraccoon wrote: post #14
rdancer wrote: post #11

Earlier quoted context omitted.

One of the aspects of socialist economies is that unlike in free-market economies, wages are not set by the market. Whether they are set by the CEO or the Central Committee is a distinction without a difference. You can swap the word "capitalism" in for "socialism" in your comment, and those statements would still work. Socialism didn't fail because it were monstrous. It failed, because we ran out of money and the wi…

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 more than the other, and then we are not talking about market-clearing prices anymore, are we?

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

#18

Post by tehwebguy »

rdancer wrote: post #11
GeoDeV wrote: post #10

Earlier quoted context omitted.

This is definitely not socialism! There is no coercive government intervention here. It is the CEO of a private company paying his employees above market rate. One of the many benefits of a free market is that you will often see experiments like this. Some will fail, some will succeed, but no one will go to Siberia. Socialism is political system, an incredibly irrational and immoral one, but this is merely a business…

One of the aspects of socialist economies is that unlike in free-market economies, wages are not set by the market. Whether they are set by the CEO or the Central Committee is a distinction without a difference. You can swap the word "capitalism" in for "socialism" in your comment, and those statements would still work. Socialism didn't fail because it were monstrous. It failed, because we ran out of money and the wi…

He is a part of the free-market.

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

#19

Post by illumen »

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…

The employee retention is much higher than industry standard. Apparently the employees are happy.

The market seems to like their performance, since they are getting more business and making more profits.

If recruiting costs 10k, and training training 6 months + 20k. That's already 30k saved. Plus no opportunity cost loss because they had enough staff to do business could be easily more than the wage increase (according to the author). That's easily already over the 30k/year difference.

Assuming the company does not even grow, but just stays still... then this should be sustainable. Whilst they are growing, losing less staff than industry average will only increase their growth.

Note, that the company was slowed down because they had to hire more staff. Those slow downs would have been worse if they could not hire as quickly, or lost staff.

Is the employee retention solely because of increased wages? I'm not sure. But that alone could save the company a lot of money.

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

#20

Post by stingraycharles »

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…

If we bring economics on the table, we can also turn it around: when you pay higher wages, you suddenly have a pool of better qualified employees to select from, increasing productivity / profits.
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