How could you possibly determine how much value your efforts are producing? How much value are you assigning to the risk the founder and investors are taking? Maybe your $200k job is producing $200k in value. Or even less.
>The fact that tech companies bemoan how hard it is to find employees suggests that we aren't at this equilibrium.
Tech companies always pretend it's impossible to find employees. That's not reality, though. That's a political strategy.
I'm not disputing that there's difficulty, and that it might not always be possible (although we can often estimate and assign a confidence level). But the parent comment claimed that even if we did know, value shouldn't pull salaries up: that's what I'm responding to (side note: the parent also implied that we can know what values are, since he acknowledged their use as a floor for salaries).
The repairs were a profit center, and the labor I was billing was keeping the utilities turned on, buying replacement tools, consumables, paying for my lunch break, covering rework, a hedge against me injuring myself, paying for the shop van I used to run inventory between stores, paying taxes, business licenses, my manager's salary, the owner's salary, paying for Bob to wander over and consult on a repair I wasn't sure about, paying the interest payments on the loans, and covering the loss leaders that got us repeat customers who needed repairs in the first place. Things like trade-ins and entry level equipment.
At your programming job, every manager above you in the chain, every support team that you use to get your work done are all being paid out of the money billed for you. Yes you may be writing $1M in software a year, but the company wouldn't exist and you wouldn't have any sales without those other people, so all of that overhead gets subtracted from your value. Ironically and possibly painfully, a company can exist for months without a single programmer, but it can't exist long without a management chain.
For example, you may discover that someone else got that promotion that you were eyeing, because they provided 15x value compared to you - 7 patents, 3 products architected that opened up new areas for growth, etc.
Genuinely interested to hear an expansion of this. How would pretending that technical employees are hard to recruit, benefit a company politically?
Absolutely 0, because they're not the ones doing the work.
And what makes showing up at the office and typing on a keyboard such a holy use of time that it alone deserves compensation?
"And what makes showing up at the office and typing on a keyboard such a holy use of time that it alone deserves compensation?"
The fact that it actually makes the damn product.
) In Icelandic, "win" means "work".
When the poor takes an investment risk of $1000 they risk more than some elite putting up $1000.
What is $1,000 worth to you? Now, that question has a wide range of answers. In some places, that's literally worth multiple lives. Or it could be beyond insignificant.
Obviously very few can or should take a personal investment risk of 100% or more of their net worth.
The original comment was that holding money generates nothing, you have to risk it, and I completely agree. You can risk 20% of your net worth and you're not risking your livelihood, and odds are in ~8 years your investment will have doubled, and your net worth increased by 20%. For some people that's a thousand dollars, others it's ten million. If you want to double your net worth in less than 30 years, you're going to have to risk a lot more. Everyone has access to the same returns on the public market (and we restrict access to private markets for very good reasons).
So it's a literal definition of risk, and as a percentage of net worth it works well. The problem of massive wealth inequality to me is completely adjacent to risking capital in return for investment returns.
This is true generally, but I think it doesn't apply in context. Tech has saturated the existing market, there is no demand to be satisfied for more tech. Of course, the industry will continue to grow, but only because the very nature of tech is to innovate. Growth in tech doesn't come from creating new supply to fill an ever-growing demand, it comes from innovating and creating new demand. That means that the growth of tech is bound to the rate of scientific progress, of investor's wallets and of cultural change. You can't keep hiring more and more 200k developers to make more millions, because there's no one left to pay more millions.
The parent, slg, was right in their analysis except for one point: employers have to compete on salary between each other, but they also have to compete against the engineer's opportunity to start their own company, which would let them earn directly in proportion to the value they produce. Engineers' salaries are therefore related to the level of risk and difficulty of entrepeneurship. The easier it becomes to start a startup (controlling for the expected returns of starting a startup), the more employers will pay their engineers.
> Tech has saturated the existing market, there is no demand to be satisfied for more tech.
Of course, if you mean at current prices, then sure: everybody who wants and can buy at current prices will do so.
Still, demand is very elastic. Even with current tech, there's lots and lots more demand at slightly lower prices. Companies can just wait until their capital investments have deprecated a bit more, and then lower prices a bit.
(You also want to keep prices high initially, even if costs would allow to go lower and still break even, to capture the higher willingness of some people to pay more to get your product sooner. Basic price discrimination.)
> in a well functioning market
All these big California technology firms argue to shareholders that their network effects create a "moat" (they prefer you not to call it a "natural monopoly"), and that this is exactly why their revenues are disproportionate to their spending/hiring.
I think your argument should be played backwards: the large-cap CA technology industry is not a "well functioning market" because everyone's just seeking natural monopolies--and sometimes capturing them.
That's not how technology works. The most evident example is where data feeds data, creating a market without compare. You can't compete with google for map data or AWS for hosting.
> we should ultimately reach some sort of equilibrium
The equilibrium is not based on the metrics you have proposed except in the slightest degree.
I don't think technology is that different. Incumbents have always had advantages. That doesn't totally preclude the possibility of competition. It might be that they compete by providing less value for less cost (eg the maps might not be as good, but they might be good enough for some users), or by servicing users that the incumbent doesn't care about (side note: isn't this what The Innovator's Dilemma is about?). But it's rare that a competitor is so dominant as to totally preclude any possibility of competition. You certainly haven't provided an example of one yet.
In 20 years, we will see who is competing and who is was just funded with unicorn dreams. I don't consider a single one of those comparable.
Azure and Google Compute Engine? I'd say those are pretty comparable to AWS.
Could you explain your example? I tried this, thinking it might give me something interesting, but I couldn't figure out what you were referring to.
When I use "should" in my earlier post, I don't intend it as an ethical "should". I mean it as a "if everyone acts in a rational way, this should, eventually, be the outcome".
Price fixing is an actual thing, that's why we have labor laws. Also see: non-compete agreements.
There are 10s of thousands of businesses in the US. It's hard to believe there'd be any remotely successful collusion in keeping wages down.
Non-compete agreements are invalid in many states. Also, would you sign a non-compete agreement in order to get paid 10% of your value to the business?
This takes many assumptions: People know of all these businesses. People are able and willing to move at a whim (not so easy with family/friends), people are willing to change their jobs every other month (for a business a job is just a transaction of money vs time, human beings, failed constructions that we are don't see it that simple) and so on. Neither the world nor people are completely rational, so things which work in theory often donThere are 10s of thousands of businesses in the US. It's hard to believe there'd be any remotely successful collusion in keeping wages don't work in reality.
https://en.wikipedia.org/wiki/High-Tech_Employee_Antitrust_L...
It doesn't sound like it was very effective. Cartels in general tend to be unstable, as members have powerful incentives to cheat on the agreement.
It's hard to say if this agreement actually reduced salaries in any significant way, as there were plenty of other companies in the area who were not part of the cartel.
Totally agree that the price fixing wasn't kosher.
For example, a person doing the exact same job at Facebook is going to provide more value than a person doing the exact same job at Twitter which is going to provide more value than a person doing the exact same job at a brand new startup. The Facebook employee might be producing $1m and the Twitter employee might be producing $200k. In that instance Twitter can't pay more than $200k and Facebook has no incentive to offer more than $200k.
Or maybe a more concrete example, if I am the head of design for Ford, the value I produce for Ford is always going to be more than I can provide by myself because I have no way to put my skill set to use in a new company. I don't have access to the supply chains Ford does. I don't have access to the factories that Ford does. I don't have access to the labor market that Ford does. If I wanted to actually compete with them, it would require billions in funding behind me like Tesla.
Additionally, yeah, it's true, competitors might not be able to realize the same value in the same space. Competitive advantages exist. Spreads between value and salaries will exist, and some companies might have bigger spreads than others because they're more able to realize value. I agree with all of this.
All I am attempting to do is refute the claim that there's no relationship between value of work and renumeration for that work ("[t]he value someone creates has nothing to do with their salary"). I don't dispute that we can create toy examples where that doesn't happen, but they aren't effective refutations of the general point.
(Economists say demand and supply are elastic, I think.)
matthewowen's argument is not assuming the labor theory of value is true. It's just pointing out that, other things being equal, if the demand for X increases then the demand for X-makers' labor increases too; hence X-makers' wages increase.
If there exist jobs that produce $1MM in value but that have a going rate of 200k, then there should be more of those jobs: either the company doing the work should expand, or it should have competitors. This will lead to increased competition to hire, which means higher wages. The increased number of jobs might generate downward pressure on the value produced by those jobs (since the output is now less scarce), and the increase in salary should increase the number of people who want to work in the field (which would dampen the salary increase), but we should ultimately reach some sort of equilibrium. The fact that tech companies bemoan how hard it is to find employees suggests that we aren't at this equilibrium.
To give an analogy, your explanation is akin to when people observe that the price of a good is based on the competitive market, and that the cost to produce merely provides (in most cases) a floor to that price. However, that's only part of the story: in a well functioning market large spreads between cost to produce and price encourages competitors to enter the space, which leads to lower prices. There may be delays, and there may be exceptions, but generally the function of competition is to reduce these spreads. Likewise, we should expect competition to reduce the spreads between job value and job salary, generally by increasing salaries and lowering values.