Comment by rdancer | Hacker News Reader

Comment by rdancer | Hacker News Reader

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 market price, skimming the profit. People are clever, they will find a way.

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.

All the above used to be the norm in various forms in the Soviet bloc when I was a kid. Those of you who spent some time in a socialist country will recognize the problem.

I hope that this experiment stands the test of time, and we can all learn from it how to make employing people more humane. But I won't be holding my breath.

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 decision taken by a single CEO exercising his own independent judgement.

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.

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.

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.

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?

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.

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.

And yet people habitually tip 15-20% on top of what they're required to pay in restaurants, almost universally. Lots of things aren't rational, but they could still be culturally accepted (and done without coercion, even).

They only get fired if you find out. So the rational thing for them to do is spend part of the arbitraged amount on deceiving you. As long as they are spending less on deceiving you than the arbitraged amount, it is rational for them to do so. Ergo, rampant corruption.

I don't get it. How does the math work out?

Let's suppose the market wage is $10/hr. If I offer a lucky housekeeper $20/hr, why wouldn't she just happily take the money and continue to work? Union workers don't arbitrage themselves (but they should, under your scheme, because they collectively bargain for higher than market wage).

If the cost of deceiving me is greater than zero, then she's being irrational. She can earn no more than $10/hr anywhere else, and hiring someone else to replace her would cost $10/hr (since that's the market rate). So lets say she hires someone else at a cost of $10/hr, and then goes to work for someone else - she's still earning $20/hr (the arbitrage amount plus the value of her labor) minus the cost of deceiving me. So assuming she wants to work for wages (which she must, since she offered to work for $10/hr in the first place) I don't see how it's at all rational to arbitrage the opportunity.

Another way to go around it: you pay $20/h to a job that usually takes X hours to do it, so in the end you will pay 20 times X.

I bring someone else to work with me, and we both do the job in X/2 time. I pay $10/hour for the subcontracted person.

So assume a 8 man-hour job. You will pay $160. I keep $120, the subcontracted $40. My effective rate was $30/hour. You don't think this is a problem, as you see your house cleaned just like usual.

Next time, I bring 3 other people. We finish things in 2 hours. I pay $60 to them, I keep $100. My effective rate was $50/hour.

Next time, I bring 7 other people. We finish things in one hour. I pay $70 to them, I keep $90. My effective rate was $90/hour. I use the other 7 "working" hours of the day to play videogames.

> You don't think this is a problem, as you see your house cleaned just like usual.

How are you able to assume this, since I actually would very much see it as a problem if 3-4 people I don't trust to clean my house as much as my housekeeper are inside doing the job? Your underlying assumption is that I'm an idiot and can't see what's happening. She couldn't subcontract the work for the same reason I can't subcontract my work at my current job - my employer would see through it.

> I use the other 7 "working" hours of the day to play videogames.

Not many people would come out for $10/hr for only one hour. What about travel time? And the organization necessary to make sure the quality is still high? I think you're lampshading a ton here.

You say it's lampshading, I say it's just imagining some ways where people can exploit this type of opportunity when receiving above-market pay.

If what you're saying is true, why don't Dan Price's employees arbitrage the difference between what Gravity is paying them ($70K) and their actual "market value"? If one housekeeper can make it worth her time for $10/hr, surely a large group of individuals can make it worth their time for $35/hr?

But actually I think you're on to something - basically Dan Price is saying he thinks the true market value of the labor provided by his workers is actually $70K a year. And what I'm really saying with my housekeeper is that I like her so much that in order to prevent any risk of her defecting to another employer I'm willing to pay $20/hr instead of $10/hr. She can try to arbitrage, but that means working for someone else for $10/hr, but since I assume she actually wants to work, why would she work for anyone other than the person who values her work the highest? So we're still in capitalist land.

He is a part of the free-market.

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.

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