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Comment by jedberg | Hacker News Reader

I was listening to a great podcast about this. They said they asked owners of businesses, "If you're having trouble hiring, why don't you offer more money?". Their response was all a variation on, "because then I'd have to pay all my other workers more when they found out, and it's cheaper to just pay the current folks overtime at their lower rate than give everyone a raise".

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Under normal market conditions, they would hemorrhage current employees to any alternative local employers who raise their wages. But if all local business owners are freezing their wages while unemployment is low, then the liquidity of the workforce freezes, and you get into a weird equilibrium. Workers might want to leave, but there's no alternative that improves their compensation. Businesses are engaged in a natural cartel behavior, but where the incentives to cheat are reversed - the first to raise wages hurts themselves the most.

I've seen this in my hometown in Ukraine. It has ~20 outsource companies in different sectors and if you're good at doing what you're doing and kind of swapping jobs, there's still a ceiling they wouldn't want to break for you despite usually being paid by US citizens for their services. It's easy for companies to get new trainees and juniors as city has 2 universities with CS courses and everyone seems to want to work in IT.

Most of folks who want bigger salary either move to a city with product companies (Kyiv, Odessa, Lviv, Kharkiv, etc), so there's natural competition and outsource rise their salaries too, or go remote.

> It's easy for companies to get new trainees and juniors as city has 2 universities with CS courses and everyone seems to want to work in IT.

If its easy for them to hire, then it's not the same situation at all.

Wouldn't the first to raise wages get the pick of employees?

Anyone remember when Steve Jobs and other tech leaders were caught making secret agreements to prevent employees from moving?

This is the crux of the issue. Let's take a staff of 100, at salary level 100. Total wage cost is 10000.

The owner wants a 10% increase in labour. How much will it cost? Let's assume they can only find new labour at 110, but if they pay this they must pay existing labour 110 as well.

110 * 110 = 12100. A 21% salary increase for a 10% labour increase.

Also it probably won't be a straight 10% labour increase, as some % will have to go to admin and the organizational costs associated with size.

So, that's why. It's also potentially zero sum, as if one employer raises wages, then others will follow, and there may not be a 10% gain in employees. Just increased costs all around. (There will be some gain in employees of course, as workers are pulled in from less efficient sectors)

There are people who would work for the companies but not at their current wage levels. Increase the pay and the pool increases as well.

That was explicit in my post. You increase the labour pool by increasing wages. But when supply is constrained, you get a less than linear increase in output per unit of wage increase.

OTOH it means they've been skimping on raises (not keeping pace with the market) and now it's come back to bite them.

This can only go on so long before they have to raise pay.

And in the meantime everyone is underpaid and the owner is stressed because he can't hire people.

Such is life when caught in a vicious circle.

Wages have stagnated since the 1970s, so "they" definitely don't have to raise pay:

https://upload.wikimedia.org/wikipedia/commons/thumb/7/73/US...

Not if unemployment is back to 1960s levels. I suspect you are right in that the Fed will kill any general wage rises.

Do you remember what podcast this was? Sounds like something planet money would do.

I believe it was The Indicator (by Planet Money)

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