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Comment by mjw1007 | Hacker News Reader

The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn.

In this case production line workers were a relatively new thing, and Ford was helping to create a consensus about where they would fit in.

Part of the reason why simple supply and demand doesn't dictate a single level of wages is that there's a good deal of flexibility in what doing a job entails.

In this case it seems Ford was helping to decide that the workers would be skilled labourers: there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost.

The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system.

The alternative would presumably have been to try to organise the production line to require less training, and accept the efficiency loss in exchange for the lower wage bill.

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> In this case it seems Ford was helping to decide that the workers would be skilled labourers

When given a choice, employers would far prefer to commoditize their employees. It gives them far more power in the relationship and lowers their costs. Skilled workers are treated as such, not because employers want it, but because the circumstances don't give them a better choice.

> there'd be a training cost (what the article calls "a costly break-in period") and high enough wages to reduce turnover so as to amortise that cost.

This is exactly what the article says as well. Ford paid his employees very well to reduce turnover and its associated costs. Not because he was trying to create additional demand for his cars.

He could be doing both.

NB I have no reason to suppose the story is actually true. Very likely it isn't.

But the motivation the story claims Ford had does make sense. He was in a position to influence other employers' decisions by reputation, not just via the price mechanism.

If there's one equilibrium where factory workers in general end up as unskilled labourers, and another where they end up as skilled, the latter is better for Ford because of the products he happens to sell.

I don't think it would always be that cut and dry, especially today where there are other mechanisms of keeping workers loyal/minimizing their power (stock options with vesting schedules, non-competes in some states, etc) having a differentiated workforce that isn't a commodity your competitors could tap into could be better

I agree, employers like to reduce cost by acquiring loyalty and encourage workers to look negatively at a lack of loyalty. For example complaints from management, "Hey, these job hoppers sure make the work harder." They could pay more as Ford did, but it's an attempt to color perceptions and purchase compliance (e.g. less turnover) at reduced cost.

Not sure why you were down voted, this is a very valid point.

I ran the numbers for our customer service department and made the case for higher wages- our turnover isn't extreme but it is still expensive. Running the numbers, if we paid $1.50 more per hour we'd be in the upper end of our market, and assuming turnover dropped by 50% we would be saving money.

Response from the CEO was essentially 'they aren't loyal enough'. To be blunt, I don't blame them for looking for better jobs, I wouldn't accept abuse from customers for the wage they are paying. Unfortunately, the CEO looks at it as a moral failing in those employees, vs. the fact that they aren't paid enough to give a shit. I lean libertarian, but it seems simple enough to me that paying people a decent wage can be good for the business. Asking for loyalty to a company is BS- I like my job, but the only reason I do it is that they pay me. I'm certainly not willing to volunteer to do this for free, and I wouldn't expect that the people manning customer support are any different.

Expecting loyalty is ridiculous- its stupid that capitalists expect their employees to not be financially-motivated. Simply said, who is really motivated to be loyal to a company for shit wages?

There are lots of things that contribute to enjoyable work. Giving people the feeling their time isn't worth anything is probably the best deterrent. Stuff like: being late to pick people up; having them show if there is nothing to do and have them sit and wait for 8 hours doing absolutely nothing; similarly, having people sit and wait after the work is done (Extra points if they also act as if they did you a huge favor!); shit tools and materials requiring a lot of extra work every day to save 10 euro; insufficient time to do a decent job; treating any kind of communication as disruptive.

In a call center you give people 30 sec to 2 min to recover after a bunch of calls. If you take that specific moment to complaint people don't know how fast to gtfo.

And yet when it comes time to discuss his pay, I'm sure the CEO does not describe himself as "not engendering loyalty."

Oh, he is very much of the Reagan school and thinks that he has earned it.

Like I said, I lean libertarian, but flashy displays of wealth are IMO tacky. It's worse when you are flexing on CSRs that make $12/hr. Our CEO has made displays of how much money he has on the floor, and he seems to think it will motivate them.

Not my department, but I can understand why the customer service managers are pissed off by that. They have enough trouble with retention. It is somewhat disgusting to see a multimillionaire lord his wealth over people making barely over minimum wage. I know these folks, some of them are check-to-check. Answering emails is a horrible job, I wouldn't do it for $100/hr. That additional abuse is unwarranted.

> The story makes a good deal of sense if, in general, wages are set only partly by supply and demand, and partly by the employers-as-a-class's feelings of how much money people doing that sort of job ought to earn.

In my experience, this is exactly how business owners feel. The skyrocketing salaries of tech workers in recent years is a prime example. It isn't just supply and demand. Its also norm-breaking behavior by a handful of exceptionally profitable employers.

The people who claim that pay is based solely on supply and demand don't have a fully-developed conception of pay dynamics, historically or otherwise. Who you are - or rather, who is likely to be doing your job - absolutely helps determine pay rates. I have no doubt that the consternation regarding that "$70k for all employees" company extends to decision-makers, nor do I have trouble believing that the race/gender income gaps are not solely about job choice or negotiation skills or any of that. Whether its systemic or personal, there is definitely a decision being made as to how much this or that person "is worth."

Sooner or later, it comes down to total employee costs vs what value the employee contributes becomes the opportunity cost of money, usually around 15%.

https://en.wikipedia.org/wiki/Opportunity_cost

Supply & demand forces will always be pushing things toward this value.

You're assuming there are no rackets, either explicit ones or implicit ones.

Women's wages, for example, are very easily suppressed by a cultural racket that tells us the kinds of jobs they do (teacher, nurse, etc) are not very valuable.

Whether that's true doesn't really matter because as long as people believe it, there is money to be made acting as if it's true.

There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for.

The moneymaking scenario is if you can make more money with fewer people by paying top dollar for the best people in an otherwise underpaid class.

But that will typically just result in a bifurcation of the market, with some higher paid positions, and many lower paid positions, not a global rise in salaries. Then the best gamespeople will be drawn to those higher paying gigs, and they will push out the most talented professionals from those positions, erasing the desired productivity gain, and eventually causing the salaries to revert back to the mean.

You really need a very strong leader to break the racket, someone who can create an organization that really cultivates good people maintaining control of their work. And a very good business model that would allow you to grow fast to displace your competitors. That kind of company is extremely unusual. It's just not something the market automatically creates. There are much easier kinds of companies to create that still make money, so that's where the bulk of investment goes.

People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out.

> People underestimate the amount of available high quality business leadership. Without infinite available leadership, the market can only optimize the low hanging fruit. More tricky local maxima just won't optimize out.

Poorly run businesses is why there is always opportunity for someone else to do better, and why there is a constant turnover of businesses.

> There's no real money to be made in breaking the racket, because by breaking it you'd just be paying more for the same thing your competitors are paying less for.

Your scenario means that hiring nurses is a high margin business. High margin means businessmen will be attracted to get into those businesses. (After all, businessmen are in it to make money, not pursue a social agenda.) Lots of businessmen moving in will inevitably erode away those high margins.

This is what always happens in a free market. Greed trumps racism, sexism, etc., every time. If it isn't happening, look for a legal/regulatory framework that prevents it. For example, the original impetus for medical doctor licensing was to drive black and jewish doctors out of business, because the free market had failed to do so.

See "Competition and Monopoly in Health Care" by Frech.

"This is what always happens in a free market"

Non market mechanisms dominate the world, and they aren't just government regulation.

People go into teaching and nursing out of altruism, not because it pays well. People preserve historic collections because they love them.

Nepotism is rife in many organisations, connections and 'who you know' is hugely important, half of Russia's GDP is in corruption, and so are most countries in the world.

In most markets consumers don't actually understand the product they are buying, whether that's technology or consultancy, and cannot competently compare two products and tell which one is better.

Efficient market is a dream, and you should not be dogmatic about it.

> People go into teaching and nursing out of altruism,

I heard many claims of that, but haven't seen any evidence. I've often heard people say they teach/nurse in order to pay the bills.

> People preserve historic collections because they love them.

True, but such collections are not remotely dominant in an economy. Often they exist only because the government pays for them, which is not free market.

> Nepotism is rife in many organisations

If that means an incompetent is running the show, that fits under "poorly run businesses" I mentioned.

> half of Russia's GDP is in corruption, and so are most countries in the world

Corruption is not free market.

> In most markets consumers don't actually understand the product they are buying, whether that's technology or consultancy, and cannot competently compare two products and tell which one is better.

They don't have to. They use advisers who do, there's a thriving industry of people doing reviews, and lastly imperfect information is called "risk" and is priced in to most everything. For example, a used car bought from a dealer will fetch a higher price than one bought through Craigslist, because the latter is riskier. There's nothing not-free-market about risk pricing.

> Greed trumps racism, sexism, etc., every time

What makes you believe that? That seems like a very strong, very broad claim to me. Almost too broad to even conceivably be true.

> Women's wages, for example, are very easily suppressed by a cultural racket that tells us the kinds of jobs they do (teacher, nurse, etc) are not very valuable.

Aren't nurses making six figures (or close) in the US?

Re: teachers - currently in many countries teaching is organized as a slacker's paradise - everybody makes the same amount of money (barring seniority etc.), there is very little accountability for results of the work, teachers are guaranteed job for life etc. This, at least in my country (Poland), more or less attracts people who are slackers or burnt-out in other jobs. As teachers, they do shit job and get paid ok amounts of money, which is a fair deal for them (as otherwise many of them would leave). Meanwhile, everyone who cares about their child actually learning something (i.e. parents who want to send child to good university with entrance tests) purchases private tutoring - this is where the real learning happens.

If rackets work so well, why aren't they used everywhere to suppress wages? Why do people get paid more than some minimum at all? Especially, why doesn't the racket suppress women's wages even more?

I imagine that many implicit rackets are irrational, and many explicit ones are ultimately later deemed to be morally-objectionable. So in the case of the former, no one wants to disturb a stable component of profitability, even as there is a sense that the paradigm is suboptimal, archaic, or however else a schema may become irrational. The latter is the answer to your last two questions.

That's a reasonable point!

Though I don't think it's strong enough in the long run.

See eg https://www.economist.com/business/2010/10/21/profiting-from... (going via Google Search or so might be required to get around the paywall). But the subtitle already gives the gist: "If South Korean firms won’t make use of female talent, foreigners will" South Korean companies are pretty sexist and pay women less and given them fewer opportunities. But foreign multinationals don't share that sentiment, and are happy to hire talented women.

(The article is a few years old. These days the foreign multinational companies might even be extra happy, because it helps them boost their global diversity stats.)

Rackets are used everywhere to suppress wages. Employers usually subscribe to services that tell them what other employers are paying in their area for a given job, which they use during salary negotiations to give themselves a stronger bargaining position.

Any difference in information between two parties is exploitable to drive the price in the direction favored by the more-well-informed party.

> Employers usually subscribe to services that tell them what other employers are paying in their area for a given job, which they use during salary negotiations to give themselves a stronger bargaining position.

That's not exactly a 'racket'. Glassdoor lists that kind of information for everyone, including job seekers. And workers' rights to share that kind of information is even enshrined in lots of countries laws as inalienable (ie they can't sign away such that right; any provisions to such effect are at best unenforceable and at worst make the employer liable to be sued).

> Any difference in information between two parties is exploitable to drive the price in the direction favored by the more-well-informed party.

Not in a liquid market with competition. Eg I have no clue what Google stock should be trading at, but if I send a market order to buy a few stocks, I'll get a pretty good price because there are several market makers competing.

There are sometimes attempts by employers at cartels. These days mostly informal or even only implicit, eg via the kind of third party information sharing you allude to you in comment.

But as with any cartel, each member has an incentive to free ride and non-members even more so. And while your local Burger King and McDonalds franchisees might be able to collude, they'll have a hard time keeping people from switching to driving to Uber or Lyft if fast food wages drop too low. There's also the safety valve of self-employment.

The best thing government can do for the workers is to lower barriers to entry for would-be entrepreneurs: make employers compete with each other, and also pre-emptively compete with potential new market entrants (imagined or real).

(Closing markets by eg taxi medallions is exactly the opposite of what's good for workers.)

why 15%? It seems to me that it would trend towards 100%, maybe a bit less to account for risk averseness. Not saying you're wrong, but it is counterintuitive.

> why 15%?

Because that's what you can get by passively investing in other businesses and letting them do the work. For example, if hiring Bob generates a 10% ROI (Return On Investment) it makes no financial sense to hire him. If Bob generates a 20% ROI, it makes sense to hire him.

The ROI calculation is why many businesses (like Apple) build up massive cash "hoards" (they aren't really hoards, as the money is invested). They can't find a better investment within the company.

Ah, I see what you're saying.

This suggests a wide availability of alternative, reasonable-risk passive investments with 15% yield, which seems unusually high. What is this investment, usually? Stock buybacks?

Stocks, bonds, etc. Larger corporations often have a department tasked with managing such investments.

If you were considering starting a business, would you consider a business with a projected ROI of 15% and you had to work 24/7 on it, compared with 10% ROI investing in the S&P 500 passively?

I.e. don't look at what you'd make running the business. Look at what you'd make relative to passively investing the money instead. That's "opportunity cost".

Where are these so called skyrocketing salaries? If a handful of companies in the valley paying people decent salaries because they generate them billions, what's the problem? There are hordes of capable tech people in the world,yet companies decide to establish themselves in the vicinity of these high paying companies and then complain about how hard it is to hire people,because they are expensive...Go figure.

> In my experience, this is exactly how business owners feel.

Anyone who consumes a good or service is aware of its market price, and is very well capable of comparing it to any value offered. There is no need to pull a classist conspiracy card because, in the very least, those responsible for doing the hiring have interviewed multiple candidates and heard what wages they were asking, and were more than able to compare offers.

It isn't so simple, because there are many ways of dividing up the work that's going to be done into job roles (and the division tends to be industry-wide, rather than done separately within each company).

The people doing the hiring may have enough information to produce an efficient market for a given job role, but I don't think the mechanism for the selection of job roles looks much like a supply-and-demand market.

Consider system administration. As a simplified example, you could have one equilibrium in which you have one low-skill employee for each 50 computers, or a different equilibrium where you have one high-skill employee for each 500 computers.

If the industry as a whole settled on the first, a particular company would find it hard to switch to the second: it would be hard to even gather information about how well it would work, because the operating systems available would be designed for the lower levels of automation that the first model implies.

In cases where two equilibria are viable, I think where we end up can depend on whether the employers feel that a given sort of job "ought" to be a high-paid professional one or not.

A good vs bad primary school math teacher can make your child hate the subject and completely change the trajectory of their career.

They teach ~100 students every day, so tens of millions in future earnings depend on them.

Does their pay reflect this? All the good teachers I've met, could be making more elsewhere.

If you were to buy an inexpensive product to fulfill a certain need in your life, and that product failed before the need was fulfilled, you would not buy the identical product. You would spring for a more expensive product that would complete the need. You would demand a better product and the manufacturer would command a higher price. That is how the market works. If your workers were walking off the job to goto a job that was less tedious at the same pay, after you spent money on training them, the solution is to raise their pay high enough that they would stay and complete the task of building a cheaper automobile. You would demand a better quality of employee and they would in turn command more pay.

Even modern employers usually require some "character requirements". When was the last time you worked for a company that would knowingly hire an employee who had a record? A drunk and disorderly conviction can keep you from landing a job. In my state flipping someone off in traffic is considered harassment, which a conviction would then bar you from some employment.

In his book Shop Class as Soulcraft Matthew Crawford makes the point that Ford's employees found the work alienating. Many had been crafts people with a great deal of autonomy and they naturally found the production line unbearable. It took a lot of effort to change peoples attitude to factory work.

Did it ever change? I know that around here, when the weather is nice, after a shift a lot of the workers go straight onto the meadow behind the factory and drink heavily there. I don't suppose they drink because they're happy...

It’s not clear to me why you think this isn’t supply and demand at work. Ford had a particular demand for labor, and the market had a particular supply of it. What you’ve described is Ford defining what he thought his business requirements were, making differentiation judgements about what kind of labor he wanted to hire, and coming to a conclusion about how much he was prepared to pay for it. The only factors I can see that would introduce inefficiencies to discovering an equilibrium price in this situation are that Ford was doing something brand new, so he perhaps didn’t know exactly what he had demand for, and he was doing it in the middle of the second industrial revolution, so the market conditions would have been changing perhaps more than usual.

Ford claimed his motivation wasn't supply and demand for labour, but a wish that his workers should have been able to buy his product.

Worstall says two things:

- Ford's claimed motivation makes no sense;

- there is a plausible motivation which does add up to supply and demand for labour.

I claim Worstall is wrong about the former.

I make no claim about what Ford's motivation actually was.

> I claim Worstall is wrong about the former.

He'd be right. It's not possible to run a successful business by paying people to buy your product. The numbers don't add up.

Ford never said he intended to make money by only selling cars to his employees! Only that the employees should also be able to afford the cars they were producing.

I didn't say "only", either.

> The business about "character requirements" and visiting the employees' homes also looks like a conscious attempt to control where the workers fit in the class system.

I won't say that wasn't part of it. But I see a stronger connection to risk management. Reducing turnover means making sure you hire people who won't suddenly be arrested, hospitalized, or forget because they're too drunk. And the language requirement makes sure everyone in the factory can communicate with everyone else. The rules for women are likely just sexism though.

Workers fluent in English and who didn't gamble or drink were much lower risk (in terms of theft and punctuality) and higher value to ANY employer. Ford wanted to verify that his higher wages were being spent wisely on a higher quality workforce . .

Do employers-as-a-class get together to talk about their feelings?

Wow, it’s almost as if market forces can, alone, determine the correct price for something...

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