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Comment by skurry | Hacker News Reader

The board of directors decides if a CEO gets hired, and for how much money. Often this board consists of presidents and CEOs of other companies. Is it very far-fetched to suspect that there may be non-market forces at work when this compensation is determined? Quid pro quo? I don't have a chart handy, but I think the pay of a CEO in relation to the average employee of a company has been rising dramatically over the past decades. Are CEOs orders of magnitude more important today than they were 30 years ago? I don't think so.

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I think you have to define market forces. The market force is simple:

"You want me. If you don't pay me enough, I will go somewhere else that will!"

In other words, as Adam Smith correctly noted, it is a question of who has power in coercive negotiations. Consequently CEO's get paid so much because they are so much more powerful than workers in that negotiation process, not because they are worth that much more.

But a lot of market forces boil down to this sort of power difference analysis. We think of a free market where the consumer has the power and the company does not, but I wonder how often that is really true.

But a lot of this boils down to the reason I think folks should try to be able to be self-employed-- it means you negotiate with companies from a position of greater power. I suspect if 60% of the population was self-employed doing everything from janitorial services through database engineering, we'd have no need of minimum wage laws because anyone anywhere could turn down a job offer.

By market forces I mean supply and demand. And you have correctly noted that these have a secondary role in CEO pay negotiations. Instead, it's a question of power and indifference. Where does this power come from? It stems from the fact that the board with which the future CEO is negotiating consists of inside and outside officers. This means that he is negotiating with future subordinates (inside officers) and executives who might want to become the CEO of a company where this future CEO has a seat on the board. Who would openly try to lower the salary of their future boss, the same person they will have to talk to about their own pay raises? So, the board does not really have an incentive to push for the true market rate of the CEO, unless they are major shareholders, but usually lots of incentives not to do so.

> We'd have no need of minimum wage laws because anyone anywhere could turn down a job offer.

And right now janitors can't turn down job offers? I don't understand. How does a self-employed janitor have more power? I think you greatly overestimate the advantages of being self-employed, and underestimate the downsides.

Right now, only 20% of the US workforce are self-employed, and a quarter of them are professionals (lawyers and doctors mostly). That means 16% of the population are running a business which is not expected to be a medical or legal business.

Most people esp. in the current economy, are not in a position to turn down a job offer. This means they want work more than the company wants to hire them. This is a major source of a power differential. If, on the other hand, the boundary between employment and self-employment is porous, this means that companies not only have to compete with eachother to hire said janitor, but they also have to compete with the fact that they could hire said janitor's ability to be self-employed.

The point is it is a clear shift.

Right now minimum wage laws are too low. We should at least set them high enough that people have no need of welfare when having a minimum wage job. As it is they are a nice way to tell us we are protecting the worker when in fact we are doing no such thing. When you combine it with welfare, you have solid incentives for low-paid workers not to become self-employed and thus the welfare and minimum wage scheme we have right now are actual tools in the class war by the wealthy against everyone else.

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