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Comment by MPLan | Hacker News Reader

Common leadership, via the sharing of board members, significantly increased the likelihood that tech firms would not hire each others' workers. This form of 'no-poaching' may have had much bigger impacts on wage suppression:

"It is worth noting that such collusion against workers may have costs beyond just the directly impacted workers in the high-tech sector. Wages and salaries of jobs in one industry can serve as reference points when workers in other firms/industries negotiate their wages. Thus, if high-tech workers get paid less, this may impact wages of other workers, say in finance, which may then impact wages in another sector and so on. Collusion in one sector can have impacts on other industries."

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And I'd say it is probably worse for society & small shareholders than it is for workers. These board-members aren't particularly skilled and companies mostly just fall into success by accident. Having a small set of board members everywhere is basically corruption and is surely funnelling money away from businesses into the hands of a small politically connected group of people.

That being said, the best response would be to make it easier for workers to split off and spin up new businesses (ideally co-op style, we really should be experimenting with communal ownership styles now that communication tech is so much better). There isn't a mechanism to stop small politically connected groups conspiring with each other, that is just how power works. It isn't feasible to out-law the politically connected.

What did you have in mind to make it easier?

It’s already not hard for workers to split off and form a new company with whatever ownership structure they want.

What’s somewhat harder is to find a way to cover your bills until the company is able to pay your salary, assuming you aren’t willing to sell part of the company in exchange for that funding. (I’m not giving you money in exchange for nothing; I’m probably not lending you money to immediately spend on salaries without collateral that will be worth something if you fail, and if you have that collateral, you could already use it to raise funds.)

Unless you’re proposing some government scheme to give money for no security, I’m not sure of the form of making it easier that wouldn’t be immediately gamed.

Investing in cooperatives isn't all that new, some sites (https://www.ethex.org.uk/) have a fairly long history in it. Cooperative financing options are generally debt instruments, or forms of shares which are a kind of like bonds that also confer membership and a vote.

The difficulty really is in organising people into a functional company and acquiring customers ASAP. The coordination costs are high and the prospect remains risky, so very few people do this.

Probably the best option for more cooperatives is to legislate the idea of a hostile takeover by employees into existence, such that a majority of employees can vote to take over a company if they can finance it's purchase. As you might imagine, certain quarters would respond badly to this.

If they can finance the purchase (at an arms-length price), they can already buy the company; no law change is needed.

The idea already exists and does not need to be legislated into existence: it’s a leveraged buyout (LBO).

A law change is only needed if you want to force a sale at a lower price than the current owner(s) will accept. In other words, if you want to forcibly take the company from them for less than the price they are willing to accept, so basically seize part of the value of private property and give it to other private people. I agree that would be unpopular.

Not so: you're thinking of companies that are traded in public. I'm saying even private companies should be able to bought by their employees, at the instigation of the employees rather than the owners, and that this should apply to companies large or small. It may still be an LBO and would still be at market price, but it'd be unappealing to say the least for owners. It'd still be beneficial.

If it’s bought at a price that the owners voluntarily accept, they’ll be fine with it (by definition), whether previously publicly traded or privately held.

No, the idea is that a formula would apply. The reliance on voluntarily handing over from the founders is specifically what a legislative change would alter. That's the whole point of what I'm saying.

That's a fine idea, but it's definitely not what "at market price" means, so you can probably understand the confusion in this thread.

I'd basically like to see worker-owned corporations being tax-privileged (maybe a 5%, maybe a 15% discount tax rate) and some QoL legal features to make it obvious to people that they are signing up for a high-risk high-reward corporate structure. If I thought the idea had serious traction I'd look up what they do in Switzerland [0] and suggest people copy that. But I'd like to see new ideas experimented with that make it easier for workers or citizens to take on controlled levels of risk.

It is more a political project than an economic one; I interpret serial board members as a problem of power centralisation. The incentives shouldn't be to engage in that sort of centralisation, it can't possibly be a technically good idea. One idiot in the wrong place will cause too much damage and board members don't have time to keep track of multiple companies. It'd be good to do things that decentralise power.

[0] https://en.wikipedia.org/wiki/Coop_(Switzerland)

> These board-members aren't particularly skilled...

Are you suggesting Dana White of UFC fame joining the Meta board isn't particularly skilled? That he wasn't approached for his in depth knowledge of social network theory and practice, online ad revenues or AI ethics?

It's been argued that similar dynamics also inflate executive pay, although I'm not well-versed enough in the overall economic policy debate to know how well-established this actually is [1].

[1] https://www.epi.org/publication/reining-in-ceo-compensation-...

>Common leadership, via the sharing of board members

We used to call this “interlocking directorates” and it’s a fundamental pillar of antitrust law. Why are we using a new term?

I mean thats a pretty big stretch. You can certainly make the argument but I believe they call it casting a wide net.

It's baumol's cost disaease no? rising wages in one sector, have a side-effect of bringing up wages in another.

I agree that its possible but it seems to be the authors trying to cast a wide net via hypotheticals. Its easy to say its possible - but without any evidence its heresay, and within a paper like this its about trying to show the widest and broadest potential wage suppression possible.

It seems sloppy to me to be honest.

I mean I know a lot of people who explicitly decide between sectors early/mid career.

Tech vs consulting/finance for MBAs, tech vs. HFT for SWEs, tech vs. advertising for creatives, etc etc

I really doubt that could override the fundamental supply and demand forces.

If hiring a finance "worker" will make my company $500k/year I will offer him $450k regardless of what Google engineers make.

Will you offer him $450k regardless of whether he would accept $250k because his next best alternative is offering $200k?

In that case I would offer $250k, of course, but that assumes there is no other firm that can put that person to work on something equally profitable.

Either way, engineer wages at Google would not be a factor.

> Either way, engineer wages at Google would not be a factor.

...for you. It would be a factor for who you are trying to hire. If who you are trying to hire sees Google engineers making $$$, but you are offering $ for job X, and they do not see it as an unbridgeable gap in their own aptitude, they could well say "I am going to instead try to be an engineer at Google so I can make $$$, instead of being offered $ doing X". This happens all the time.

In this example, if their alternative was a $300K/yr job at Google, that would certainly affect their willingness to accept your $250K/yr offer.

If it did not at least affect that willingness, they might not be worth $250K/yr as a financial analyst.

This is absolutely not how wages are set anywhere and certainly not in tech. Workers are paid according to the prevailing wages and what they’ll accept, not according to the value they generate for the firm.

and yet, they could, no matter what happens in other industries

if they were paid for exactly the value they produced the firm would not profit as all the profit would be paid out to those generating it

oh okay, if anyone anywhere suggested otherwise in this thread I'll let them know

> the firm would not profit as all the profit would be paid out to those generating it

Then what is the firm doing at this point?

In theory, it could re-invest those profits into the company, in hopes of further gains down the road. (But like all things, there's a healthy balance.) In practice, I think the answer is "executive bonuses" and [short-term] "stock buybacks".

(But morally I agree; there is no reason every company has to be Scrooge, and I think it's to their long-term unprofitability to be so, by effectively ensuring a lack of experience & growth within the employees generating the value in the first place.)

How much value a worker generates is of course much harder to quantify in tech, vs a finance trader, but the market forces will produce a rough equivalent result over time.

But to get back to the topic, tech wages are definitely not set by comparing with finance wages!

Markets are not guaranteed to convergence faster than surrounding conditions change.

Markets are not guaranteed to converge.

“The market can stay irrational for longer than you can stay solvent”

There are price makers and price takers. Guess which side labor is on?

> the market forces will produce a rough equivalent result over time.

No, they absolutely will not. Absolutely not. The entire history of the labor movement and of labor law is testament to this. We’ve tried this, repeatedly, in the real world, and labor gets fucked every single time. Employers do not pay according to the value generated by the employee, they pay the minimum they need to get an employee. Get this model out of your head, it is wrong.

There's probably a case for Henry Ford, if the parable about paying above-market wages is true.

But certainly not since then.

And even he probably paid the minimum overage he could. It's the nature of business.

Every once in a while someone recognizes that paying good workers good wages works out well for the business, but that never makes it back into the textbooks somehow.

I would love a study, which compared how well a company did, and what their overall expenses were:

1. For paying a team of N people the going wage.

2. For paying a team of N/2 people, double the going wage. Aiming for the best workers it could find.

3. Paying a team of 2*N workers, whatever the bottom of the market is.

This would be for teams where high functioning workers resulted in high value results, i.e. creative/design/technically challenging work.

I have no idea how a study like this would work, but the more challenging the work, the higher likelihood that you save money going high salary, high talent.

Some AI researcher seem to be falling into this category, with really high salaries. Researchers certainly have 10x talent. But I bet there are a lot of 2x, 4x engineers, designers, whatever, that are being overlooked and/or under motivated. That would be cheaper to pay, and produce more value, in small numbers, than others in larger numbers.

These type of firms exist in all sectors.

I wonder if market forces would work better if everyone's salaries was public.

There's a viable place to do a case study:

https://www.bbc.com/news/magazine-40669239

Thanks for posting. That article was really interesting!

I think/hope we're talking about different things.

I think you're saying that employers pay employees as little as they can, not according to some formula based on the value each employee generates. Aside from some very specific exceptions, I think that's very true.

But then we need to explain why all companies don't just pay minimum wage!

I claim that prices (wages) on a labor market, like on most markets, is determined by supply and demand. Obviously, companies that pay employees more than the value they generate will run out of money and die. This sets an upper limit on wages.

The lower limit comes from companies outbidding (demand) each other for workers (supply) as long as it's profitable. In aggregate this means wages will converge on on some large percentage of the value generated by the typical employee.

I saved my company $3million+ / year in Opex costs. Still waiting for my juicy $1million/year salary in reflection of the value I generated.

I made a former company $100M p.a. And all I got was a 30K bonus paid out over 6 years. Not even a promotion as I was on a visa. The asset required maintenance and without me it slowly degraded away. Every now and then I offer to go back and fix it for a flat $1M but instead they would rather believe that it’s impossible. You could imagine the sheer dysfunction required to let that much money go.

A former colleague built a program that would have saved $30M p.a. in OpEx but as a policy they can’t deploy something unless more than two people understand it and they wouldn’t pay enough to hire someone capable enough. Probably would have taken $600K.

It’s about power and in general management does not want to yield power to ICs no matter how much money they could make with it. The more productive the IC the more power management loses.

My advice is to sleep on those kinds of improvements. Optimize things that are making your job/team's daily life more difficult, which directly translate into better WLB. You can sometimes knock significant hours-per-week off of your actual work done.

We are giving away this expertise for fractions of a penny, but companies react to market pressures. Let them spend the extra $36 million for not keeping up with it. When they offer incentives, then do the work.

Heck, maybe you can make an underhanded pitch to whatever cloud provider it was that you earned them millions by not fixing the issues.

Having had real conversations with company leadership about "the board being concerned about engineer salaries being above industry norms" despite "having the highest revenue per engineer in their portfolio" I can... anecdotally confirm.

I'm here to second this.

I've been in the board room when discussing salaries and told that we need to offer the lowest that the candidate will accept - "it's just good business".

I was arguing against that mentality as responsibilities and retention are a more important metric to my mind when thinking about compensation. But even there, I'm part of the problem as I would set my "retention" target to some measure above industry standard: where-by I am still thinking in industry standard terms. (as per this thread)

Curious, have you always been a market determinist, or did that develop in a unique way for you?

I've never heard that term before, so it's hard to answer :)

After learning how microeconomics/"price theory" explains how prices emerge in markets, it can be hard to discuss with people who don't understand the mechanisms.

There's not exactly a good descriptive term, but the vibe I got was beyond, "Markets are the best tool to solve exchange problems," and ventured more into "Markets are an inevitable fact of nature, provide the most utility, and efforts to intervene produce worse outcomes." Let me know if I got that wrong.

> After learning how microeconomics/"price theory" explains how prices emerge in markets, it can be hard to discuss with people who don't understand the mechanisms.

AP Physics is learning that a perfectly spherical cow does X.

Common sense is realizing perfectly spherical cows don't exist, and that certain things are overly simplified or more chaotic than theorists would sometimes like to admit.

But then wisdom is recognizing it's AP Physics, not common sense, that put a cow on the Moon.

There may not be perfectly spherical cows in the real world, but then real cows will also do X, to the extent their non-perfect-spheriness doesn't interfere with it. Theorists don't simplify for the sake of simplifying, they're trying to study specific components of the whole in isolation. Yes, it's important to not confuse a component for the whole thing, but then it's also important to know the most impactful components and how they behave.

True wisdom is recognizing the folks that put stuff on the Moon had more than just AP Physics under their belt.

After learning how bad people who know a little microeconomics are at noticing or accepting it when their "explanations" diverge grossly and repeatedly from what happens in reality, it can be hard to take them seriously.

“In theory, there’s no difference between theory and practice. In practice there is.”

- Yogi Berra

Understand that the people arguing with you aren't doing so because they don't know or understand the theory, they're arguing with you because the theory is a toy that only works under very specific conditions which are almost never met in the real world.

Economists have studied that question a lot, and the general result is that the theoretical models work quite well, even on substantially imperfect markets.

I think these concerns are pretty similar to the religious idea that "evolution is just a theory". Our human minds really don't want to admit any facts that would force us to change our world view.

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