Comment by anigbrowl | Hacker News Reader

Comment by anigbrowl | Hacker News Reader

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For a mathematician you sure like fallacious arguments.

As a result, a business can't pay to train it's own work force

Well, they could offer more pay after the training is completed, or focus on being a nice place to work such that employees would choose to stay put with a company that treated them well. Your argument rests on the implicit assumption that employees will leave the moment they receive a competitive offer and are only interested in maximizing the take-home pay aspect of their economic advantage. Employees are motivated by a combination of monetary compensation, benefits, and good will towards a firm in the same way that a firm is valued by both its book assets and its good will in the marketplace. You assume, without foundation, that employee loyalty towards an employer that provides training will be nil, and ignores the possibility that employees might look forward to receiving future training (and promotions) which would have significant economic value, whereas a firm that poaches employees and offers no training of its own presumably won't be offering any in future either.

If an investment can't be protected it's pointless to make it. Having employees pay for (and be compensated for) their own training is the most reasonable workaround.

You could equally argue that it's pointless for employees to run up debt buying expensive an education which an employer might then say doesn't quite meet their requirements and therefore shouldn't be rewarded by additional compensation. Considering the non-dischargability of student loans in bankruptcy and the financial weakness of employees relative to employers when it comes to negotiating prices for training/education, I would say it's rather irrational for employees to take on all the financial risk involved.

The other company without training could also be a nice place to work, and pay more as well. You are right that some employees might give "goodwill" to their employer. If such goodwill effects become sufficiently large, maybe employers will start offering training again. I guess you'll be encouraging employees to hold irrational feelings of loyalty towards their employers?

As for the costs to employees, that is indeed a potential concern. I encourage anyone considering investing money in education to consider the marketability of same.

I don't think it's at all irrational to have a feeling of loyalty one's employer if that employer actually supports one's economic interests to some degree. Even if one views people as pure utility maximizers, it doesn't follow that salary differential is the only measure of utility. There's a cost to quitting a job in terms of the simple disruption and effort to form new social relationships in the new workplace, not to mention the non-zero opportunity cost at the previous employer in terms of foregone promotions.

I'm all in favor of using economic analysis to work out how much a firm should invest in its labor force, but what you are doing (and do in almost every conversation about economics) is arguing that we should consider only those which affect your preferred metric. As someone else pointed out, you ignored things like the probability of increased productivity to the training employer during the training period and so forth.

I've actually worked freelance most of my life, and so I'm responsible for my own skills, pay both the employer and employee portions of payroll tax and so on, so the ideas you're advancing are far from being foreign concepts to me.

Provided the transaction cost of shifting jobs (which can include feelings of loyalty) is lower than the cost of training, any employee has the incentive to jump ship. I.e., if transaction costs are $10k but training costs $20k, then a poacher can steal your trained employees by offering $15k more.

I don't know why you think I'm disputing that transaction costs can cause markets to be inefficient - I agree completely. As a limiting case, if we punished quitting your job with death, shifting jobs would only make sense for the suicidal.

What, exactly, do you disagree with me about?

Your basic contention that business can't train it's own work force.

Your original analysis neglected transaction costs entirely.

What incentive would an employee have to leave company A just because company B also offers the same "nice" salary and work environment. The advantage of offering the training in the first place is you GET the employees to come to you, then as long as they're compensated they will have no reason to leave after training is complete. It's a win-win for the employee and employer.

You for some reason seem to hold the idea that after training, some other company can just come in and offer more money. Why?

Scroll up for the arithmetic of how company B can pay more money to the employees.

The arithmetic is wrong, unless it's just not fully explained.

"there is nothing stopping another employer from offering $90k in salary after training is complete"

Sure there is, and many people have pointed out the flaws in this comment. If $90k is the market rate, then there is nothing stopping the company that provided the training from paying that too, and there would be no more advantage to offering $90k. In addition, as others have pointed out, there will still be some ramp up time and training at any new company.

If your point is that the first company can't expect to under pay their employees after providing training, well, that's obvious and nobody suggested it.

So to keep the same set of employees, a company must pay $20k for training + $90k for employees = $110k. Alternately, a company can just pay $91k and let someone else pay for training.

Do you not see any reason why a company might prefer to be in the second category?

No, I don't see any reason why a company would prefer to be in the second category. If you're in that category you'll be trying to hire employees for the same salary they're already being paid by an (intelligently run) company, in addition to having to retrain them for your company.

>I don't see any reason why a company would prefer to be in the second category.

The 2nd company doesn't have to bear the costs for training.

>If you're in that category you'll be trying to hire employees for the same salary they're already being paid by an (intelligently run) company,

For the first company, it doesn't matter how much they (intelligently) increases the salary because they still have to add in the expense of the training.

>, in addition to having to retrain them for your company.

Not necessarily. A common example would be IT consultants. It is very common for Oracle and SAP have their consultants spend 4 to 8 weeks of training and then boutique firms would poach them with higher salaries. The boutique firms didn't have to pay the $20k to $40k for the 8 weeks of classes and they also don't have to retrain them. The Oracle DBAs' skills are ready to be put to use on day 1.

If one thinks Oracle/SAP can simply increase the salary to what the boutique firm was offering, the math doesn't always work out because the total higher compensation has to include the training they already paid.

If we use following placeholders:

s=salary, t=training, i=increase to market salary rate

Category 1 company total expense = s+t+i

Category 2 company total expense = s+i

Because "t" was a non-zero amount that can't be magically erased, it means that for all values of "i", "s+t+i > s+i"

In other words, for Category 1 company to "match" a higher Company 2 salary, they must always pay more than that salary because the "pay more" includes the training $$$ they paid.

Hopefully, for Company 1, they have other non-monetary advantages that outweighs the absolute mathematical disadvantage the above equation shows.

Companies in the second category are going to be in the market for lemons. Company A has inside knowledge of how each employee is performing and can easily match a price increase for employees that are worth it while letting go of those that aren't. Company A is paying a bit more to purchase an option on skilled employees, Company B is hoping that they don't just get lemons.

Of course companies will offload training costs on taxpayers or individuals whenever possible. It's the in the "nature" of capitalism to maximize profits and mimimize costs. It used to the government and the state that provided balance but now it's implicitly, if not explicitly, accepted that business has "won" and calls the shots. The state's roll now is to further the interests of business.

This is great if you're an employer but what are the consequences of shifting from a capitalist economy to a capitalist society? There is more to a successful society than increasingly desperate and ruthless competition for a shrinking pool of jobs. How many people want to spend their entire working life in a cage match for survival hoping that they are one of the lucky few who make to the billionaire's club? If government isn't going to represent the people what's the point of having one?

The standard retort from market fundamentalists (and it is a faith) is to reframe the debate as capitalism vs. socialism, or argue that the market is as natural as breathing and we have to let it do what it must. The first one is straw man argument; not many people are arguing in favor of a Marxist paradise. And the market as a system of nature is simply delusional. A market economy is fine, most people agree on that. The problem is when the market model invades every last aspect of society and opposition is neither mon-existant or rendered impotent. The end result is a dictatorship of market fundamentalism. Kind of a capitalist version of the Soviet Union where the Communist Party is replaced by oligarchs and the lowly worker is replaced by the lowly worker version 2.0. IOW, post-industrial feudalism. Is that what "the people" want? Something tells the answer is "no, they absolutely do not."

$90k is the market rate for trained employee not an untrained employee in this scenario. It's entirely reasonable for the company to say to an unpaid employee we'll pay you $70k + $20k worth of training until you become trained, and then we'll pay you $90k. The added value the company gets is being able to focus the candidates training on their needs (and perhaps a little light indoctrination).

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