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Pastimes : Austrian Economics, a lens on everyday reality
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To: Don Lloyd who wrote (220)5/8/2003 1:40:14 PM
From: gpowell  Read Replies (2) of 445
 
I'm not sure where you are going with this topic.

You’re describing a scenario whereby each employee candidate is essentially identical and then asking why a company would pay more for one candidate over another. You are also assuming the candidates are all price takers.

Clearly under this state, a rational agent will pay identical wages.

But, then you observe that agents pay more for the candidate of their choice, assuming, again, that the candidate is a price taker. You then go on to offer categorical reasons for the agent to pay more for one candidate over another – essentially undoing the homogenous assumption under which the scenario was first constructed.

Assuming rational agents and identical states, a differential in a wage offer exists when the agent perceives greater utility in one candidate over another. As the delta in utility diminishes to zero the wage differential should also approach zero.

In the real world, a business is aware of the competitive salary range for each class of employee and will make offers within this range. However, the candidate will have a range of choices as well and will choose the offer that is perceived to have the highest utility. A particular transaction will occur when each side’s expected returns from the exchange is at a maximum, considering all the other possible alternatives.

To me, the interesting problem in labor is why wage rates tend to be sticky. With sticky wages and a potentially deflationary environment we could be heading for real trouble.
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