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Pastimes : Austrian Economics, a lens on everyday reality

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To: gpowell who wrote (221)	5/8/2003 5:48:53 PM
From: Don Lloyd	Read Replies (1) of 445

gpowell, To me, the interesting problem in labor is why wage rates tend to be sticky. My ranking selection mechanism would tend to give that result in two ways. First, the candidates on the low end of the ranking would tend not to be able to gain employment by simply reducing their wage demands. If most hires are made by choosing a top ranked candidate out of nine, it is likely that the ninth ranked candidate will have difficulty finding a competition that he can rank first in after allowing for what are probably negative intangibles, even if they are merely interview difficulties. Secondly, when a company must cut back its labor to match its reduced product demand, it probably uses a ranking system in reverse. This means that the employees with the least future value to the company, and likely the lowest wages, will be differentially let go. The average wages of the laid off workers will be less than the average wages of the retained ones, leading to an increase in average salary for the retained workforce. Regards, Don

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