Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Austrian Economics, a lens on everyday reality -- Ignore unavailable to you. Want to Upgrade?

To: Wildstar who wrote (212)	5/4/2003 7:16:44 PM
From: Don Lloyd	Read Replies (1) \| Respond to of 445

Wildstar, The only way the companies could justify that degree of effort is that they truly believe that no two candidates are "equal" in any sense. They might have the same duties, but their overall value to the company includes many subjective factors such as how well the candidate works with others, how effective a communicator he his, what kind of first impression he makes to others, how pleasant he is to be around, whether he has that certain je ne sais quoi, etc. So the diamond ring maker bids up the salary for the secretary to outcompete other bidders for the services of the same secretary because even though she would have the same duties as the secretary for the copper ring maker, they believe that she offers the highest subjective value to them. They can afford to do this because they have higher revenues and higher margins. I believe that you've got the basic idea right, but that there are additional factors as well. Here is my still evolving theory as to why some companies are often willing and able to pay sharply higher wages for the same and similar employees. -- When a company interviews 9 candidates for a job, 4 might be judged unqualified, but the other 5 might well all be acceptable. It is almost certainly true that the interviewer, at the end of the interviews, will have ranked all the candidates from 1 to 9. The question of the level of wages is how much is required to assure that the number 1 ranked candidate will accept your offer in preference to other offers from other companies in a similar position. It is just a detail as to whether the premium wage offer is made specifically to the highest ranked candidate after the interviews or whether a premium wage is expected to be paid from the time of the job opening. Probably it is a combination of both. The reason that you are willing to pay a premium wage for a top ranked candidate is that your subjective judgement is that his hire will result in increased profits over time, in spite of the higher wage. This is NOT a subjective value, but an expectation of objective gains in the presence of large amounts of uncertainty. Since the purpose of the theory is NOT to explain why people with higher skills receive higher wages, the premium must be justified in terms of intangibles, not in terms of skill variations themselves. These intangibles include what you mentioned, but I don't believe that issues relating specifically to present job performance are sufficient to justify the premiums actually paid. Rather, I look at the premium as being largely composed of an investment component, dealing with potential future jobs in the company. Hiring while paying attention to the upside of the candidates is a way to both simplify future job searches by promoting from within and effectively amortizing current wage premiums as on the job training for future promotions. An in house promotion entails far less risk and learning curve than an outside hire, as well as being much cheaper. In addition, the wage premium investment is inherently a tax deductible investment, as it cannot be distinguished from normal wages. As a general policy, the company that is able to afford to pay premium wages is simultaneously able to assemble a high quality workforce whose payoff over time would seem to be undeniable, especially if compared to companies that only hire marginal workers, even if quantifying it is probably impossible. Regards, Don

To: Wildstar who wrote (212)	5/30/2003 11:45:19 AM
From: Wildstar	Read Replies (1) \| Respond to of 445

The Blessings of Deflation mises.org But he goes on to say that this is actually a bad thing because it creates "an enormous disincentive for consumers and businesses to spend money. Economic activity slows, unemployment rises and demand continues to decline." Well, but that presumes that consumers have something to gain by forever stocking up on dollars and never buying anything, which is absurd. It's true that falling prices create incentives to save, but so long as the preference of consumers is to save instead of spend, that can only prepare the way for a future of economic growth. Consumers save for a reason, namely, to spend later. Wolk's next point concerns the implications of deflation for debt. Deflation makes it "far more difficult to pay back existing loans." It's true that loans are paid back in dollars that are more valuable than the ones borrowed. But that is part of the risk one takes when deciding to borrow in the first place. If we all had perfect foresight, our behavior would change substantially. But that is no case for pressing the pause button on economic affairs. What deflation does is provide a disincentive to borrow and an incentive to use current savings for purposes of investment. It means a reward for well-capitalized companies and individuals—a good thing all around. Now we get to the crux of the matter: the Great Depression. The assumption is that falling prices somehow caused the economy to crumble. In fact, it was the after-effects of the boom combined with massive government intervention that caused the depression. The only silver lining in the entire period of the 1930s was precisely the falling prices that made the dollar count for more. Falling prices (a falling cost of living) are what Murray Rothbard has described as the "great advantage" of recessions. If you can imagine the Great Depression without falling prices, you have conjured up an image that is far worse than the reality.