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To: gpowell who wrote (221)	5/8/2003 2:49:16 PM
From: Don Lloyd	Respond to of 445

gpowell, 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.... There is a real world effect in which companies in different industries, or different companies in the same industry, are observed to be willing to pay far different wages to the same worker or similar workers in similar jobs. True homogeneousness never occurs, but the differences may be crucial to one employer and meaningless to another, even if the job titles are the same. For the employer to which the differences are crucial, he won't pay a premium for those differences unless he must compete with another employer who also values the differences. The utility of a given worker might be, and often is, greatly different for one employer versus another, even in the same nominal job. The productivity of a worker, in terms of marginal revenue realized by the company due to his employ, even if unobservable, is far more the result of the characteristics and organization of the company, especially including the intensity of consumer demand for its products and the degree of actual and potential competition faced, as opposed to the physical productivity of the worker. Regards, Don

To: gpowell who wrote (221)	5/8/2003 5:48:53 PM
From: Don Lloyd	Read Replies (1) \| Respond to 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