Saturday, November 17, 2012

Free Market Wages

I often get frustrated by defenses of extremely high pay as needed to be able to attract the incredibly small pool of high skill workers.  This comment is pitch-perfect:
The claim that high pay is necessary to attract and motivate good workers is not merely an economic postulate. If it were, it could apply across the wage distribution. Instead, it functions as a defence of inequality - used to justify higher pay for the rich, rather than for any job. For grunt workers, wages are a cost to be minimized regardless of consequence.
This is a really good point; if wages for managers were treated like an expense for the company (instead of as an investment in talent) then would we have seen manger salaries rise so far in recent years?

Why do we not have the same sort of bidding war for mid-level talent?  I have the same question in a different way: why are managers getting high wages is seen as a sign of paying for talent but union workers are seen as using sleazy tactics to work the system?  Do we see corporate boards setting salaries for CEOs as being fundamentally different than governments setting wages for government workers?  In both cases a group of experts are setting wages based on expert opinion and not on free market principles.


  1. >Why do we not have the same sort of bidding war for mid-level talent?< The answer is because the bidding is between companies that have agreements not to compete. (See Silicon Valley)
    C-Level pay is inflated because the bidding is often against one's self. I have difficulty imagining that the C-level officers at Hostess were desirable to other companies. Does the offer go like this: "Hey, your company went through bankruptcy and it's teetering on the brink once more; bring some of that magic here at (name a food conglomerate) and send us into oblivion too."

  2. But it is odd that the people in charge of a fiasco (the CEO et al.) would be in high demand from competitors. Even more interesting, somebody who is leading a company and willing to bail when the situation goes badly seems to be a bad choice. Do we hire military leaders who bail as soon as problems are encountered.

    So either CEOs are responsible leaders (justifying their salary) -- which makes leaving under bad circumstances seem like a problem -- or why are they different than another replaceable employee?

  3. Some people mistake CEOs as innovators, owners, entrepeneurs, etc.--they're simply highly paid employees (though employees who often have the opportunity to set their own wages), whose economic interests don't always overlap the economic interests of the companies they run.