[landryraccoon]

I don't get it. If I hire a housekeeper and she asks for $10/hr but because I like her a lot I offer her $20/hr, are you arguing that's socialism? It's my money and I can do whatever I wish with it - that's capitalism at it's finest.

The CEO owns the company. If he has total control, he could instead of paying his workers more simply buy himself a jet or donate it to a church. (Obviously, if his shareholders object, he'll have to convince them to go along as well). If you want to think in terms of market wage, what he is doing is paying them market wage, then unilaterally deciding to give them a "big tip" at his own expense - which happens to bring their total compensation to $70K a year. That's still capitalist, since it was his money to give away in the first place. He could give it all to Donald Trump instead, if he wanted to - the fact that he happened to give it to his employees is almost arbitrary. The only issue is whether he can afford to keep it up, but that's entirely on him.

[rglullis]

If I understand the parent correctly, the argument is that any artificial method to establish a price to wages will lead to corruption.

Your example is talking about one housekeeper: if she notices that she can arbitrage on your generosity, she can pretty much contract someone else to do her job for $10/hour, and not even show up and still earn $10/hour. If you object to it, it is a signal that you value one's work more than the other, and then we are not talking about market-clearing prices anymore, are we?

[landryraccoon]

If what you're saying is true, why don't Dan Price's employees arbitrage the difference between what Gravity is paying them ($70K) and their actual "market value"? If one housekeeper can make it worth her time for $10/hr, surely a large group of individuals can make it worth their time for $35/hr?

But actually I think you're on to something - basically Dan Price is saying he thinks the true market value of the labor provided by his workers is actually $70K a year. And what I'm really saying with my housekeeper is that I like her so much that in order to prevent any risk of her defecting to another employer I'm willing to pay $20/hr instead of $10/hr. She can try to arbitrage, but that means working for someone else for $10/hr, but since I assume she actually wants to work, why would she work for anyone other than the person who values her work the highest? So we're still in capitalist land.

[Jtsummers]

She can be fired, she's not entitled to that $20/hour. Cut out the middleman, though the current "free market" in the US is going to more middlemen and rent seekers so she'd be right at home here.

[rglullis]

Yeah, but we are making assumptions about market-clearing wages and rational agents, here. Anyone that gets to the position of making above-market wages will use this arbitrage opportunity and would be fired, if we followed your strategy.

In the end, the only way to end this and to actually get your house cleaned is to pay market-level wages.

[Jtsummers]

Ok, if you're assuming strictly rational agents. If they realize they'll be fired for contracting out their work, then wouldn't the rational thing be to continue working rather than contract out and retire early on the higher income?

Or to train people to do as well as you and set up your own business taking advantage of your stronger than average reputation in the field.

But doing an activity which has a high probability of costing you the income you desire is not rational.

[rdancer]

They only get fired if you find out. So the rational thing for them to do is spend part of the arbitraged amount on deceiving you. As long as they are spending less on deceiving you than the arbitraged amount, it is rational for them to do so. Ergo, rampant corruption.

[landryraccoon]

I don't get it. How does the math work out?

Let's suppose the market wage is $10/hr. If I offer a lucky housekeeper $20/hr, why wouldn't she just happily take the money and continue to work? Union workers don't arbitrage themselves (but they should, under your scheme, because they collectively bargain for higher than market wage).

If the cost of deceiving me is greater than zero, then she's being irrational. She can earn no more than $10/hr anywhere else, and hiring someone else to replace her would cost $10/hr (since that's the market rate). So lets say she hires someone else at a cost of $10/hr, and then goes to work for someone else - she's still earning $20/hr (the arbitrage amount plus the value of her labor) minus the cost of deceiving me. So assuming she wants to work for wages (which she must, since she offered to work for $10/hr in the first place) I don't see how it's at all rational to arbitrage the opportunity.

[rglullis]

The original rational thing to do would be for the person doing the hiring to just go and pay the $10/hour. "Because I like her" is not an economic justification for extra value.

[landryraccoon]

And yet people habitually tip 15-20% on top of what they're required to pay in restaurants, almost universally. Lots of things aren't rational, but they could still be culturally accepted (and done without coercion, even).