[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]

Another way to go around it: you pay $20/h to a job that usually takes X hours to do it, so in the end you will pay 20 times X.

I bring someone else to work with me, and we both do the job in X/2 time. I pay $10/hour for the subcontracted person.

So assume a 8 man-hour job. You will pay $160. I keep $120, the subcontracted $40. My effective rate was $30/hour. You don't think this is a problem, as you see your house cleaned just like usual.

Next time, I bring 3 other people. We finish things in 2 hours. I pay $60 to them, I keep $100. My effective rate was $50/hour.

Next time, I bring 7 other people. We finish things in one hour. I pay $70 to them, I keep $90. My effective rate was $90/hour. I use the other 7 "working" hours of the day to play videogames.

[landryraccoon]

> You don't think this is a problem, as you see your house cleaned just like usual.

How are you able to assume this, since I actually would very much see it as a problem if 3-4 people I don't trust to clean my house as much as my housekeeper are inside doing the job? Your underlying assumption is that I'm an idiot and can't see what's happening. She couldn't subcontract the work for the same reason I can't subcontract my work at my current job - my employer would see through it.

> I use the other 7 "working" hours of the day to play videogames.

Not many people would come out for $10/hr for only one hour. What about travel time? And the organization necessary to make sure the quality is still high? I think you're lampshading a ton here.

[rglullis]

You say it's lampshading, I say it's just imagining some ways where people can exploit this type of opportunity when receiving above-market pay.

[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).