[zzzcpan]

> This calculated value determines, for example, what they're willing to offer you in salary.

It doesn't. This is mostly a binary thing of whether the company can afford to pay an employee a bit above his market value or not, if we are talking about engineers of course. Such employee cannot actually get paid proportionally to the value he brings to the company.

[nostrademons]

If they can't afford to pay your market value, you should leave and go work for a company that can. That's how you set your "market value" - go out on the market and see what price you get. If you can't get a higher offer, than your current salary is your market value.

How much value the engineer brings in (to a given employer) is basically the ceiling on bids that employer will make. It's completely economically rational for you to find the employer that values your work the most when you're searching for a job, because they'll be willing to pay the most.

[zzzcpan]

I would add that job market is only a market when employers are bidding on candidates and people are looking for jobs. The rest of the time it is not a market anymore, as bids are not open and not visible to anyone. So during this time employees slowly undervalue themselves by not participating in a market and employers benefit by not paying the market value and trying to keep employees as long as possible in this situation, essentially always underpaying even that.

EDIT: This was all about short term and mid term behavior. I would like to mention that long term employers and investors can influence job market and increase competition among workers, pushing wages even further down.

[barrkel]

This isn't quite right. Engineers are normally more valuable the longer they've worked in a job, because codebases take longer to understand, business domains need familiarizing, etc. Engineers aren't normally a commodity; the best offer you'll get on the open market will normally underestimate your value to your current company by some distance.

Getting a competing offer is still the way to get leverage for better compensation, although the downsides of accepting a counter-offer are fairly well documented.

On the topic further up the thread about profit: engineers are paid based approximately on replacement cost, but profits are created based on market opportunity and scarcity. A company can create an offering that's hard to reproduce (a monopoly) - harder than most individual engineers' skills are to reproduce - and the excess profits are effectively windfall profits until the market corrects and competition sprouts up. Thus a company can charge closer to the value it adds to the customer, rather than closer to its cost base. Ideally an engineer would try to do the same thing: charge based on the value he or she adds, rather than how much he or she can make elsewhere.

And bringing it back around, companies can eventually get a windfall cost saving / profit from long-serving engineers. Because of accumulated knowledge, they can become such a good fit for the company that the company can pay them substantially more than the market rate, but nowhere near how much value they add, simply because they know that they're the only customer: monopsony, the inverse of the monopoly situation. To extract more value in this situation, you need to bring non-monetary aspects to the negotiating table. My preferred one is ownership: not autonomy, but actual capital interest in my output.

[pdimitar]

I am very late here, but...

Can you elaborate your last point? Namely how do you extract more value in the monopsony situation?