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by ihsw2 2893 days ago
I'm not sure of an exact name for that but what you're describing can be considered the theory of marginal productivity[1].

Your argument that the 10% cost in labor (to hire those 100 extra workers) is where the additional cost ends is a common logical fallacy -- those 100 extra workers will not be operating at 100% efficiency from the get-go. They will need to be trained and there will be a ramp-up period, and up until then they will likely have a negative return on investment.

What this means is that the value derived from these new employees will be net-negative for a period of time. One could say that ~10-30% of that $6M in new labor costs for the next 12 months will not be recovered.

Your theoretical scenario could result in:

* current employees departing (taking institutional knowledge with them, decreasing the efficiency of your organization)

* current employees using their hours at work helping ramp up their new co-workers (decreasing the efficiency of your organization)

* new employees taking on tasks they're not yet trained for (decreasing the efficiency of your organization)

Furthermore, some new employees will not stick around for multiple reasons (eg: family events like a spouse moving to another city, being unqualified but passing the interview process, etc), and therefore the significant investment in them will be gone for good.

Now, that said, is it better to give everybody a 10%? Of course not, but only because everybody is not equal. Raises should be handed out based on competence-based metrics (be it qualitative reports from co-workers and managers or self-reported quantitative data pertaining to their individual impact). Real bottom-line pushers would even qualify for 20% raises.

[1] https://en.wikipedia.org/wiki/Marginal_revenue_productivity_...
1 comments
graeme 2893 days ago
I was simplyfying to make the example clearer. The overall point I was trying to make is that adding marginal workers can raise average wages if employers pay the new workers more. (And thus, they don't, and complain of a supply shortage)

Is there a word for that?

Pointing out the "fallacy" in an incidental point I made isn't really constructive. Because I think you're agreeing that if new hires get more pay then so should existing workers.

You took as arguing that that shouldn't happen, but I wasn't arguing that.

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