[ryan_j_naughton]

This is a very naive view of economics. Ideally everyone's income should be derived from the value they generate. So ideally wages continue to rise because productivity continues to rise.

But there are many cases where it make more sense to pay 4 low skilled workers to do a job instead of paying the costs of automation plus the cost of the higher skilled worker to use the automated solution. It's why so many jobs in India are still entirely manual labor -- it is simply more cost effective than a more technical, automated solution.

My wife works in international developmental economics, and providing jobs to the wide swaths of unskilled labor of the world to incrementally lift them out of poverty is an essential part of economic development. Sure, it would be nice if those people could just leapfrog in their education and consequently their levels of development, but that just isn't realistic.

Your comment indicates you are only looking at a very small subsector of the labor market and economy. Not everyone can be software engineers and highly skilled labor in the present.

[TheOperator]

Generally I'm keen to believe the externalities of automation are not being passed onto its users. I.E. creating efficiency by taking away people's source of income & turning them into a tax burden.

With the minimum wage I suspect a similar effect. The effects increasing wages have on employers red ink doesn't wholly comprehend the positive effect more money in people's pockets has on black ink & overall productivity. A well invested grand in the hands of the poor is DRAMATICALLY more impactful than in a well invested grand in the hands of the rich due to diminishing returns. A company making a new product can deliver more value for society making some wonderful new invention the poor and middle class can spend their income on rather than some out of reach luxury good.

This logic by the way underpins the very unpopular around these parts notion of affirmative action.

[Sohcahtoa82]

> Ideally everyone's income should be derived from the value they generate.

Define "value". Or more specifically, how do you measure "value" for jobs that don't directly generate revenue?

How much value does the janitorial staff create?

How much value does your IT team create?

What's the dollar value of your cybersecurity team?

What about HR?

None of these teams directly create revenue for the company, but certainly they created value. Meanwhile, Amazon has workers that pack boxes. They are directly contributing to revenue by doing the actual work that is core to the business. If cybersecurity, HR, the janitors, or IT were to disappear for a week, theoretically packages would still get sent to customers and Amazon still makes money.

And yet they're having to fight for fair wages? They're the most valuable labor in the company!

The idea that income should be derived from value is incredibly naive. As I mentioned in another comment, that mentality is what leads to managers laying off the entire IT team because they're seen as a money sink.

[gpanders]

> The idea that income should be derived from value is incredibly naive.

On what other basis do you propose it be derived?

Non-revenue generating roles provide value by allowing the revenue-generating roles to generate revenue. This is the basic concept of specialization. You could likely even take a stab at quantifying this: time spent freeing up revenue-generating roles to generate revenue combined with some kind of supply-and-demand factor.

For example, if I'm a one-man widget shop, hiring a janitor to sweep the floors for me means I can spend that time generating more widgets instead of sweeping floors. The value provided by that janitor is proportional to the additional revenue I generated from those extra widgets, scaled by the large supply of janitors in the labor market.

The idea that income should be derived from value is only naive if you take a fixed view of "value == revenue". No doubt some middle managers have this view, but that's a sign of ignorance and incompetence, not a flaw in the underlying theory itself.

[ChrisLomont]

>How much value does the janitorial staff create?

When the company hires them, the company has decided that the company obtains enough value for the transaction. So does the janitorial staff.

>And yet they're having to fight for fair wages? They're the most valuable labor in the company!

Not if someone else is willing to do the job for the same pay - this is market clearing. They're paid what it takes to fill the position, and they show up for that wage. Both sides benefit, otherwise the side without getting benefit would not show up.

[Sohcahtoa82]

So then we are in agreement that wages are not a function of value created by the worker. They pay only what it takes to get the position filled, which is a completely unrelated number to value.

[SideQuark]

>So then we are in agreement that wages are not a function of value created by the worker.

Wages are a function of value created. As a trivial example, wages are capped by total cost to employ, which is driven by wages and legal requirements. There is no way around this on a large scale without a business losing money, i.e., dying.

>which is a completely unrelated number to value

No, this is untrue. Marx had the same thought, but didn't understand that employers also compete for workers, which is why the poorest workers are vastly richer than Marx could have understood.

A simple way you can check it empirically is to take a dataset of companies, compute mean revenue per employee, and correlate to mean wage by company. You'll certainly find that these numbers are completely related.

You can do the same thing using work sectors using BLS data on pay by job type, then revenue generated in those jobs. Again, you'll find a strong correlation between revenue generated per employee and per employee wages.

These empirical tests you can do yourself should convince you wages are tied to value added.

If you then do proper factor analysis to account for other costs varying between companies, such as cost for materials or equipment, the correlation between wages and value becomes stronger.

Edit: here's a dataset to get you started [1]. 1000 companies with # of employees and median wage. Find revenue per company and you're all set to do an initial analysis.

[1] https://www.wsj.com/graphics/how-does-your-pay-stack-up/

[AlexandrB]

> Ideally everyone's income should be derived from the value they generate.

This utterly breaks down at the upper end of income, so why is everyone gnashing their teeth about keeping it intact at the bottom end?

[gridlockd]

> This is a very naive view of economics. Ideally everyone's income should be derived from the value they generate. So ideally wages continue to rise because productivity continues to rise.

This is an ideal with no basis in reality. Wages are, to a first approximation, set by supply and demand, not "value generated". If I hire somebody, I pay the going rate for that type of employee, but only if I estimate that I can still make a profit. I take all the profit, I don't pay more than necessary just because there's more profit, unless I expect to generate even more profit as a result. If I estimate I don't make a profit, I don't hire at all.

Of course I want the most productive workers, so in theory I would be incentivized to reward more productive workers. In practice, actually measuring productivity is extremely difficult in most cases. Also, paying workers differently sows discord. Further, let's say I run an assembly line, I actually have no use for workers that are more productive than the average.

There's a narrow band between minimum wage being completely ineffectual (i.e. real wages are already higher than minimum wage) and pricing people out of the market (i.e. business becomes unprofitable). Only within that band, workers get higher wages, paid for by business profits. There can't be any one "correct" number here for all regions or all professions. Without a safety net to take over those priced out of the market, raising minimum wage is therefore completely irresponsible.